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An Alternative to the Australian Industrial Relations Commission

by Des Moore
Australian Bulletin of Labour, June 2000.


There is a strong case on both economic and social policy grounds for repealing existing legislation regulating workplace relations, converting the AIRC into a voluntary advisory/ mediation service with subsidised services for low wage earners and substituting legislation that codifies common law that would normally apply to contractual relationships between employers and employees. Such an alternative institutional arrangement would need to be accompanied by assurances that low paid workers in low income families who experienced wage reductions would have their living standards protected either by the existing means tested social security system or by changes to that system.




Despite the wide agreement that Australia's relatively high level of unemployment is our most serious economic problem, little attempt has been made to examine possible alternative institutional arrangements for regulating employer-employee relations. With the new millenium, and the approaching centenary of the establishment of the compulsory conciliation and arbitration system, it seems timely to consider the case for an alternative and what such an alternative might be.


The arguments for change cannot comprehensively be enunciated in an article and the author refers those seeking more detail to his 1998 report for the Labour Ministers Council entitled The Case for Further Deregulation of the Labour Market (Moore 1998). It is also important to bear in mind that, as with all counter-factuals, the alternative is necessarily unprovable in any definitive sense.


Any assessment starts with considerable opposition to reduced regulation, including even within an economics profession that might intuitively be expected to offer strong support. Further, although analyses have been made of the flexibility of the wage determination side of the Australian arrangements (and such analyses offer conflicting conclusions), there is a surprising paucity of in-depth analysis of the economic and social justifications for the existing arrangements. Wage determination is only a part of the extensive regulatory machinery whose potential to influence employment needs to be taken into account.


Typically, however, the main recent focus has been on using existing institutional arrangements to reduce unemployment through a centrally imposed cut in real wages. Thus, five prominent economists proposed in October 1998 that the Government attempt to persuade the Australian Industrial Relations Commission (AIRC) to suspend "safety net" wage rises for a time while "compensating" low wage earners in low income households for loss of earnings through tax credits.[i] More recently, there has been a specific rejection of any notion that further reform of regulatory arrangements could have significant potential employment benefits (Melbourne Institute 1999) and a re-endorsement of "active" regulation (Richardson 1999).[ii]


The principal argument advanced in this article is that the highly interventionist nature of current regulatory arrangements inhibits employers from taking on additional employees and from effecting structural changes that would enhance living standards. This provides a prima facie case for a less regulated labour market, a case that the author is not alone in advancing. Based among other things on their analyses of the effects of labour market reforms in other countries, international economic bodies such as the IMF and OECD continue to press the Government to further deregulate. Further, in emphasising that there is a long way to go in the reform process, the Government itself implies that, politics aside, it would support considerably less regulation.


Developments in economic theory and, in particular, in explanations of inter-country differences in economic growth add weight to the deregulation case. Thus, growing credence is being given to the idea that institutional arrangements play an important role in explaining economic growth. In particular, it is being argued that the extent to which the legal system and government policies are conducive to risk taking and entrepreneurial behaviour influences rates of investment and employment and, hence, rates of economic growth. From this starting point, an economic basis for radical change in labour market regulation can be founded on the idea that Australia's interventionist institutional arrangements, as reflected in both the legislation and the industrial tribunals, are employment-deterring and unemployment-enhancing.


By what process can institutional arrangements influence economic growth and employment levels? Analyses of the composition of economic growth indicate that, after allowing for inputs of capital and labour, about two-thirds of such growth is unaccounted for statistically. The "missing" component  is generally attributed mainly to technological change.


But, given that technological change is so important, the question them arises as to its determinants. This is not simply a matter of the rate of scientific or other innovations but how conducive institutional arrangements are to the application of technology. As one of the world's leading analysts of historical growth differences between countries has pointed out :


"If we are to explain why the economic growth experience of nations has been so diverse; and why income spreads are now so wide, it is necessary to go beyond proximate and measurable elements of causality and consider institutional or policy influences which may retard or encourage economic development" (Maddison 1995).


