Industrial Relations Commission of New South Wales CITATION: Stowe Enterprise Agreement [2004] NSWIRComm 1103 APPLICANT PARTIES: Electrical Trades Union of Australia RESPONDENT Stowe Australia Pty. Ltd. FILE NUMBER: IRC 3355 of 2003 CORAM: Tabbaa C CATCHWORDS: Enterprise Agreement - 36-hour week - industey standard - public interest - flow-on LEGISLATION CITED: Industrial Relations Act 1996 Review of the Principles for approval of Enterprise Agreements CASES CITED: State Wage Case Principles 2003 [2003] NSWIRComm 174 Rothmans of Pall Mall (Australia) Limited (Smithfield Warehouse Employees) Consent Award [1995] NSWIRComm 221 Report of the Inquiry into Terms and Conditions of Employment in the Electricity Supply Industry in New South Wales and into the Hours of Work of Forty-Hour Workers in the Industry HEARING DATES: 06/22/2004 DECISION DATE: 12/10/2004 APPLICANT Ms N Kerr REPRESENTATIVES: RESPONDENT Mr. G. Boyce - Electrical Contractors' Association of Australia, on behalf of Stowe Australia Pty. Ltd. Mr. T. McDonald - Employers First (Intervenor) DECISION: - 2 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES CORAM: TABBAA C 10 December, 2004 Matter No IRC 3355 of 2004 STOWE AUSTRALIA PTY. LTD. (NORTHERN DIVISION) ENTERPRISE AGREEMENT 2003 Application by the Electrical Trades Union of Australia, New South Wales branch, for approval of an enterprise agreement DECISION [2004] NSWIRComm 1103 1 The Electrical Trades Union of Australia, New South Wales branch, on 19 June, 2003, filed an application, under Section 34 of the Industrial Relations Act, 1996, seeking approval of a consent Stowe Australia Pty. Ltd. (Northern Division) Enterprise Agreement 2003. 2 The application was allocated on 23 June, 2003 and was listed for hearing on 09 July, 2003. Those proceedings were re-scheduled at the consent application of the parties. 3 The matter was re-listed for hearing on 11 July, 2003 at which time Mr. M. Doust, an official of the Electrical Trades Union of Australia, NSW branch, entered an appearance on behalf of the Union. There was no appearance by, or on behalf of, the Respondent. In addition, Mr. Doust was at a disadvantage in that Ms R. Mifsud, who had carriage of the matter, was before a Full Bench of the Commission and was unable to attend. As Mr. G. Boyce of the National Electrical and Communications Association (NECA) was in the hearing room, having attended the previous proceedings, and as the Respondent was a member firm of that Association, he agreed to remain as an observer and to advise the Company of the outcome. The Enterprise Agreement before the Commission had been signed by both parties and came before the Commission as a consent matter. 4 The Commission was satisfied that the proposed agreement, save and except for provisions contained therein relating to a 36-hour week, complied with the provisions of Division 2 of Part 2 of Chapter 2 of the Industrial Relations Act 1996. In accordance with principle 3 of the Principles for approval of Enterprise Agreements, 19 December, 2002 ([2002] NSWIRComm 342 the parties were required by the Commission to address it on the question of compliance with the relevant sections of the Act and principles relating to reduction in hours of work: Principles for approval of Enterprise Agreements 3. Process for approving agreements to be followed by the Commission 3.2 In approving enterprise agreements in accordance with the Act and Principles, the Commission may approve an agreement by way of an informal process. However, parties may be required to address the Commission on all matters required under the Act and Principles. [Emphasis added] 5 The Commission acknowledged that the agreement, save for perhaps those provisions, met the requirements of the Principles for approval of Enterprise Agreements. 6 The Commission stated that providing formal consent was received from the Respondent within seven days, the agreement, save for the 36-hour provisions which would be set aside for determination at a later date, would be approved to apply on and from 11 July, 2003 and to remain in force until 01 June, 2006. 7 Communication was received from Mr. Boyce, dated 15 July, 2003, to the effect that the Respondent consented to the approval of the Agreement, subject to its terms being capable of approval in accordance with the Industrial Relations Act 1996 (NSW) and relevant decisions of the Commission. Mr. Boyce noted the concerns raised by the Commission at the previous hearing and, in that regard, provided a reference to a decision of a Full Bench of the Commission for the Commission's consideration - Rothmans of Pall Mall (Australia) Limited (Smithfield Warehouse Employees) Consent Award - Application by Rothmans of Pall Mall (Australia) Limited for a new Award. [1995] NSWIRComm. 221; 11 Dec., 1995 (Fisher P, Bauer J and Tabbaa CC) 8 The matter was listed for hearing on 18 September, 2003. The parties were advised that the Commission required the parties to make submissions in relation to that aspect of the agreement relating to the reduction in hours, having regard to, inter alia, ss 22 (3) and 35 (1)(a) of the Industrial Relations Act, 1996 and Principle 11 (f)(i) of the State Wage Case Principles 2003. [2003] NSWIRComm. 174 9 A request was made by Mr. Boyce, on behalf of the parties, on 16 September, 2003 for the listing to be vacated and allocated another date as both parties had prior commitments on that day. The Commission was advised of the dates the parties were not available up to 03 October, 2003. 10 The matter was re-listed for hearing on 13 October, 2003. In the interim, a notice of appearance was received from Mr. Tim McDonald, Director - Employee Relations, of Employers First, on 09 October, 2003. 11 At those proceedings, Ms Collins from the Union advised that the Agreement did not provide for a reduction of hours "in real terms". What it provided for was that work would be undertaken in the normal way and employees would "bank" four hours (instead of two) per week so that they would have two (instead of one) rostered day off available to them every four-week period. The Agreement provided employees with the discretion as to whether to take those two days off every four-week cycle, or bank them for future use, or to be paid out at a suitable time. In relation to the requirement to address the Commission on whether or not the said provision complied with the relevant Act and principles, Ms Kerr advised that she had not been instructed in that regard. 12 Mr. Boyce, in confirming that the Company consented to the application, pointed out that he was not representing NECA in the proceedings. 13 Mr. McDonald advised that his organisation was opposing the approval of that part of the agreement relating to the 36-hour week and, in fairness to the other parties, would prefer for a program to arbitrate the matter although his organisation was ready and able to proceed with the challenge immediately. 