PRESENTATION TO THE 2012 APPEA WORKFORCE DEVELOPMENT & - - PDF document

PRESENTATION TO THE 2012 APPEA WORKFORCE DEVELOPMENT & PRODUCTIVITY CONFERENCE AMMA Executive Director, Industry, Minna Knight “Productivity at work – challenges and opportunities under the Fair Work regime”

Thank you and good afternoon. AMMA, or the Australian Mines and Metals Association, is the national resource industry employer group and has been a vocal advocate for reform to the Fair Work legislation since its enactment. Many of APPEA’s members are also member companies of AMMA but more importantly, we all stand united as organisations within one of Australia’s most prosperous industries – an industry that demands better policy solutions for effective workforce outcomes. Today I will explore how the Fair Work Act impacts on the productivity and competitive position of employers in our national resource industry. Paying particular attention to the practical challenges faced by employers

• n a daily basis, I will outline AMMA’s key recommendations to reform the

legislation and get our industry’s productivity back on track. Industrial Action, Excessive Claims & Impact on Productivity Those who question the impact of Australia’s industrial relations laws on workplace productivity should reconsider the recent experience of Farstad Shipping, a member of AMMA who 18 months ago was involved in industry wide negotiations concerning vessel operators’ collective agreements in

• ffshore construction in the oil and gas sector.

In bargaining with the Maritime Union of Australia (MUA) under the new Fair Work Act 2009, Farstad understandably resisted claims for a 30 per cent pay increase plus a $500 per day construction allowance. Agreeing to these claims would have, in some cases, doubled the already generous salaries of each seafarer working on its vessels and resulted in significant wage blow outs in the construction and blue water aspects of its

• perations.

After some token attempts by the MUA to ‘bargain in good faith’, Fair Work Australia rubber stamped an application for the MUA to take strike action

against Farstad. The strike action that followed cost the company upwards of a million dollars a day and resulted in a serious downturn in its productivity. The company went to Fair Work Australia with an application to suspend the strike activity, known as a cooling off period. In throwing Farstad’s application out, Senior Deputy President Kaufman not

• nly noted that it was well within the law for the union to attempt to ‘bleed’

and ‘soften up’ the employer during bargaining, but that such activity was central to reaching a resolution under the legislation. From a productivity perspective, this is an employer’s worst case scenario. But this is not a rare event; we saw it again with Qantas last year and we are seeing it again with BMA in 2012 and numerous other employer across the country. Industrial Relations – The Underlying Influence The impact of a nation’s industrial relations framework on workplace productivity has always been hotly contested among IR and economic

• circles. While some commentators put the onus on managerial competency,

leadership and culture for an effective workforce, others argue excessive regulatory burdens make this impossible. In either case, after beginning its steep decline in the early 2000’s, Australia’s productivity levels remain at their lowest since 1989. Views on productivity have been dominating headlines of our national newspapers for weeks, and as late as yesterday we’ve heard differing views

• n the impact of industrial relations regulation, otherwise referred to as an

underlying influence by most economists, has on workplace productivity. The most recent stoush began when Treasury chief economist David Gruen attributed the lack of national productivity to the inferior management performance of many small Australian businesses.1 Business groups, leading economists and resource industry identities have responded quickly, identifying the government’s overregulation of Australia’s trading environment as a major problem. Problems identified include taxation issues along with a set of workplace relations policies that, by removing any flexibility around how business can use its labour capital, have made it impossible to react to new market

1 Cara Waters, Treasury blames small business for Australia's poor productivity, 11 July 2012

• pportunities; innovate for shifting consumer trends; and ultimately compete

with multi-national firms.2 Productivity and the resource industry It is commonly accepted by economists that the great new investment

• pportunities found within Australia’s resources sector in the early 2000’s was

a significant cause in the reported decline in productivity growth. This occurred not through a lack of innovation or adverse economic conditions, but the great deal of new capital investment being put into Australian projects that would not see any comparably measurable productivity outcomes for some time. To this day, capital investment in our sector continues to set record after record, with the value of approved projects in the advanced stages totalling $260 billion and an additional $250 billion worth of projects in the investment pipeline. The opportunity is certainly there for Australia’s resources projects to pull the country out of this unassailable productivity slump. In the last five years, the number of people directly employed in the resources industry has increased from 136,000 in 2007, to 266,000 as of May this year. By 2016, this is forecasted to be at least 350,000 and the federal government has indicated that for every single direct mining job created in

• ur industry, up to an additional 3 jobs are created along our extended value

chain. Some interest groups might take this great opportunity for granted, but these economic benefits are not a given and we must ensure the underlying determinants of workplace productivity are enabling, not constraining, the ability of our resources employers to deliver them. This is where the impacts of the Fair Work Act are critical. Impacts of the Fair Work Act 2009 Port Jackson Partners economic consultant Angus Taylor recently told an AMMA Conference that “combined with significant workforce requirements, productivity is critical to realising the full potential of the (resource sector’s) growth opportunity”.3