The alternative view is that, because of market failure, government intervention is needed to subsidise and promote technological change. However, "other reviews of the capital market …have generally not found significant evidence of failure, other than a lack of 'investment readiness' in small enterprises" (Industry Commission 1998).


Maddison has not been alone in identifying the importance of institutional arrangements and there is a growing literature on institutional economics. The relevance of institutional theory to labour market regulation may be summarised  in three points.


First, as a general proposition the more interventionist and less flexible are government institutional and policy arrangements the less prepared will businesses be to innovate and capital markets to invest in risky projects/structural change. Relevant here is a survey of top and middle managers of about 1500 businesses in twenty one OECD countries showing that Australia had the third lowest flexibility rating, with only Spain, Portugal and Greece lower.  (Managers were asked about their capacity to adjust "job security and compensation standards to economic reality"). The analysis suggested that, if Australia had had the same degree of flexibility as the US, our employment rate would have been from 1.8 to 4.9 percentage points higher during the 1984 to 1990 period (Di Tella & MacCulloch 1999).


Second, it is undeniable that Australia's workplace relations have been and remain highly interventionist: indeed they are probably unique in the world in the extent to which third party intervention can occur in management decision-making on employment. 


A general idea can be obtained by considering the award "system" and by taking account also of its one-sided administration by the AIRC. In 1998 the then President of the Business Council of Australia claimed that there were over 100,000 pages of documentation regulating workplaces (Wallis 1998), which would then have included some 3,200 awards requiring that employers comply with specified employment conditions. In its 1998 Economic Survey of Australia the OECD aptly summarised the resultant inhibition on the conclusion of innovative employment agreements as follows:


“All this entails the risk that awards continue to constrain direct negotiations, dictate many working arrangements, limit wage dispersion and tend to make many registered enterprise agreements de facto ‘add-ons’ to existing awards rather than comprehensive agreements reflecting the reality of work.” (OECD 1998)


In its 2000 survey the OECD again emphasised the importance of a flexible industrial relations system and commented on the slow progress in moving away from the award system, pointing out that "comprehensive enterprise agreements continue to cover only a relatively small share of employees, estimated at less than 10 per cent " (OECD 2000). Individual agreements under Federal awards numbered less than 90,000 at end 1999.


In fact, although under the Workplace Relations Act 1996 the AIRC was supposed by June 1998 to have “simplified” awards to cover "only" twenty matters, to end Jan 2000 only 1026 awards had been set aside and, of the remaining 1986, 1148 were still undergoing simplification. Further, even if (as proposed in legislation reforms  rejected by the Senate) the Government were to succeed in reducing the twenty allowable matters to sixteen, the Commission would still be left with considerable scope to intervene.


Third, under our regulatory arrangements Australia's relative economic and employment performance has not been good. This is examined in more detail in The Case For Further Deregulation of the Labour Market (Moore 1998) but is strikingly brought home by a comparison of our employment performance in recent years relative to less regulated labour markets in countries which are similar to us.






Chart 1

Employment as a Share of Working-age Population


Sources: For Australia, data are for the month of August in each year and are age-standardised as supplied by the ABS using the base year 1978. For other countries, data are as published in the OECD Employment Outlook for 1999 or as supplied by the OECD and are annual averages but are not age standardised. (Note that OECD annual average data is about 1.5 percentage points higher for Australia than is ABS age-standardised data). In each case, employment rates are for the employment of 15-64 year olds as a proportion of the population aged 15-64 (data on this basis is not available earlier than 1984 for the UK and earlier than 1986 for New Zealand).


Chart 1 indicates that, while there has been little or no change in Australia's proportion of working age population employed, the proportion for the much less regulated US labour market shows a marked upward trend. Moreover, all three countries have considerably higher employment rates, and lower total unemployment rates, despite having relatively high unemployment rates among their much larger non-European ethnic minorities that have lower average literacy and numeracy rates than any comparable group here. Indeed, if in 1998 Australia had had the same proportion of its working age population employed as in the USA, the UK and New Zealand, we would have had the following additional numbers in employment: USA 755,00; UK 430,000; NZ 218,000. Given the importance of literacy and numeracy as an employability determinant, if Australia had the same degree of regulation its "natural" rate of unemployment could be expected to be much lower, and of employment much higher, than in the US, the UK and New Zealand.