14 As the parties to the agreement held opposing views on that course of action, a short adjournment was granted to allow consultation to take place. Upon resumption, Ms Collins confirmed that if the Commission was not inclined to approve the agreement in total during that sitting, then it would seek a discontinuance of the application. Mr. Boyce consented to the application for discontinuance. 15 Employers First opposed discontinuance. It was pointed out that Rule 138 (1) (b) required leave of the Commission to be obtained in order for proceedings to be discontinued. Nevertheless, pursuant to Rule 140, the Commission may grant leave to discontinue, on terms. If the union was prepared to give an assurance that it would not seek to have any other agreement, containing the 36-hour week provision, approved by the Commission, then his organisation would consent to the discontinuance on that basis. 16 As Ms Collins had been placed in an invidious position, the Commission indicated that the proceedings would be adjourned for seven (7) days to allow the union to formally advise on what terms it wished to discontinue the proceedings. 17 On 15 October, 2003 a facsimile was received from Ms R. Mifsud, Legal Officer with the Union, seeking to have the matter listed for hearing. It is arguable whether leave to discontinue is required in enterprise agreement proceedings. Therefore, if the application for leave to discontinue had been confirmed by the union, there would not have been, in my opinion, any proper basis to decline an application which had been consented to by the only other party to the proceedings at the request of an intervenor. 18 Advice of a listing of the matter for hearing on 27 October, 2003 was given to the parties verbally on 17 October with written confirmation mailed out on the same day. Although the matter had been set down for hearing, Mr. B. Riordan, Secretary, who entered a change of appearance on behalf of the union indicated, from the outset, that he had "to duck off very shortly in order to attend a rally which is taking place in Sydney in the next half an hour ...". His brief but rapid submissions only added to the concern of the Commission that the matter needed to be dealt with in more depth: Commissioner, I understand the concerns in relation to a provision in the agreement, which talks about a 36-hour week. The provision, which is contained in this agreement, is different to the pattern of enterprise agreement, which is applying in the Sydney construction industry insofar as it doesn't have the same level of restrictional strictness in relation to the 36-hour provision. What we have is a situation in this circumstance where a 36-hour week is becoming the norm within the construction industry in New South Wales. There have been hundreds of agreements registered in the Australian Industrial Relations Commission, which have a far stricter clause than what is contained in this agreement. We have a situation where the 36-hour week is commencing to be worked in the Sydney construction industry. We also have a number of agreements, which have been registered in the New South Wales Industrial Commission. The Commission, as it's presently constituted, for example, ratified and endorsed an agreement with Betabel Electric which contains the pattern 36-hour week provision. As you are aware, the electrical pattern of agreement for the Sydney construction industry has been the subject of proceedings before the full bench of the New South Wales Industrial Relations Commission. There hasn't been any argument or concern or issue raised in relation to the shorter hours provision or the 36-hour week provision.... 19 Ms Mifsud added: Commissioner, if I may, this is the fifteenth agreement that the ETU has had registered in the New South Wales Industrial Commission with this clause or a similar clause. This is not the first. It won't be the last. There are over 150 agreements that the CFMEU have registered in the federal commission with a similar provision. There has already been a shutdown weekend that occurred the last long weekend. This provision is active within this industry. It may be the first agreement that Employers First have seen, but it is not the first agreement by the ETU or by any other union. The Australian Manufacturing Workers Union, the Australian Workers Union all have provisions in their agreements with these terms in relation to these hours, and I say again it is a 36-hour week divisor provision. It is not a reduction in hours clause. 20 Mr. Riordan went on to advise that there had been proceedings before her honour, Kavanagh J. relating to the approval of a similar agreement relating to John Goss. That was the subject of appeal proceedings before a Full Bench of the Commission during which extensive evidence had been tendered in relation to four clauses. It was submitted that the agreement also contained provision for the immediate introduction of a 36-hour week (as opposed to the pattern claim which may introduce it in the future) and his honour, the President, had suggested that the whole of the agreement would be considered during those proceedings. Rather than the parties incur the expense of preparing for arbitration proceedings in this matter, which may prove unnecessary, it was suggested that the proceedings be stood over pending the outcome of the Full Bench decision. 21 The proceedings were stood over on the understanding that if the 36-hour week was not an issue specifically considered during the Full Bench proceedings, then these proceedings will resume and a filing schedule would be issued. If the Full Bench determined the hours issue, then the Commission, as presently constituted, would be bound by that decision. 22 In the interim, the Union undertook that it would not submit for approval any further applications containing the "offending" clause pending the Full Bench decision. If the Full Bench registered the said agreement, the Union would proceed with seeking approval for such agreements. It was pointed out that the parties would be expected to inform any other Member of the Commission of these proceedings when dealing with similar applications. 23 Despite the above agreement, on 30 October, 2003, a notification was received from NECA advising that the Union had directed its members to engage in industrial action as a result of the above proceedings (Matter No. IRC 6233 of 2003). The industrial action was to take the form of a mass stop work meeting at Redfern Oval from around 10 am on Tuesday, 04 November, 2003 (Exhibit M8): 28 October, 2003 Dear Before yesterday's rally, I spent an hour in the NSW Industrial Relations Commission seeking to have registered the Stowe Australia, Northern Division, Enterprise Agreement. The Commission refused. Employers First, an employer group of which NECA is a member, is challenging the legality of the 36 HOUR WEEK Provision. This is such an important development with such wide-ranging ramifications for all electricians in the Construction Industry that a stop work meeting has been called to discuss the issue. WHEN:- TUESDAY NOVEMBER 4 TIME:- 10.30 AM LOCATION:- REDFERN OVAL. All members in the construction industry are encouraged to attend. Yours sincerely BERNIE RIORDAN SECRETARY 24 It was alleged that ETU delegates had informed electrical contracting companies that ETU members will attend the meeting for approximately two hours and then adjourn to the pub to view an afternoon of Melbourne cup horse racing. The matter was concluded by her honour, Staunton J. on 31 October, 2003 with the issuing of a number of recommendations. 