2 Geoff Winestock, Productivity: bosses blame the system, 12 July 2012 3 Angus Taylor, Earth, Wind, Fire, Water: Economic Opportunities and the Australian commodities cycle

Despite the detriments of the MRRT and Carbon Tax, the most significant threat to our industry in delivering these projects are workforce issues – the majority of which are either directly caused by the Fair Work Legislation or significantly escalated by the workplace environment the framework has created. Employers in our industry are dynamically addressing those factors in their immediate determinants of workplace productivity – those challenges we can overcome through effective management, forward planning and innovation. AMMA is involved every day with members who are utilising new training and initiatives, accessing temporary skilled migration and a variety of workforce planning and development strategies to address critical skills shortages. However in one of the most capital and labour-intensive industries in the country, uncertainty and risk created by the Fair Work legislation and the increased militancy of trade unions is a serious constraint within the underlying determinants of productivity. Fair Work Flaws The Australian Business Foundation has recently identified five major flaws in the ideology of the Fair Work Act; flaws that our employers are feeling the impacts of every day. 1) The first is the presumption of conflict in the design of the legislation, which has proven to be a massive obstacle to the encouragement of engaged and empowered employees – such a feature is integral to a highly productive workforce. The ABF rightly says there is too much focus from employers and employees to satisfy Fair Work’s procedures when solving problems rather than meeting individual needs in the workplace.4 For two years now AMMA has been conducting six-monthly research surveys with the assistance of RMIT University. Called the RMIT / AMMA Workplace Relations Research Project, the fifth and most recent report into the Fair Work Act’s impact on resource workplaces has highlighted that the number of resource employers who rated their industrial environment as unacceptable has risen by more than five times.

4 Australian Business Foundation, Productivity and Fair Work, March 2012

2) The Fair Work system fails to recognise managerial acumen and agility is a legitimate and integral feature that a fair, flexible and productive workplace relations system can foster. The ‘one size fits all’ approach to workplace agreements is a regular complaint from resource employers, given the more flexible and dynamic needs of our smaller members and exploration companies are often not easily achievable within the existing agreement options. The ABF also highlights how the enterprise bargaining system diverts managerial resources away from business activities, creates burdensome regulation and an increasing amount of compliance. Significantly, our most recent RMIT survey research has highlighted that

• f the one-third of resource industry employers who have tried to

negotiate a Greenfield agreement in the past three years, 1 in five had experienced unions refusing to make an agreement with them at all. Holding a project to ransom in this fashion not only damages investor confidence in an employer’s ability to get it off the ground, but the time spent negotiating with unions has dire consequences for the

• verall productivity level of our industry.

3) The Fair Work system directly impacts on the ability of Australian businesses to compete through making innovative business change. By increasing the perception of uncertainty and risk with labour requirements, the willingness to seek new ways of achieving commercial outcomes and creating competitive advantage is not

• nly diminished, but punishable by law.

On one hand, our resource employers are overloaded by compliance and inward focusing, rather than outwardly looking at new market

• pportunities. While on the other hand, any attempts to implement

strategies to use your workforce in new or flexible ways exposes our employers to a raft of legal implications, restrictions and atacks. Going back to our earlier examples; while Farstad’s dispute was based

• n wage conditions, elements of the more recent QANTAS and BMA

disputes came down to union interference in how management ran the workplace. These constant attempts to restrict the capacity for executives to make commercial decisions outside of union consultation are a direct outcome of the design of the Fair Work framework. 4) The design of the Fair Work Act is not aligned to the realities of modern patterns of working life. In its report, the ABF details that the present- day has seen a fundamental shift in how many people choose to work. The inability to recognise and activate a diversity of choices and

aspirations within the workforce has been proven to significantly impact on its productivity. In the resource industry, AMMA’s reporting results show an incredibly low take-up of the Act’s individual flexibility arrangements clause. While up to 80 per cent of our employer’s workplaces accessed the old-style Australian Workplace Agreements to give their workers flexibility, 60% of

• ur members now say IFA’s are useless and there is no option for

flexibility under the Act. This is a serious problem for an industry who is actively trying to engage women, mature age workers and other candidates who regularly request flexible work arrangements. Further Resource Industry Impacts It is clear that the philosophy of the Fair Work Act is severely impeding productivity growth, not only in our resource operations but in all Australian workplaces. Other results from AMMA’s most recent report of the Workplace Relations Research Project show a great deterioration in how our employers perceive the productivity of their workplaces. The table in this slide shows the perceived output per input, or productivity, of resource workplaces over the course of the survey. You can see that perceived resource industry productivity during the survey period was at its highest peak in April 2010 with 70.8% of respondents rating their workplace productivity as ‘high’ or better. At the time much of this was attributed to actions taken by resource workplaces to lock in pre-Fair Work

