The hidden risks of the looming wage revolution

Sam Morrison, 18, is a year 11 student who works at Coles. The supermarket’s EBA agreement with weekend and shift workers is being challenged. (Picture: Brendan Francis)

We are witnessing the start of a fundamental change in the economics of employing people in Australia. Already some of our biggest employers, such as Woolworths, Coles, McDonald’s, KFC, Bunnings, Big W, Hungry Jack’s, Kmart, Target and United Petroleum are in the front line of the revolution.

The fundamental shift looks set to change the economics of labour-intensive industries like retailing as the flow-on effects hit profit and pricing levels. Just how far the wage bills will rise is impossible to determine at this stage, but unless the shift allowance and penalty rates are changed, the cost increase will range between five and 20 per cent of wage bills. And if back pay is ordered then payments might involve billions.

Earlier this week I highlighted that international markets had not taken into account the risk of war given the global balance of power changes (Markets can’t afford to ignore the resurgence of major power politics, August 30)

Today I submit that the implications of the looming local wage revolution are a domestic hidden risk that markets don’t have on their radar screen.

To understand what has happened let me take you back to the Howard years where it was possible to sign enterprise bargaining agreements that delivered overall benefits to an enterprise’s workforce even though they might adversely affect segments. Julia Gillard changed that rule to a stipulation that no individual employee can be adversely affected in an enterprise agreement.

At the same time, a series of horror shift allowances and penalty rates were required in retail and other areas for weekend and night work. In theory, those changes should have decimated weekend and night trade but it didn’t happen.

Accordingly, those predicting that the high shift allowances and penalty rates would create an employment disaster were made to look silly. We now know why the doomsayers were wrong — in vast areas of the community the high shift and penalty rates were simply not paid. Now, event-by-event, the hidden stories are coming out.

The first corporation to be discovered was 7-Eleven where the underpayment of shift allowances got mixed up with visa migration rackets. At the time, former ACCC boss, Alan Fels, declared that 7-Eleven was merely the tip of the iceberg. How right he was.

Franchise groups like McDonald’s, KFC, Hungry Jack’s and United Petroleum are now caught in similar shift allowance and penalty rate underpayment (but not visa) schemes.

And we also discover that Woolworths, Coles, Big W, Bunnings and many others signed enterprise bargaining agreements with their workforces that complied with the Howard guidelines that there would be overall employee benefit but did not comply with the later Gillard legislation that no individual worker should be worse off.

Indeed, under these EBA agreements, most of those who worked at the weekend were considerably worse off than the award.

The unions approved these agreements in exchange for large corporate employee membership. The Shop, Distributive and Allied Employees’ Association (SDA) union became one of the largest in Australia and the biggest funder of the ALP.

The union signed statutory declarations to the Fair Work authority, which will no doubt be examined.

Those EBA agreements are starting to unravel with Coles in the front line because of challenges by an individual staff member, which caused Fair Work to overturn the 2014 agreement.

Coles is now operating on the 2011 agreement and is hopeful it can be maintained but the 2011 agreement is also under challenge and that case will determine the fate of the vast number of similar EBA agreements in the retail industry (Uncertainty casts a shadow over major supermarkets, August 23).

If Fair Work knocks out the 2011 agreement, then Coles must go back to the award and pay the higher weekend rates. All their other majors will be in the same boat.

The whole concept of EBAs is under challenge because once the rule that no individual employer can be adversely affected is policed, the agreements can’t work.

Companies will have to actually manage their workforce and not rely on an EBA. As everyone is on the award, unions have a much diminished role.

Fair Work is also looking at reducing retail weekend penalty rates, which might reduce the impact but there at no certainties as to what the final decision will be.

In theory, these EBAs should have given large retailers a big advantage over smaller operators but in practice many smaller operators have their own non-union deals with trusted staff, which usually includes reducing shift allowances and an element of cash in the package.

Like the threat to EBAs in other areas, the increasing use of card tapping is cutting back on the use of cash. In recent years, with so few employers actually paying the big penalty rates, the campaigns against penalty rates have not gathered the expected momentum.

But, if suddenly a great many more employers have to pay the full penalty rates, then weekend work in many enterprises will become uneconomic at current prices even though Australians are shopping more and more at weekends.

Unless the penalty rate rules are changed overcoming this will not be easy and will require a variety of strategies including higher prices, reducing the pay of Monday-to-Friday workers, lowering profit margins, restricting weekend opening times and improved work practices (perhaps through the better use of technology).

Those that are able to adapt to the change will be the winners. There will be many losers and there is a high likelihood that the Australian inflation rate will rise.

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