25 On 26 November, 2003, a request was received from Mr. McDonald for a re-listing of the matter (Exhibit M7). The Commission was referred to the transcript of the proceedings in IRC 6233 of 2003 in which her honour stated that her own enquiries had revealed that there was no relationship between the hours of work issue and the matters that were before the Full Bench. 26 The parties conferred and suggested that 22 December, 2003 was suitable to them for a directions hearing. A filing schedule was agreed, and directed, on that occasion. 27 A hearing, scheduled to be held on 19 May, 2004 was vacated at the written request of the union dated 29 April, 2004. Ms Kastoun advised that Mr. Boyce was scheduled to appear in the Work and Family Test Case before the Australian Industrial Relations Commission on that day and Ms Mifsud would be on leave for medical reasons. 28 The matter was set down for Mention on 17 May, 2004. That listing was also vacated at the written request of the Union, dated 03 May, 2004. The Commission was advised that both Mr. Boyce and Ms Mifsud would be on leave until the end of May! 29 The matter was listed for further Mention on 09 June, 2004 at which time a hearing date was set and the parties advised that agreement had been reached that none of the witnesses would be required for cross-examination. 30 The hearing commenced on 22 June, 2004 at which time the following appearances were entered: Ms N. Kerr Electrical Trades Union of Australia, NSW branch Mr. G. Boyce Electrical Contractors Association of Australia, on behalf of Stowe Australia Pty. Ltd. Mr. T. McDonald Employers First 31 Leave to intervene by Employers First was never an issue during these proceedings. There had been no objections to the appearance on behalf of Employers First on any occasion. For the purposes of the Commission, it was recognised that Employers First was not only a State peak council for the purposes of s. 216 of the Act and can appear with leave of the Commission pursuant to s. 34 (2)(c) of the Act, but its eligibility rules encompassed the class of Employer subject to these proceedings. Submissions on behalf of the Union 32 The union tendered an affidavit sworn by Mr. Bernie Riordan (Exhibit K1) and an outline of submissions (Exhibit K2). 33 Mr. Riordan stated that, on behalf of the ETU, he had led the negotiations on enterprise bargaining agreements with the Electrical Contractors and their Association since 1997 during which he had explained that the 36 hour week provision "was going to be an industry outcome" with other building and construction unions, such as the Construction, Forestry, Mining and Energy Union (CFMEU), incorporating that provision into their federal agreements, "I explained this was to be spread through the Building and Construction Industry". 34 He explained that the provision was not designed to reduce working hours. Rather, it was to be used to recalculate the hours worked in order to maximise rostered days off, "Employees still work a 40-hour week, but now have "shutdown" weekends" established after discussions with the Builders and Subcontractors. 35 It was pointed out that, since the conclusion of those negotiations, there had been over 35 enterprise agreements registered in the NSW jurisdiction that have contained provisions for a 36 hour week in the building and construction industry, yet Employers First had not sought to intervene or appeal any of those registrations. 36 It was further pointed out that since the conclusion of negotiations across the Industry, the Australian Industrial Relations Commission had registered in excess of 500 enterprise agreements filed by the CFMEU - all incorporating the 36-hour week provision. For example, Banabelle Electrical Pty. Limited Construction Enterprise Award 2002-2005 37 In addition to the subject agreement, which was awaiting approval, Stowe Australia Limited was a party to another agreement, containing the same provision, which had been approved before the Industrial Relations Commission of NSW for the County of Cumberland. Stowe Australia Sydney Projects Division Enterprise Agreement 2002-2005 In the subject agreement, designed specifically to cater for regional situations, the provision was far more accommodating of the employer's position. 38 It was further submitted that a Full Bench of the Commission had recently handed down a decision in a dispute over outsourcing provisions in another agreement containing a similar hours of work provision. That agreement had been found to be valid and was registered. Electrical Contractors Association of NSW v. Electrical Trades Union of Australia, NSW branch, and ano. [2003] NSWIRComm 404 Attention was drawn to the fact that various employer organisations had raised issues of concern before the Bench but neither the Bench nor Employers First had raised the Hours provision as an issue of concern. 39 It was pointed out that the subject agreement was filed with the consent of both parties - the union and the company. 40 In conclusion, it was emphasised that, as the provision was not designed to reduce hours of work, it did not depart from Commission's standards in that regard. 41 It was concluded, therefore, that the agreement did not breach any statutory requirement as set out in section 35 (1)(a) of the Industrial Relations Act 1996 or the provisions of the 2003 State Wage Case principles. 42 The union sought to rely on the decision in Rothman's. Submissions on behalf of Stowe Australia Limited 43 Mr. Boyce did not wish to put submissions in the matter save to confirm that the company he was representing supported the approval of the agreement. In relation to the issues raised by the Commission, Mr. Boyce sought to rely on the response provided in the correspondence dated 15 July, 2003 (Exhibit B1). In that correspondence, the respondent had also relied on the decision in Rothman's. Submissions on behalf of Employers First 44 Mr. McDonald tendered an outline of submissions (Exhibit M1) and sought to rely on two affidavits sworn by Mr. Peter Ryan, Senior Adviser - Employee Relations for Employers First (Exhibit M2) and an Economist, Mr. Ray Bennett (Exhibit M3). 45 Mr. Ryan gave evidence that the constitutional rules of his organisation extended to any employer in any industry, trade, business, profession, occupation or calling. In addition, the records of the Industrial Registry noted that Employers First was one of the organisations having an industrial interest in the Electrical, Electronic and Communications Contracting Industry (State) Award. One of his roles within that organisation was to attend to the industrial needs of those of its members operating in the construction, manufacturing and associated maintenance and service industries. 