• agreements. In April 2012, with hundreds of these agreements expiring or

about to expire this figure had dipped to just 52%. Interestingly, when this survey was first conducted in April 2010, 92.6% of resource industry employers rated the workplace relations environment as ‘better than acceptable’, ‘good’ or ‘excellent’. Just two years later and the number of resource employers who rated their industrial environment as unacceptable has risen almost five times. Wage claims and bargaining One of the most damaging aspects of the Fair Work Act to productivity is the exorbitant levels of wage and conditions claims being experienced in the resource industry. A few anecdotal examples will help put this into context.

In the 2010 vessel operators’ dispute in the offshore oil and gas industry, maritime unions were able to secure, on the back of ongoing strike action, 37 per cent pay rises plus a $200 a day construction allowance in return for zero productivity improvements. Maritime Union of Australia (MUA) national secretary Paddy Crumlin went so far as to boast that the massive pay rises won by his offshore oil and gas members were secured without any productivity trade-offs whatsoever. In the experience of resource industry employers, productivity improvements can often not even be discussed let alone achieved during enterprise negotiations. Improvements in workplace practices are particularly elusive in Greenfield agreements, with many AMMA members reporting they had agreed to excessive demands just to get a Greenfield agreement off the ground. The mandatory involvement of unions in Greenfield agreements means employers are pressured to accept exorbitant claims or face lengthy delays to project timelines and the risk of severely denting investor confidence. On screen are the wage results from one offshore construction agreement. After an active period of the unions cherry picking the best conditions and leap frogging from agreement to agreement, the employer was virtually forced to accept the following wages for a three week on, three week off rostered employee:

• $317,734 per annum for a laundry hand;
• $334,408 per annum for a cook;
• $337,484 per annum for a tradesperson; and
• $373,701 for a barge welder per annum.

The employer is getting no productivity gains from this agreement – and it is all considered perfectly in line with the philosophy of the Fair Work Act. It is now very clear the objects of the Fair Work Act of delivering greater productivity in enterprise bargaining are not being met under the current framework. The fundamental disconnect here is that despite the Fair Work Act’s

• bjectives, there is no requirement to link enterprise agreement outcomes to

productivity improvements. Nor is there any requirement for Fair Work Australia to ask the parties to demonstrate the inclusion of productivity improvements before approving an agreement. These outcomes are clearly unsustainable.

Wider implications of the legislation In his presentation to last year’s RBA annual policy conference, well-known economist Saul Eslake said “it would be wrong to suggest that there is any single, or overwhelming, ‘cause’ of Australia’s poor productivity performance

• ver the past decade”.

In fact many economists attribute our continued productivity slump as a combination of many factors in the economic, political and social environments of industry. However, underpinning the primary concerns from AMMA and the broader resource industry about the Fair Work legislation is that the impacts of this framework transcend far beyond workplace relations matters. Let’s take a quick look at the common themes for building our national resource workforce as identified by commentators including Eslake and Angus Taylor, and how these are being impacted by the existing framework, before identifying how reforming the Fair Work Act can get us there. 1) The first requirement is to build the necessary size and composition of required future labour force. We already know we’ll need 90,000 workers by 2016, but by restricting our access to other agreement making options the Fair Work framework is restricting our use of alternative methods of sourcing talent restricting or in some cases our ability to utilise temporary foreign workers in the short-term? 2) The second theme to building our resources workforce is aligning Australia’s training and education programs with the opportunity. How many organisations in this room have experienced trade union’s attempting to raise additional funds for their own activities; by asking you to contribute to a union-owned training fund? Where do these funds go? 3) Thirdly, the industry must seek ways to increase participation rates of women, Indigenous workers and other underrepresented sources of

• talent. AMMA is aiming to increase female participation in the

workforce to 25% by 2020 through the Australian Women in Resources Alliance of which APPEA is also a member. How is reducing or eliminating flexible working arrangements through limiting our access to flexible agreement making options going to help us attract working mothers? 4) The fourth is to increase workforce mobility as required. Our industry’s use of FIFO and DIDO workforces has been under threat by misleading trade union campaigns and negotiations that claim we’re adversely impacting regional communities. Would our industry survive without

FIFO? 5) Number five is to implement a range of strategic HR management

• plans. Overt union influence in the workplace is seeing more and more

matters being placed on the bargaining table that do not directly relate to the employment relationship. How can our employers expect to develop and implement forward-thinking, engaging and dynamic workforce strategies when our current adversarial IR system pits labour against capital and allows third parties to interfere in managerial decisions? 6) And finally, as an industry we need to ensure the right industrial relations reforms are taking place to facilitate all of the above in a proactive and conflict free environment. The Australian Business Foundation states that “how enterprises apply their skills and competencies to the intensive search and execution of competitive business