In sum, there is a strong prima facie economic case that a major reduction in labour market interventionist institutions and regulation would significantly reduce unemployment and increase employment. But, to achieve change, that case has also to answer the many objections, both economic and social, advanced against deregulation.




Containing Wage Inflation


One such objection is that a capacity to impose centrally determined wages should be retained because it offers the potential to ensure that aggregate wage increases are consistent with the growth in productivity and, hence, avoids inflationary pressures and the need for macro-economic action to restrict demand. Those who support such retention often quote the Accords of the 1980s as an example of success in producing wage restraint and rapid employment growth.


However, the extent to which the Accords were responsible for the slowing in wage growth and improvement in employment in the 1980s is highly questionable, and there is a strong case that they neutered monetary policy and were thus importantly responsible for the "over-heating" that led to the recession of the early 1990s. The Accords apart, the record of Australia's centralised wage determination system is poor: the surges in real wages in the mid 1970s and early 1980s had serious adverse effects on employment and the resultant real wage "overhangs" were only slowly reduced.


Further, economic research in this area is somewhat inconclusive both as to the effects of different regimes of bargaining and as to where Australia has fitted. Some studies suggest, for example, that Australia has actually had a mixture of national and sectoral bargaining and that this has been the worst of all worlds, ie it is better to be centralised or decentralised but not to have a hybrid system.[iii] Also, if (as most studies suggest) a decentralised bargaining system produces good results, that supports the case for deregulation. In any event, there appears to be little political support for a return to centralised wage bargaining.


Most importantly, however, suggestions for retaining a capacity for centralised wage determination take no account of changes in the respective roles played by monetary and wage policies in controlling inflation. Since the 1980s the effective transfer to the Reserve Bank of responsibility for limiting wages growth has made redundant policies of centralised wage determination. If the object of such determination is to contain inflationary pressures, that is now being met through the establishment of an "independent" central bank and its adoption of an inflation target of 2-3 per cent per annum, both for the first time. The Bank has made it clear that wage increases of 4-5 per cent pa would be consistent with achieving this target ie it envisages a limit to  growth in real wages.


Inequality of Bargaining Power


A second argument used by deregulation opponents is that government intervention is needed to correct an imbalance of bargaining power between employers and employees. Indeed, the Shadow Minister for Workplace Relations has argued that inequality of bargaining power is the "threshold issue" in workplace relations and that "there will always be a case for regulation, for laws that confer rights on trade unions and for an Industrial Relations Commission" (Bevis 1999).


However, there are about 1,100,000 businesses in Australia, including "small" businesses accounting for over 50 per cent of employment, and these compete actively amongst themselves for a wide range of labour services. That there is no evidence of any significant monopsony power is supported by the apparent upwards trend in the income share of labour in the less regulated US market.


Indeed, in our modern consumer-oriented society the natural distribution of bargaining power may even be tilted against employers. The bargaining parameters have certainly been fundamentally altered by the transformation in the economic and social structure over the past twenty five years. In modern capitalist societies, even under the current relatively high rates of unemployment, all employees (and job seekers) have alternative options for obtaining income and the great majority also have alternative options to obtain employment. The growth in the services sector, in educational qualifications and in employee shareholdings have also dramatically changed the bargaining scene.


Employers are also seeing employees more as partners and employees are increasingly accepting that there is a mutual interest in establishing a cooperative workplace. The old “them and us” attitude is disappearing, and the old style trade union has lost most of its appeal. Employee cooperation is increasingly seen today as an essential ingredient of business success and employers are obliged to pay close attention to the welfare of their workforces. Indeed, unless an employer treats his employees fairly, and provides employment conditions that are broadly comparable with other employers, he risks losing workers with profitable knowledge and skills.  So employers have a self-interest in retaining ‘suitable’ employees by treating them decently.