46 He was aware of, and had taken the opportunity to review, the subject agreement submitted to the Commission for approval. He pointed out that the electrical contracting industry can be broken up into two sectors - construction work and other work (such as residential, maintenance and so on). His organisation was concerned about the potential for the flow-on of significant wage increases and a 36-hour week to other sectors from the proposed agreement, which purely and simply flowed on reduced hours of work without any offsets with respect to wage increases. Comparing like with like, the rates of pay in the subject agreement were approximately 25% above the respective award rates of pay, before taking into account, increases in contributions or superannuation and redundancy, payroll tax, workers' compensation premiums and payouts, increases to accident/illness cover, the further costs associated with less days of work, increased overtime costs, reduced number of days available for work, and increased time for completion of projects. 47 The view was held that the unions were acting in concert to flow on the 36-hour week push that had its genesis in the Victorian construction sector where, he was aware, it was introduced approximately four (4) years ago. In that regard, reference was made to an excerpt from the Labor Council of NSW Annual Report 2002 and an extract from the Minutes of Meeting held 07 November, 2002 (Annexure 'B' of Exhibit M2), which highlighted the unions' campaign to flow on a 36 hour week into New South Wales and the fact that they were encouraged to act in concert to that end: Excerpt from 'Labour Council of NSW Annual Report 2002' From Chris Christodoulou (Deputy Assistant Secretary Organising) Building & Construction Industry c) Build a Life Campaign The "Build A Life" campaign has been the centrepiece of the Building and Construction Union EBA round. Most EBAs expired in October 2002. Many building unions and, in particular, the CFMEU and ETU have secured the introduction of a 36 hour week plus a 12% wage increase over a three year period with a range of companies. The 36 hour week will be implemented in the form of 6 long weekends a year where building workers will enjoy a paid Saturday, Sunday, Monday (Public Holiday) and RDO Tuesday off as part of these long weekend breaks. During the course of the negotiations and industrial campaign, Chris has been involved in Commission Conferences and Master Builders Association discussions to assist the parties. At the time of writing this report over 5,000 building workers have secured their EBA agreement with the campaign continuing into 2003. _______________________________________________________________ Minutes of Meeting held 7 November 2002 2. From the Construction Forestry Mining & Energy Union, Construction & General Division, New South Wales Divisional Branch: advising Labor Council of the CFMEU's progress with re-negotiating Enterprise Bargaining Agreements in the Sydney Building and Construction Industry. The Union said that the new agreements make provision for the introduction of the 36-hour week and extra paid leisure days. The Union said that it is hoped that the gains made in terms of reduced working hours would create a bench mark for further union campaigns in other work places and industries in New South Wales. Com. J. Robertson moved the Executive Recommendation: - "That the correspondence be received and the progress with the 36 hour week campaign in the building industry be noted." Com. T. Pappas seconded. CARRIED 48 It was anticipated that most of those unions will have pressure placed on them by those members working in other than the construction industry to campaign for a 36-hour week for their sector. In addition, those working alongside trades enjoying a 36-hour week will apply pressure to flow on those concessions to their group. That was evident from the comments attributed to Mr. Peter Tighe, the National Secretary of the Electrical Trades Union, in the "Industrial Relations and Management Letter" Volume 20 Issue No. 9 of October 2003 (Annexure 'C' of Exhibit M2)": ...the union is, and will continue to be, at the forefront of the trade union movement's push for shorter hours. Declaring that reasonable working hours were a major concern for workers and their families, Tighe has vowed that his union will establish a national 36-hour industry wide benchmark. Tighe says that once his union has achieved the 36-hour week in the contracting industry, it will flow this standard on to other industry areas. The objective according to Tighe, is to have a 36-hour week plus a cap on overtime, so that hours are actually reduced for workers. In a report on the 'state of their 36-hour week campaign', the union says that in NSW, the key outcomes have been a 12% wage increase, a $15 redundancy payment increase, increases to fares and travel allowances, and income protection. On top of this, the full 36-hour week will kick in during 2004, with 26 RDOs and a guaranteed minimum of six industry shutdown weekends, or four-day weekends. Victorian members will be the first to see the full implementation of the 36-hour week. The Victorian agreements provide a total increase of 20.8%, if the increases in E Class licence payments and extra RDO's are factored in. By 2005, Victorian members will be earning nearly $30 per hour - over $1,000 for a 36-hour week before any overtime. In SA, members will get the full implementation of the 36-hour week in May 2005. In addition, members have won wage increases taking rates from $20 to $25 per hour, including all-purpose, over the life of the agreements. Finally, in WA, the new agreements bring in an all0-purpose hourly rate of $24 from July 1, 2004. They will increase to $26.80 in July 2005, with the 36-hour week divisor. 49 Mr. Ryan recollected that the ETU began campaigning for pattern agreements, including a 36-hour week, on Sydney construction sites in late 2002. Once it became known that major building contractors had consented to the CFMEU demand for reduced working hours, electrical contractors became easier to convince. 50 He was also aware that the push had been extended by the AWU to civil construction sites and by the AMWU to the manufacturing industry. 