• pportunities

increasingly determines Australia’s productivity

• utcome”.5

The impact of the Fair Work Legislation at a much broader level than specific IR matters comes down to the definition of productivity in the modern marketplace. Through a rise of information and knowledge, technology and service-

• rientation as the primary drivers of competitive advantage in the modern

economy, productivity now encapsulates an organisation’s ability to innovate, diversify, capture cross-functional strategic-fits and reinvest in research and development. For this reason government cannot disregard the underlying influence of industrial regulation and policy settings which have powerful constraining or enabling effects as to whether a business owner can pursue new

• pportunities and innovation.

5 Australian Business Foundation, Productivity and Fair Work, March 2012

An opportunity for reform The Federal Government has this year conducted an independent panel review of the Fair Work Act, in which numerous stakeholders made extensive submissions. AMMA’s submission was one of the most comprehensive in this process and

• utlined exactly what I have presented to you today.

Some of the key areas from the 54 recommendation for reform that we made to this process include: Productivity improvements: When lodging enterprise agreements for approval with Fair Work Australia, parties must be required to demonstrate how they have considered productivity improvements as part of the final agreement. Internal regulation: High income earners, above the $118,100 unfair dismissal limit, should have the ability to elect to enter into direct employment arrangements with their employer. Workplaces should also have the option of voting for an internal regulation model of industrial relations. Agreement making: Agreement content should be restricted to matters pertaining only to the employment relationship between employers and

• employees. Fair Work Australia should also have the power to make a

Greenfield determination agreement for resource projects, subject to a ‘better off overall’ test where the agreement making process is being frustrated by reckless claims or militant union behaviour. Right of entry: Unions should only have right of entry to a worksite if they have members on that site, if the members requested the union’s presence and if the union was a party to the enterprise agreement related to that site. Adverse action: Adverse action provisions are unjustified and if not removed entirely, the Act must ensure claims are only able to proceed if the alleged prohibited reason was the sole or dominant reason for the adverse action being taken, not one of several factors. Individual flexibility: Parties should be able to agree on the terms of an individual flexibility agreement that leaves the employee better off overall and protects the employer from any form of industrial action for the life of the agreement. Protected industrial action: Protected industrial action should not be permitted where the claims sought are not considered to be in the public

• interest. The majority support of all employees that will be subject to a

proposed enterprise agreement should be obtained before any employees can embark on protected industrial action. Unprotected industrial action: The legislative mechanism under which the courts can order work to resume following unprotected industrial action should be reviewed to ensure it is more responsive to the needs of employers who are subject to damaging and costly unlawful industrial action. There are numerous examples of illegal industrial action occurring, with both Fair Work Australia and Federal Court orders having been ignored. These eight recommendations, all leading to the restoration of the ability for employers to engage and negotiate directly with their workforce, underpinned the industry’s submission to the Fair Work Review - as such an employment relationship is integral in our resources industry. Australia is not isolated from global competition and our legislative framework must reflect the industrial freedoms of an advanced economy. In addition to mechanisms to protect the low paid, our workplace laws should also provide for and facilitate employee engagement and productive, competitive workplaces. Conclusion So what to make of this rather dismal outlook on Australia’s IR laws and the soon-to-be finalised Fair Work Review? The government needs to take action to fix the problems with Australia’s IR laws, and the Fair Work Act review is the perfect opportunity to make meaningful change. But despite the growing evidence that the Act is facilitating a return to workplace restrictions, union disputes, wage blow-outs, lower productivity and excessive transaction costs to employers and the opportunity through the review to address these issues– there is a view across the industry that we may not see significant changes from this process. Disappointingly, both the Government and Opposition seem reluctant to acknowledge industry’s concerns about the damage the framework is doing to Australia’s productivity and workplace performance. More disturbingly, despite the opportunity being there for Australia’s resources projects to contribute to pulling the country out of this unassailable productivity slump, the government has at times appeared to be in tandem with unions in seeking to silence any criticism of its IR laws, even from respected sources like Productivity Commission Chairman Gary Banks and Australia’s largest company, BHP Billiton.

There are only a small number of areas that AMMA believes the federal government will likely act upon in its review. To be fair, it is worthwhile noting that we have been encouraged by some suggestions within Government that the industry’s concerns with Greenfield Agreements may be addressed. In the short term, your organisation can assist APPEA and AMMA to convince the government and the Opposition that the Fair Work Act Review is a great

• pportunity to return productivity to our workplaces.

Because in the long term, when government and unions seek to kill off any robust discussion about the key drivers of workplace productivity and efficiency, AMMA, our members and a united industry will be right there to encourage reform.