This is not to say that employees do not need to protect their interests through suitable employment agreements: a small minority of employers is ‘bastards’ who will take advantage of a situation if they can. Nor does it mean, however, that employers are readily able to implement workplace changes: partly because of the perception that employers have superior bargaining power, industrial tribunals have developed an interventionist approach that impinges heavily on management decision-making.


Preventing Industrial Disputes


Pro-regulationists also support the original justification for the establishment of existing arrangements, that is, that following the industrial turmoil of the 1890s, it became necessary to have a special government institution to prevent and settle industrial disputes. The current Senior Deputy President of the AIRC has argued that "the conciliation and arbitration system which we have known, despite its ups and downs throughout the century, owed its origins to what in large part could be described as either the excesses of or the breakdown of the labour market in the early 1890s and in particular the social costs associated with that breakdown. The architects of our present emerging system, whoever they be into the future, must always bear that in mind. If they don't and the market again fails by inducing unacceptable social costs then those architects will be guilty of having failed to learn the lessons of history" (Polites1999).


However, the underlying cause of the industrial disputation of the 1890s was the  major recession rather than the breakdown of the labour market per se. It is also pertinent that, during the next major recession in the 1930s, the existence of the Commission did not prevent a large upsurge in industrial disputation.


Indeed, far from preventing disputes, the Commission has been an abysmal failure in terms of its original justification. For most of the period from its establishment to the late 1970s the record shows a large number of working days lost from industrial disputation. International comparative data since then shows that the rate of disputation has been consistently above the OECD average. While differences in definitions of "industrial dispute" mean that international comparisons need to be treated with caution,[iv] the experience of more deregulated markets overseas does not suggest that deregulation would increase disputation. In New Zealand's case, for example, predictions of greatly increased disputation after the Employment Contracts Act 1991 were not fulfilled and, from being above it, New Zealand's rate of disputation actually fell below Australia's.


In arguing in 1998 that the Workplace Relations Act 1996 reforms had had little effect on disputation rates, a partner of Freehill, Hollingdale and Page observed that industrial action was still "occurring on a widespread basis with little interference from Courts and tribunals charged to ensure that it stop or not occur". He also pointed out that "Commission recommendations, directions and orders, requiring the cessation of industrial action are commonly ignored by unions and their members, who do not accept the authority of the Commission to determine whether or not industrial action should be continued….Many applications for the insertion of bans clauses into awards have been made but to my knowledge no case since the 1960s has resulted in penalties or fines being imposed… Except in one notable case concerning domestic airline pilots, there has been no recourse to applications to cancel awards. This reflects, at least in part, the feeling amongst employers that moving outside the system is not necessarily the best way to counter aberrant behaviour" (Watson 1998).


The upsurge of overt industrial disputation early in 2000 partly reflected a reaction by employers to the continued bias shown by tribunals in dealing with such matters at a time when unions evidently perceived potential for reversing the trend towards enterprise and individual bargaining. It was particularly noteworthy that employer resistance to further intervention in employer-employee relations included increased resort to common law actions. In attempting such resort, and in attempting further reform, employers encountered stiff resistance from the Federal Court in particular, leading to the Australian Financial Review arguing in an editorial the "need to transfer the Court's jurisdiction on workplace relations matters to State Supreme Courts and to promote resort to the common law to deal with union resistance to workplace reforms." ( AFR 2000).  


What has not been adequately recognised is that the model of industrial relations that Australia adopted is built on conflict resolution. Starting from the constitutional fact that the Federal system can only be utilised if there is an inter-state dispute, the system has actually encouraged conflict and discouraged the development of workplace relations based on cooperation.  The seeking of compromise solutions through the offering of concessions to the initiator of disputes has made conflict-initiation the normal method of trying to achieve industrial objectives, which have often included political aims that have had nothing to do with conditions of employment.  As well, the establishment of a special and separate quasi-judicial conflict-avoiding tribunal system has created a special interest in maintaining a conflict-resolution role, which almost automatically removes from the parties concerned the final responsibility for resolving a conflict.