51 The campaigns were creating heightened expectations of outcomes in enterprise or certified agreement negotiations in other industries. Members of his organisation in maintenance and service industries have been struggling to manage those expectations whilst attempting to reach agreement for that enterprise and to remain competitive in the market place for labour. It was pointed out that on-going contracts in those sectors were linked to inflationary movements and employers would find it extremely difficult to introduce a 36-hour week as they would not be able to recover the additional costs from the client. In any event, even if those costs were passed on, the consumer would bear the cost in the end. 52 The principal contractors on some of the major civil constructions projects in Sydney (for example, the Cross City Tunnel, the Epping to Chatswood Rail Link and the Westlink Motorway) have agreed to a 36-hour week for their direct employees as the unions insist that it is now an "industry standard". The concern existed that considerable pressure would be placed by unions for the 36-hour week standard to simply flow on, not only to the civil construction sector outside of Sydney but to the service and maintenance sectors as it was not uncommon for them to keep employees on the sites once completed. It was pointed out that those projects were outside the Sydney region and located where employment prospects were not very high (for example, the upgrade of the Pacific Highway between Sydney and Brisbane, the Princes Highway south of Sydney and the Great Western Highway west of Sydney). 53 In relation to the absence of Employers First from the industry negotiations on the 36-hour week, Mr. Ryan recalled that neither his organisation nor any other organisation, barring the ECA, had been invited to attend. In any event, his organisation did not wish to participate in discussions aimed at flowing a 36-hour week into the industry by way of a pattern bargain. 54 In relation to the absence of his organisation from proceedings before the Full Bench of this Commission relating to outsourcing provisions, Employers First had neither been served with a copy of the Agreement the ETU was seeking to have approved nor did it have any involvement in the proceedings. 55 Mr. Ray Bennett, Economist, stated that his submission supported the argument that it would not be in the public interest to risk a flow-on of the 36-hour week (from agreements such as the Stowe Electrics Enterprise Agreement) as the effect on the economy would be increased inflation, reduced competitiveness and slower economic growth generally. It also had the potential to reduce employment growth, cause market dislocation and place many small businesses and not-for-profit organisations in a difficult labour market and workforce relations position. 56 Bennett shared the optimistic view held by other forecasters about the future of the Australian and NSW economies. He acknowledged that some may argue that the current economic outlook can afford a reduction in hours. The most recent CPI, unemployment and increasing consumer and business confidence statistics supported the view that the economy had picked up from its slower growth in the previous 6 - 9 months. 57 He attributed the success and the strength of the Australian economy in recent times to the following - · Micro-economic reforms · A significant reduction in the value of the Australian dollar · Limited exposure to high technology · Disciplined fiscal and monetary policies · Discipline in the labour markets, specifically for wage costs 58 He queried, however, whether a recovery had indeed taken place? He argued that if it had, then it has not been going on for long enough for it to be assured. In his view, there was a sufficient level of uncertainty in the current economic outlook, the probable effect of which was likely to be negative rather than positive. 59 He identified the uncertainties as including: · Increasing unemployment to 6.1% (120,000 jobs were shed during the first half of 2004) · Participation rate has fallen since 2003 · Possibility of high interest rates · An appreciating exchange rate · Decline in construction and housing boom in combination with difficulties in forecasting the timing of the US recovery, · The 2003 NSW State Budget Papers 5-2 point to the fact that, despite inflation having been contained within the Reserve Banks 2 -3 %, forecasts assuming a modest global recovery and an end to the drought were highly conjectural at this stage. 60 As a consequence of that uncertainty, and the significant effect of any major wage or labour costs on a large number of businesses, particularly small/medium sized ones, it behoved governments, Industrial Relations Commissions and other economic institutions to make decisions conducive to the maintenance of business confidence and not to introduce large shocks to the economy. Every effort was required to be made to encourage business flexibility, investment and sustainable labour costs to ensure productivity growth. 61 Reasonable business and employment growth in NSW in 2003-2004 was conditional on - 1. Real interest rates remaining at or about the level of mid 2003. He pointed out that the indications are those will start to rise; 2. The balance of payments remaining manageable with the deficit not exceeding $15-$17 billion per annum. He pointed out that it was increasingly unlikely and the Federal Treasurer has expressed concern about the impact of the rising dollar on business profitability and investment; 3. The State and Commonwealth Government budgets continuing to maintain a surplus without new of increased taxation and charges; 4. Inflation remaining within the 2 - 3% target established by the Reserve bank. He pointed out that it would require wage growth in all the key industries and occupations to remain within, or close to, the productivity growth and the capacity to pay of employers; 5. Government and other institutions that significantly impact on the economy taking into account aggregate economic effects when making their decisions; and 6. The recovery in the US economy. It was pointed out that it was experienced in the third quarter of 2003 but it has largely been " job less" as it has not yet translated into major employment growth. 62 He calculated that a reduction in working hours of 2 hours would be the equivalent of a minimum 5% wage increase which, with on-costs such as superannuation, payroll tax and workers' compensation, would equate to an increase in excess of 6%. 63 Bennett pointed out that, as the 36 hour week progressively flowed on, it would combine with the 4% increase which is currently the norm in industries generally, resulting in wage rises of up to 9% which, once again with the addition of on-costs, would equate to an increase of about 11 - 12 % to the cost of labour. 64 In addition to the increased cost of labour, reduced hours may result in overtime. If new workers are required to take up the hours, then a number of problems would surface: · skill shortages in some industries, · time lags in increasing the labour supply, · requirement for considerable training and development, · consequential productivity losses over and above the increase identified earlier and disruptions. 