Shorten must be ready to bend on flexibility

PERHAPS Bill Shorten thinks his MBA gives him licence to lecture businesses and point out their shortcomings.

Bill Shorten

PERHAPS Bill Shorten thinks his MBA gives him licence to lecture businesses and point out their shortcomings.

In relation to the increasing burden of penalty rates in the Modern Retail Award, he had this to say: "The challenge here is not for retailers to force down the wages of young students and people working part-time; the challenge is to bring back the customer by good service, by the range of products and by not taking unrealistic profits at the expense of the shopper. There is a challenge in productivity in the way businesses are structured."

Now it is not clear what he even means by that last sentence, but obviously he thinks he knows a thing or two about running a business.

And now the broader issue of the lack of flexibility in the Fair Work Act has been raised, Shorten is again offering advice.

"I'm not convinced that the industrial relations system is what's holding back productivity . . . capital investment in technology and skills development can enhance systems," he said.

Then there is his point that employers are no good at bargaining. "I think a lot of employers are reluctant to bargain. I'm not sure everyone picks up the bargaining process the way it should go," he has helpfully pointed out. This point has now been reiterated by Workplace Relations Minister Chris Evans, who has been "disappointed that many employers, when they've gone into their bargaining rounds, they haven't had a productivity commitment".

According to the government, the Fair Work Act offers opportunities for employees and employers to "do very good things for the wealth of businesses" and the system of industrial awards has been "pretty pared back".

Pared back is an interesting description for a system with 20 National Employment Standards -- there were six under WorkChoices -- and 122 modern awards covering every industry. These modern awards set out all sorts of details about working hours, shifts, types of employees, classification of employees and, in particular, penalty rates for weekends and public holidays and overtime allowances.

Pared back is also an interesting description for the statute that regulates industrial relations, which is some 650 pages. The section dealing with enterprise agreements is itself 50 pages long. All agreements must meet a "better off overall" test, which states that "each award-covered employee would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee".

This is in fact a very strict test and contrasts with the "no disadvantage" test that applied under the Workplace Relations Act.

The Office of the Fair Work Ombudsman is currently instructing employers to keep two sets of books to ensure that the "better off overall" test is being met -- one dealing with the wages for each worker under the agreement and the other outlining the wages for each worker that would apply under the award.

The compliance burden of this requirement is quite disproportionate.

Shorten's view that most employers are hopeless at bargaining is not borne out by the facts. In fact, some 40 per cent of all employees are covered by registered collective agreements, with only about 15-20 per cent covered by awards. (Unregistered individual arrangements make up the rest.)

Having said this, employers in some industries have typically opted to stay with award coverage, in particular in retail and hospitality. In the case of retail, it is only the large employers that have agreements with their workers. Small retailers tend to pay their employees according to the award.

Given the features of the General Retail Industry Award 2010, it is hard to see this situation changing soon, even if these small retailers should "pick up the bargaining process", according to Bill. With the casual premium now increased to 25 per cent, Saturday loading at 125 per cent, Sunday loading at 200 per cent and loading for public holidays at 250 per cent, it is pretty hard to see how a small retailer could secure a useful agreement while still meeting the "better off overall" test for workers.

And any agreement would be in addition to the 3.4 per cent increase in award rates of pay granted by the Minimum Wage Panel of Fair Work Australia in the middle of the year.

There is also an issue of how part-time workers are defined. According to the award, part-time workers must have reasonably predictable hours of work, otherwise they are classified as casual. And part-time workers asked to work more than their rostered (part-time) hours are paid overtime rates for those extra hours.

Shorten might care to point to the requirement in the Fair Work Act that all modern awards and agreements contain an individual flexibility arrangement, thereby providing an employer with some scope to adjust working conditions according to workplace needs.

But everyone knows that these arrangements are useless from the employer's point of view; they only exist to give some very limited scope for employees to arrange their working lives to suit their personal circumstances.

In fact, all the examples given by the relevant department are of this variety: Jane leaving half an hour early to pick up her child, Mark starting later to accommodate his athletics training. Analysis of individual flexibility arrangements by P.J. Gollan has underscored their complete ineffectiveness in terms of promoting more efficient outcomes for employers.

There is absolutely no doubt that the labour market is softening and that trading conditions are very difficult for many businesses. While Shorten might be able to provide general business advice, I'm pretty sure that many employers would feel quite offended by his suggestion that the new industrial relations regulations are not affecting them.

Judith Sloan is an economist and company director