The situation has been exacerbated by the appointment to both federal and State tribunals of representatives from both union and employer organisations who have become institutionalised in the system and who form what is widely described as part of the ‘industrial relations club’. The virtual certainty of intervention by such tribunals has, in turn, provided little incentive to management to accept full responsibility for managing their workforces and has contributed to the now widely accepted view that Australian management leaves much to be desired. The almost routine subjecting of management decisions about their workforces to continued review by ‘higher authority’ certainly offends basic management principles.


Lower Wages and Increased Income Inequality


The fourth (and probably the most important) argument against deregulation is that it would result in lower wages, an increase in income inequality and the creation of a large under-class of "working poor" as in the USA. However, such assessments fail to acknowledge the benefits, both economic and social, that would flow from lower wages and they portray a false picture of the protection of the low paid under both existing and deregulated arrangements.


First, while the elimination of the AIRC's wage setting role would result in some reduction in wage rates, mainly at the bottom end, and a widening in earnings dispersion, there would be no across-the-board reduction in wages and even those  on low rates would not necessarily experience reductions if their productivity performance was satisfactory.  Moreover, there is no presumption that real wages at the bottom end would remain at reduced levels: over time there would be real increases that would reflect increases in productivity. Further, the increase in employment and reduction in unemployment, and the lower prices, that would flow from lower wage rates at the bottom end would provide important offsets from an equity perspective (including through an increase in income for those not previously employed).


Second, it is the social security system, not the AIRC, which ensures a reasonable living standard for low wage earners. In 1997-98, for example, wages or salary were the principal source of disposable income for a mere 9 per cent of  households (or, more strictly, income units) in the bottom quintile compared with 67 per cent who relied on government pensions and benefits (Australian Bureau of Statistics 1999). Further, the majority of low wage and salary earners are living in households in the upper half of the income scale, reflecting the high proportion of married women and young people who earn low wages. These two facts surely makes it farcical to have an institution pretending to ensure "social justice" by keeping wages up at the bottom end. This is made even more farcical once it is realised that the Commission's adjustments to the so-called "living wage" actually extend to those earning about $900 per week and cover about 25 per cent of employees.


Third, concern about the effects of reductions in wages at the bottom end fails to take account of the "dynamics" of poverty. A recent study of four countries shows that the majority of people who are "touched" by poverty are affected for only a short period. In the US, for example, only 4.6 per cent of the population were in poverty over the whole of the period 1988-93. The study also makes the very important point that "obtaining or losing employment is particularly important for transitions into and out of poverty" (OECD 1999). This supports the view that it is much better to have working poor than unemployed poor.


Fourth, even leaving aside the adverse effects of regulation on employment, it is simply wrong to see the AIRC as an institution that has developed and supported Australian egalitarianism. Since the 1970s the AIRC has in fact presided over a widening in earnings dispersion and a fall in real minimum wages. Further, there are at least eleven OECD countries with a more egalitarian earnings dispersion than Australia - but no Commission. Of course, deregulation opponents are fond of pointing out (correctly) that earnings dispersion is wider in the less regulated US and UK labour markets. However, as already noted, their larger proportion of adults with the lowest literacy and numeracy skills probably explains the major part of that. It is highly unlikely that an Australian deregulated labour market would produce the same proportions on low pay.


Budgetary Implications


A fifth objection to deregulation is that it would require a major increase in social security expenditure to offset the fall in wage rates at the bottom end. Some opponents of deregulation have suggested that upwards pressure on spending would lead to a cut in benefits for those at the bottom end so as to force them into work and save on unemployment benefits.


However, it is important to recognise that it is only the living standards of the low paid who are living in low income families which would require protection ie the minority of the low paid. While this would result in an increase in means tested social security payments for many low income groups whose wage earnings fell, partly offsetting this would be the reduction in benefit payments and increase in tax revenue resulting from the net reduction in unemployment and increase in employment - even allowing for the possibility that lower wage rates at the bottom end would cause some movement out of current employment on to the dole, unemployment would fall.  On the other hand, there could be pressure to provide an additional safety net, such as through a tax credit scheme, for low paid workers living in low income households not eligible for  existing benefits.