65 Alternatively, if no overtime is worked and no new workers are engaged to take up the slack, then a different, but equally compelling problem, would result - that of a reduction in production leading to a lower growth rate. 66 He next considered the impact a 36-hour week would have. He pointed out that rural areas of NSW are suffering from, and struggling to overcome, the continuing problems associated with: * declining services; * falling populations; * the economic pull of the metropolitan areas; and * the long drought Therefore, labour cost increases arising from a reduction in working hours would hit those areas very hard. 67 The Mining, Manufacturing and Retail sectors were all experiencing sales, investment and market conditions, which are restricting their capacity to grow. 68 In addition, Australian households are in historically high levels of credit or debit. 69 The forecast growth in NSW in 2003-2004, based on economic data, 3.5% to in excess of 3.75%, is uncertain and above that predicted in the NSW Budget. 70 The support of the economy from increased exports will be seriously affected if the exchange rate, as anticipated, continues the 20 plus per cent appreciations experienced during 2003. 71 The NSW Treasury forecasts for 2003-2004 will be well below the actual figures for labour cost increase, the already optimistic unemployment estimates, the CPI and the Gross State Product if standard working hours are reduced by two or more hours. Indeed, when working hours were reduced from 40 down to 38 in the early 1980s, unemployment rose from 6% in July 1981 to 10.3% in July 1983 and remained above 9% for many years. 72 It was submitted that while the capacity to pay for the reduction in working hours would vary from industry to industry and from business to business, the macro evidence indicates that overall, NSW business does not have the capacity to pay if it has to absorb the consequential increases without productivity gains. On that basis, prices would increase substantially resulting in a higher CPI and downward pressure on jobs. 73 Bennett forecast a productivity growth slow down this decade as the benefits of the previous decade's structural or micro-economic reform come to an end. Information from the Productivity Commission clearly established that increases in labour efficiency have been reflected in periods of productivity growth, with capital investment remaining fairly constant as a proportion of GDP over the last fifty years. It was concluded that any increase in wage costs above 3% per annum would have an inflationary impact. 74 Although Australia's productivity growth has been good, its income and productivity levels were still below those of a number of OECD countries and some 17-20% below those of the US and some European countries. It was concluded that excessive labour cost increases could well destabilise productivity growth by restricting business income for investment, increasing prices and generally distorting the markets. 75 In conclusion, Bennett submitted that a general reduction in standard working hours to 36 per week at the present time could well result in significant adverse effects, including - 1. reduction in GDP growth resulting in reduced real income growth; 2. reduction in potential employment growth or increased unemployment; 3. increase in prices, hence the CPI, given the higher exchange rate and the strong possibility of an increase in interest rates; and 4. reduction in long-term business investment levels as business turns its attention to funding the two hours reduction. 76 Mr. McDonald submitted that the Commission should not approve an enterprise agreement, which provides for a 36-hour week as it is not in the public interest to do so. 77 The Commission was reminded of the decision of the Full Bench in the Principles for Approval of Enterprise Agreements Case (1996) 94 IR 98 @ 117 in which it was acknowledged that the role of the Commission was not interventionist with respect to enterprise agreements but rather, protective and facilitative. 78 It was suggested that the strong protective role was not only in relation to the parties but also the public interest. That was re-inforced by the decision of the Full Bench in Rothmans. 79 The Act recognises the standard working week as comprising of 40 hours (s.22 (1)). 80 Undoubtedly, working hours raised public interest issues as they are dealt with in the Act and again in the Wage Fixing Principles. 81 Attempts to reduce standard hours in awards are considered to be of such a serious nature that the Act provides that they may only be dealt with by a Full Bench of the Commission (s.22(3)). 82 The Full Bench of the Commission in the 1983 State Wage Case, allowed the reduction of hours from 40 to 38 per week, indicating that in approving that application for reduction, it needed to satisfy itself that the cost impact is minimised. 83 In the State Wage Case Principles in the same year, the Full Bench expressly prohibited any reduction of hours below 38 per week (Principle 7, Standard Hours) and that prohibition has remained in the Principles since 1983. 84 Mr. McDonald stated that it is significant that s. 32 (1) of the Act requires the Commission to approve the agreement to give it effect. The decision of Street, J in Re: Electricians &c.(State) Award 1928 AR 328 was cited for the view indicated that the Commission should not merely act as a rubber stamp in exercising its discretion when approving such agreements. It must satisfy itself that the requirements of s.35(1) have been met. 85 It was significant to note that those requirements include: a) a requirement that "...the agreement complies with all relevant statutory requirements..." (page 2). (b) a requirement that the Commission take into account the public interest (s.146(2)). That requirement, it was pointed out, was reinforced in (pages 1-3 of the preamble) the Principles for approval of Enterprise Agreements. (c) a requirement that the Commission have regard to the objects of the Act (s.146(2)(a)) and the state of the economy of NSW and the likely effects of its decisions on that economy (s.146 (2)(b)). 86 It was submitted that the prohibition also equally applies to Enterprise Agreements (Principle 11(f)). The Full Bench states, in Principle 11(f), that prior to approving an Enterprise Arrangement, it will, in addition to the industrial merits if the case..., ensure that the arrangement does not depart from the Commission's standard of hours of work. 87 It was contended that the Principles are "instructive as to where the Commission believes the public interest lies, and in the exercise of discretion under s.146(2), provide a useful guide to the Commission in the exercise of its functions". It was submitted that members of the Commission should be loath to approve any agreement that seeks to circumvent such a clear prohibition in the State Wage Case Principles. 88 S.146 (2)(a) of the Act requires the Commission to have regard to the objects of the Act when considering the public interest. It was contended that objects (b) and (e) of s.3 are particularly relevant:- (b) to promote efficiency and productivity in the economy of the State. (e) to facilitate appropriate regulation of employment through awards, enterprise agreements and other industrial instruments. It was concluded that the Commission would not generally approve an enterprise agreement, which is contrary to these objects. 89 It was pointed out that an examination of the subject agreement indicates that there is nothing of substance, which will promote efficiency and productivity, nor can it be said to constitute "appropriate" regulation of employment. On the contrary, its provisions will either slow down the work in question or, if lesser hours are not worked, will simply increase costs. 90 In addition to the evidence of Bennett, Mr. McDonald stated that the Commission is required to have regard to the state of the economy and the likely effect of its decision on that economy when considering the public interest. 91 It was contended that the costs of the agreement will have adverse economic consequences on the economy even if the costs are passed on to clients. The Commission takes into account such matters when considering whether or not to approve such deals Funeral Industries (state) Award Case - Fisher P, McMahon DP, Maidment J, Matter No. 1154 of 1989, 08.10.90, unreported @ p. 21,22:- Our conclusion is that we have here a cosy deal or arrangement whereby the parties propose very large increases, in most cases several times more than most members of unions have achieved for very genuine restructuring, which are sought on the basis of a cosmetic, rather than a realistic case. In a labour intensive industry these large cost increases would be passed on to the general public. We consider this would be inflationary and contrary to the public interest. 92 The Full Bench of the Commission in Rothmans held that the concept of flow-on of an arbitrated or consent agreement is an important aspect of economic circumstances and inflation. On that basis, the Bench categorically rejected a claim for an agreed reduction in hours from 38 to 36 per week having regard to its economic consequences, despite the assurances given by the parties about flow-on. The Full Bench concluded: Were it necessary to determine this application for reduced hours we would reject it in the circumstances of the case as contrary to the public interest and lacking industrial merit. 93 The Commission in Court Session conducted a Ministerial Inquiry into terms and conditions of employment in the Electricity Supply Industry in New South Wales and into the Hours of Work of Forty-Hour Workers in the Industry (Exhibit M4). The Bench, in examining the economic circumstances of a reduction of hours from 40 - 35 hours per week, took into account "flow-on". In its Report, the Bench stated: 1.23 In recent years "flow-on" has become a well-known term to describe what occurs when an improvement in the wages or conditions made in an award regulating employees in a key industry is extended, either by consent or arbitrated decisions, to employees in other industries having a nexus of some kind with the key industry. As the inquiry progressed it became apparent from the oral evidence and the inspections that workers in the electricity supply industry commonly work in close association with other workers not belonging to that industry.... 11.1 .... We are satisfied that it would be shutting our eyes to reality to think that the introduction of a shorter working week in the electricity supply industry would not give rise to demands for a similar advantage from employees in other industries as well. We repeat what we said in par. 1.23, namely, that we are not concerned to deal with the economic effects, which might be felt if a 35-hour week became the general standard in the community. What we are concerned to say is that, if a 35-hour week were introduced into the electricity supply industry, there would almost certainly be claims pressed for the same advantage in other industries by employees closely associated with, or doing work similar to, those in the electricity industry.... 11.4 Our experience of "flow-on" situations which we have observed in the community in recent years enables us to say with some confidence that, because of the matters we have mentioned in the last three paragraphs, the introduction of a 35-hour week in the electricity supply industry would quickly lead to the introduction of reduced hours in associated industries. Increasingly strong demands for it would come from other employees and unions representing them (in many cases the same unions who have joined together in making the present claim). Employers would find many of the claims very difficult to resist..... 94 The subject agreement represents a flow-on of the 36-hour week achieved by the ETU and other unions in the construction sector with other construction and electrical contracting employers. 95 The subject agreement represents a further flow-on as it extends the 36-hour week not only beyond the Sydney metropolitan area to northern New South Wales but also beyond the construction industry to service and maintenance work. 96 The evidence before the Commission indicates that there is likely to be strong demands for flow-on of the 36-hour week by employees and their unions in other areas of employment of electricians and in the construction industry generally which will be difficult to resist whether because of industrial action being experienced or because employers need to retain and attract employees they require. 97 It was submitted that the conclusions arrived at by the Bench in the Electricity Supply Inquiry have equal application in the present circumstances: 11.5 We therefore conclude that from a reduction of hours in the electricity supply industry there would be two general economic effects apart from the direct consequences of additional expenditure to be incurred by the industry and the increases in prices flowing to the community therefrom. These are that there would almost certainly be other areas of industry where a 35-hour week would be sought, in some cases successfully. This would further increase prices and costs in the community but to what extent we cannot say. Moreover there would, for the reasons we have mentioned, be a resistance by employers of the demands, which would be made. These would unquestionably lead to stoppages of work, some of which could be quite extensive and costly to the community. 