Overall, it seems unlikely that a large net increase in spending on social security benefits would be required. A rough indication of what might be involved may be obtained by reference to the US income tax credit scheme, which cost an estimated $US27 billion on 1996, equivalent to only about 1.6 per cent of US Federal Government spending in that year. In Australian terms, the same proportion of Federal outlays would now be about $2.4 billion but the US income tax credit is pretty generous and it seems probable that, with our already more generous social welfare system, Australia would require to spend less than this.


If the only potential "penalty" from deregulation was an increase in budget expenditure, that penalty would surely be worth incurring given the likely increase in employment and reduction in unemployment. In any event, such an increase need not effect overall budget strategy: there is scope to finance additional benefits for the low paid by reducing some of the $20 billion plus in benefits that are presently provided to middle and upper income groups. A policy based on such an approach ought not be  politically unacceptable in the circumstances outlined.


Job Insecurity and All That


Other reasons advanced for opposing deregulation include that it would increase job insecurity and working hours and/or stress. Indeed, the trade union movement has been arguing that more regulation is already needed to protect workers against the perceived deterioration in security and increased stress to date.


However, such arguments not only take inadequate account of the potential and actual adverse employment effects of regulation to increase job security and control working hours, but also of the following:


·        Job insecurity as measured by the average duration of jobs does not appear to have increased in Australia since the early 1980s and less regulated labour markets overseas have slightly longer average job durations;


·        Perceptions of increased job insecurity in a deregulated labour market derive importantly from one-sided media stories about "down-sizings" in the US. However, in the US  "worker surveys do not reveal widespread insecurity, and the link between insecurity and job growth across regions is tenuous" (Katz & Krueger 1999). In Australia, the Morgan Survey which has been conducted since 1975 shows that only in the recession of the early 1990s has the proportion regarding their job as safe dropped below 70 per cent (Roy Morgan 2000);


·        While the proportion of employees classified as "casual" increased from 19 to 27 per cent between 1988 and 1998, the definition of  "casual" (those who do not receive both sick and holiday pay) includes many who have secure jobs and have simply  "cashed out" their leave entitlements;


·        Average working hours continue to decline naturally. Proposals to increase employment by limiting working hours wrongly assume perfect exchangeability between employed and unemployed and could actually worsen unemployment (Wooden 1993);


·        Those who work long hours and/or unpaid overtime are predominantly (over 70 per cent) in managerial or professional positions. The number working unpaid overtime has actually decreased in recent years;


·        Although over 20 per cent now work more than 49 hours per week (up from 17 per cent in 1978), that needs to be assessed in the light of the growing reduction in the length of working lives (Moore 1998a);


·        Major changes in the structure of "industry" and consequent changes in the kinds of work performed, including a major reduction in physical labour and the stress from that (Gittins 1999);


·        Health generally continues to improve as does life expectancy.




As well as rebutting arguments against deregulation, it is necessary to propose an alternative arrangement that would provide protection for both employers and employees. Clearly, that could not simply be laissez faire but would need to provide scope for employers to protect themselves against militant unionism and for employees to protect themselves against breaches of contract and/or resort by employers to fraud or duress. As noted, the low paid would also need to be assured that the social security system would protect their living standards. The following outlines a three part alternative institutional approach to deregulation.


The Common Law Alternative


The common law "system" offers a coherent and viable alternative legal framework  within which employment relationships can satisfactorily be established.[v] The key principle under common law is that the worker and employer should basically be free to decide on the content of their relationship because both parties expect to benefit from entering a contract. However, there are exceptions to this freedom designed to protect the public interest, such as the unenforceability of contracts entered into for illegal purposes or which involve significant abuse of third party rights. Courts have also come to be prepared to imply a duty by an employer to provide a safe work place.


Moreover, the common law protects the processes involved so as to ensure that the principle of freedom of contract is not abused and that the rights of the parties to the contract are protected. Thus, contracts procured by the use of force, fraud or undue influence are not upheld by the courts and, nowadays, this may extend to contracts deemed to have been entered in a manner which is "unconscionable."