98 It was beyond doubt that the introduction of the 36-hour week in the subject agreement will increase the employer's costs which will inevitably have to be passed on. In addition, the increase in costs will not merely be proportionate to the reduction in hours. Either more people will have to be employed to compensate or the same employees will work the same hours but at additional overtime penalty rates or less hours will be worked per week adding to the length of time and costs in relation to construction and other jobs. 99 The above effects will be compounded by the flow-on effects of the kind described in the Electricity Supply Inquiry: (e) we are satisfied that this increase would be inflated by "flow-on" effects, which we feel confident would be felt within the community by reason of other industries and undertakings which work in close association with the electricity industry being forced to give the same or an equivalent advantage. These "flow-on" effects would be aggravated by employers (public or private), who stood to lose employees, particularly tradesmen, to the electricity industry, having to match the advantage which the electricity industry would offer as a result of the introduction of a 35 hour week. (f) This latter consideration would in all probability lead to industrial disputes involving stoppages of work, because employers in some fields would at first resist the demands made upon them for the same advantage as that offered in the electricity supply industry. These stoppages would, in some cases, be very costly to the community. (g) we are satisfied that the introduction of a shorter working week would involve a misallocation of resources in that large numbers of employees would need to be added to the work forces of the various undertakings in the electricity industry without any additional productivity by other industries, and consequently the community, which had lost the benefit of the work done by those who transferred to the electricity industry. 100 The Commission was reminded of the evidence of Ray Bennett as to the impact of the record levels of unemployment which had accompanied the reduction of weekly hours from 40 to 38 and as to the likely adverse effects on the economy if there was to be a flow-on of the 36-hour week. 101 In conclusion, the Commission was urged not to approve of the proposed agreement given its responsibility to take into account the public interest. CONSIDERATION 102 One of the objects of the Industrial Relations Act 1996 is "to promote efficiency and productivity in the economy of the State." Sub-section (b) of Section 3, Objects, of Chapter 1 . 103 One of the reforms introduced in 2000 was the freedom of individual employees and employers to develop working arrangements that best suit the individual needs of each enterprise and each employee within the backdrop of statutory safeguards and minimum wages and conditions to protect the rights and entitlements of employees. This avenue provides enterprises with greater scope for introducing new and more efficient patterns of work. 104 The expressed intention of the New South Wales Government of the day, in introducing the concept of enterprise bargaining, was to introduce a system that is flexible, fair and moderate. It was acknowledged that the need for employers to obtain increased flexibility and productivity and to become more internationally competitive needed to be balanced against the rights of individual employees to choose their working arrangements. 105 The Act provides that an enterprise agreement may be made for employees of a single employer (whether all employees or a group or category of employees), employees of two (2) or more associated employers (whether associated because they are related corporations, because they are engaged in a joint or common venture or because they undertake similar work), employees engaged in a project (including a proposed project) and public sector employees. Section 30, Division 1, Ch 2 Pt 2 106 The subject agreement purports to have been negotiated specifically on behalf of the Northern Division employees coming under the scope of that Agreement and Stowe Australia Pty. Ltd. to suit that particular enterprise. The agreement makes provision for an undertaking that its terms would not be used in any manner whatsoever as a precedent to obtain similar arrangements or benefits in any other State, Territory, Division, Plant or enterprise. Clause 9 Yet that undertaking was given to the same Respondent in an earlier agreement covering the County of Cumberland. That undertaking appears to be of a token nature bearing in mind the evidence of Mr. Riordan detailed above. That undertaking is also "standard" in all of the agreements that have been tendered in these proceedings and those awaiting approval upon the conclusion of these proceedings. Clause 30 Fire Control Fire Alarms NSW Enterprise Agreement 2003-2005; Clause 9, Banabelle Electrical Pty. Ltd. Construction Enterprise Award 2002-2005; Clause 9, All State Electrical Services Construction Enterprise Agreement 2002 - 2005; Files awaiting approval in Matters Nos. 6525, 6526, 6527, 7238 and 7240 of 2003 and 1987 of 2004. 107 That undertaking is of no benefit to the Employer and is of no value in the present circumstances. The union is embarked on a campaign directed at coercing employers to accede to a 36-hour week, a 12% wage increase and so on. 108 The union has not pursued its claim for reduced hours in the Commission. It is blatantly obvious that, despite the sentiments expressed by the New South Wales Government as to the purpose of the introduction of such a provision, it appears that the employer has not been free to develop with its employees, or the union of behalf of the employees, working arrangements to best suit the individual needs of that enterprise. 109 Notwithstanding all of the above, the Commission's power to reject such agreements is limited. The Act makes it quite clear that the Commission is to approve every enterprise agreement that meets the criteria set out in section 35 (1). The subject agreement has the consent of both parties, both parties understand its effects, and the employer has not alleged that it was entered into under duress. In other words, the agreement is valid. 110 Despite the views expressed above as to the real benefits gained by the employer, the Commission is not obliged by the Act to be satisfied in that regard as it is only required to satisfy itself that "on balance" the agreement does not "provide a net detriment to the employees when compared with the aggregate package of conditions of employment under the State Awards". [Emphasis added] 111 The objects of the Act do not include a reference to reduction in working hours. 112 In relation to the concern regarding the flow-on effects of a 36-hour week, the Act is abundantly clear that such conditions will not be considered as standard in the industry when arbitrating ..... Section 47 Enterprise Agreement Conditions - Flow On 47 When making awards.... When making awards or exercising its other arbitral functions under this Act, the Commission is not to regard conditions of employment set by enterprise agreements as standard conditions of employment for other employees. 113 In view of the above provision in the Act, it is questionable whether public interest tests would apply to an agreement between consenting parties. 114 On that basis, the balance of the agreement incorporating the 36-hour week is approved to apply on and from 11 July, 2003 and to remain in force until 01 June, 2006. I order accordingly. I. 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