Under the common law unions would not be accorded any privileged position as they have been under the existing regime in order to correct the (mis)perception of  inequality of bargaining power. Voluntarily formed unions would thus be subject to the same treatment under the law as other voluntarily formed associations.


This means that during the period of a contract there would be no "right to strike" or withdraw labour unless contained in an agreement or implied by an agreement. Equally, in circumstances where unions had no privileged position, where union membership was voluntary, and there was no bar to disassociation, there would be no need for external intervention or supervision of union decision-making, other than to ensure that the rules applying to all such associations were being upheld.


In those same circumstances, a case could be made for allowing an employer to stipulate either that an employee will not join a union or that he wants a closed shop. However, labour transactions, like other transactions, should be subject to anti-trust law as a means of deterring the acquisition and abuse of monopoly power.


The main changes compared with the present regime would thus be the elimination of any privileged position for trade unions and of the capacity for third parties to undertake extensive intervention in certain important areas. Intervention would cease in the determination of minimum pay and conditions; in the dismissal of an employee when that is in accordance with the contract of employment; and in a dispute between employer and employees or unions over pay and conditions.


Countering Judicial Activism


The second component of a move out of the present system arises because of the potential problem that a return to reliance on the common law would produce  increased judicial activism in the "normal" courts. The simple repeal of the Workplace Relations Act 1996 or its successor would thus run a very real risk that, before long, the courts would adopt similar interventionist practices to the AIRC and the Federal Court. In New Zealand, a strong tendency of this kind has emerged since the passage of the Employment Contracts Act in 1991.


To counter such potential judicial activism, limits would need to be imposed on jurisdictional empire building, as both the present and previous governments have done.[vi]  A generalised and practical solution would be to change the whole basis of the Workplace Relations Act by substituting new Federal legislation that affirmed certain rights of employers and employees to contract without constraints, or subject only to specified constraints consistent with the common law. In short, the common law applicable to the employment relationship would be codified so as to limit the discretion of the courts in handling such cases.


Such Federal legislation would presumably need to be based on the corporations power. In principle, that would not be inconsistent with the idea elaborated by Minister Reith that use of that power "would enable a coherent national framework of minimum standards to be established for the conduct of workplace relations in corporations" (Reith 1999). However, under the common law option the minimum standards would mainly be concerned with the processes rather than the content of the employment contract. (Of course, any national framework of minimum standards would not then apply to unincorporated businesses. But that area already operates to a significant extent outside the regulatory framework).


A more radical alternative would be for the Commonwealth to opt out of the regulation of employer- employee relationships, leaving the field to the States. There is certainly no constitutional obligation on the Commonwealth to legislate under Section 51 (xxxv). However, while that approach has some attractions, it seems unlikely to achieve the same extent of deregulation. Further, if a Federal Government succeeded in a codified common law approach, there would be a good chance of that sticking.   


The Voluntary Advisory and Mediation Alternative


The third and final component of deregulation would be designed to deal with the inevitable assertion that workers would be disadvantaged relative to employers in such a situation.


One could respond to such assertions by pointing out that the market (which could include revamped trade unions) should generally be able to supply adequate information and bargaining assistance at a reasonable cost to enable workers and employers to conclude contracts without workers being placed under duress. The market should also be able to offer dispute settlement advice and services.


However, to meet concerns that would undoubtedly be raised, particularly in regard to affordability for those who are unskilled and less educated, the AIRC could be converted into a voluntary body to provide advisory/ mediation services to those on low incomes either on a subsidised basis or even free of charge. Such services could include a range of standard employment contracts, with dispute resolution procedures included, and the provision of mediation and advisory services.


Such a body, the Advisory Conciliation and Arbitration Service (ACAS), has been operating in the United Kingdom for 25 years and it has succeeded in establishing a basically voluntaristic approach in relation to settling both collective and individual disputes. Thus, it now handles on an entirely voluntary basis, and settles, the great majority of collective disputes and nearly half of individual disputes. As it never seeks to judge the merits of any case or to impose solutions, that puts the onus to settle disputes where it should be, that is, entirely on the parties directly involved. Indeed, the ACAS approach is to encourage all employers to establish mechanisms to deal with disputes.   Most importantly, unlike our Commission, it has established universal acceptance of its impartiality. Although ACAS provides extensive advisory services to both employers and employees at no charge, its annual budget is only around 26 million pounds.[vii]


Legislative amendments proposed by the Government provide for formal recognition of voluntary mediation services in industrial disputes as an alternative or supplement to the quasi-legal processes of the Commission. A facility would be established to accredit mediators and promote the use of mediation. This would provide a first step towards converting the AIRC into an advisor/ mediator





The basic principles of common law started to be displaced in the late 19th century in response to the dominant intellectual trends of the time and, in particular, to the belief that the perceived bargaining imbalance between employers and employees needed to be redressed (Epstein 1991). In Australia the establishment of the Conciliation and Arbitration Commission early in this century followed a period of very considerable political, economic and industrial turmoil which included a series of major strikes and a period of economic stagnation that extended for twenty years from the early 1890s. This led many concerned people to look for "a better way" of preventing a repetition of the disputation and achieving more equitable outcomes.


The response was arguably understandable, if misguided, in the context of the times. But whatever validity it may have had then is certainly no longer applicable in modern times. Indeed, the system has not delivered, the premises on which it was founded were invalid, and its interventionist approach seriously inhibits risk-taking, with adverse consequences for employment. It is time to move to an alternative arrangement more sympathetic to employment creation.





[i] For a critique of this proposal, see Moore 1999. That critique does not deny that a reduction in real wages that was sustained would reduce unemployment. It suggests, rather, that under deregulation wage reductions are more likely to be sustained and that employment increases are likely to be larger.

[ii] The IAESR has stated that  "The Employment Minister seems to be under the misapprehension that further reform of the industrial relations (IR) system will reduce unemployment" (Melbourne Institute 1999). Also, in Reshaping the Labour Market published in October 1999 the editor summarises the findings of seven chapters each contributed by labour market economists as "on the basis of their evidence, the case for retaining active regulation of the labour market is strong" (Richardson (ed)1999).

[iii] Calmfors and Driffill argued in 1988 that a fully centralised national bargaining system or a fully decentralised system produce better  employment/unemployment outcomes than an intermediate one involving a mix of national and sectoral bargaining (Calmfors & Driffill 1988). In its 1997 Employment Outlook, the OECD concluded, however, that there appear to be no statistically significant relationships between various systems of collective bargaining and unemployment (OECD 1997). Using a different classification of bargaining systems to that adopted by the OECD, Sloan and Wooden reached more favourable conclusions about the performance of countries which have moved or are in the process of moving to decentralised arrangements (Sloan &Wooden,1998).

[iv] The Australian definition excludes disputes such as work-to-rules, go-slows, bans and sit-ins, and stoppages have to be of ten working days or more in total. Industrial disputes in which employees resign are deemed to have been resolved. Note that the 1998 waterfront dispute was excluded because the industrial action was deemed not to arise either from a refusal to permit employees to work or from a strike.

[v] Indeed, one distinguished jurist has argued that there is an "abiding intellectual unity" between the basic common law concepts of property, contract and tort, viz:    "Property law governs acquisitions of the rights persons have in external things and even in themselves. Torts governs protection of the things reduced to private ownership. Contracts governs transfer of the rights so acquired and protected. This trinity -acquisition, protection and transfer - exhausts the range of legal relationships between persons. It is just this universality which lends coherence and power to the legal achievements of the classical common law" (Epstein 1985).

[vi] The previous Federal Government was forced to restrict the jurisdiction of the Federal Court on certain immigration matters where that court's judicial activism had outworn the patience even of the Government which had appointed most of its members.

[vii] ACAS was established under the Employment Protection Act 1975. In 1998, ACAS handled 1313 collective conciliations (with a success rate of over 90 per cent), 114,000 individual conciliations, and 530 advisory projects (mainly covering improvements in dispute settling procedures). However, ACAS' primary emphasis is on encouraging internal resolution of disputes by having appropriate dispute settling procedures at the enterprise level.




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