Business and Politics Report Labour Markets CLM MLE1 (E)

Employment Regulation in the UK and Australia

By: Tina Marie Srensen and Anna Mlgaard Hansen Teacher: Malene Djursaa Autumn 2010

UK spelling 11 pages (incl. front page and list of references)

Employment regulation (employment protection/security) in the UK In any free market, the question of how much state involvement should be allowed is always raised. At one extreme of the continuum, we find the neo-liberalists and one the other, the institutionalists. Businesses and employers tend to favour the neo-liberalist approach, which allows them to be more competitive and gain an economic advantage. However, the employees and unions favour the institutionalist approach, hoping to balance the relationship between employer and employee and not risk the fear of creating an unequal society. To them, state regulation is necessary in order to provide a safety net for employees. But how extensive is it possible to make the safety net without disturbing the mechanisms of the free market? The following will discuss some of the characteristics of employment protection in the UK. Types of protection In the UK, there are different types of employment protection, balancing the relationship between employer and employee and trying to create an equal society, where everybody can participate. Throughout history, the UK government has taken a number of initiatives in this respect, and the New Labour government continues to develop and revise employment terms and conditions such as the recently introduced national minimum wage, working hours, annual leave, parental leave and regulation concerning dismissal just to name a few. As in most countries, it can be rather difficult and complicated to find one's way through the jungle of employment regulation. In the following, some basic characteristics of the above-mentioned employment terms and conditions will be outlined, and the national minimum wage will be discussed in more detail. Working hours: employees have the right to work no more than a total of 48 hours a week and the choice to work more. If one wishes to work more than 48 hours a week, this must be agreed on with the employer, and the employee can opt out of this agreement at any time but with a notice period of 7 days or more. For young workers, i.e. people under the age of 18 but older than the school leaving age, the working hours pr. week must not exceed 40 weeks (Directgov, 2010). Parental leave: The statutory maternity leave comprises 26 weeks of ordinary maternity leave and 26 weeks of additional leave. Notice must be given to the employer at least 15 weeks before the beginning of the due date-week, and the maternity leave can begin 11

weeks before this week. The father of the child has a right to two weeks of paternity leave (Directgov, 2010). Annual leave: minimum 5.6 weeks (Directgov, 2010). The national minimum wage The national minimum wage in the UK was introduced in 1999, after the Labour Party had won the 1997 general election (Edwards, 28. April 1999), and it was received with differing opinions. The more neo-liberalist conservatives and the business community opposed the minimum wage claiming that it would be a burden to the labour market; it would destroy up to two million jobs and raise inflation and interest rates, because the better paid workers would claim a similar wage increase as that of the low-paid workers (Center for economic performance). They also feared that it would have the negative effect that firms would hire less people, thus not contributing to establishing an equal society. However, the Conservative Party's policy changed over the years, and there is reason to believe that they would take on the minimum wage policy if they are elected at a general election. Despite the above-mentioned worries, the implementation of the minimum wage did not seem to have the negative effects first anticipated, but at the same time, it does not seem to have had generated major positive effects as well. Research shows an only limited effect on overall wage inequality, though it is also debated whether wage inequality would have risen more if the minimum wage had not been introduced, leaving pay terms solely to the businesses. The minimum wage increases 1 October every year, and has increased from 3.60 in 1999 to 5.93 in 2010 for adult workers. 2010 has also seen other changes to the minimum wage, because the adult rate now begins at 21 instead of 22 years. In addition, for the first time, apprentices are now covered by the minimum wage as well (BBC News, 30 September 2010). The debate about the minimum wage and the effect that it turned out to have brings us back to the question of have much state involvement should be allowed in a free market. It was believed that an implementation of a national minimum wage in the UK would disturb the mechanisms of the free market and that it was too much state interference. However, the effects of it proved somewhat different, and today the minimum wage is an integral part of the UK free market.

Introduction to employment regulation in Australia To be able to talk about employment regulation in Australia and to understand the never-ending debate about just that between several struggling partners, an overview of the history and traditions of industrial relations in Australia is imperative. The following sections will be chronologically structured in terms of the development in Australian industrial relations policy and thereby employment regulation and will continuously bring in different actors opinions, demands and criticisms, namely employer associations, labour unions and shifting governments. Historical roots of Australian industrial relations As a response to economic depression and industrial conflict during the 1890s, Australia developed a compulsory conciliation and arbitration system with the foundation of the Commonwealth Arbitration Court in 1904. At the centre of the system were the so-called awards which regulated the rights and obligations of employees and employers. Industrial tribunals started to function in the 1920s and had the power to settle industrial disputes. They would enforce their decisions through the creation of awards and would bind whole industries and groups of people to specific awards (ACCI, 2006, p. 1; Lansbury, 2007, p. 629). The main parties were the employer associations on the one hand and unions on the other, who could both bring grievances before the tribunals. As the awards prescribed all wages and work conditions of parties to a dispute, the system of compulsory arbitration became an important instrument in for wage policy, and employment regulation in general, and created the foundation of a labour market regulation based on centralised approaches during most of the 20th century (Lansbury, 2007, pp. 629-630). Later on, this regulatory approach to industrial relations has among employer associations been regarded as a system which saddled employers with an unparalleled level of complexity and bureaucracy (ACCI, 2006, p. 1). A change in ideology During the 1970s-1980s an ideological change in political thinking occurred, fuelled by prominent world leaders such as Ronald Reagan, Margaret Thatcher and Deng Xiaoping. The liberal democratic model and policies and elements of the capitalist free market soon spread to the whole world (Blandy, 2006, pp. 5-7). Moreover, this change in ideology in many countries seem to have brought with it economic prosperity and growth and social success (p. 8).

In Australia, the change in ideology meant, among other things, that an increasing number of employers, policymakers and some unions believed that Australias approach to employment regulation was increasingly out of date with the imposing liberal democratic model of policy (ACCI, 2006, p. 1). Even though during the 1980s the labor governments economic policy progressively focused on market forces and decentralisation of labour market regulation, it was not until 1993 a significant move towards decentralised labour market regulation was introduced (Lansbury, 2007, p. 634). 1993 marked the year of the Industrial Relations Act and the introduction of an enterprise-bargaining regime. Employers could now make agreements with the unions or directly with their employees. Especially employer associations were strong advocates for this change in bargaining, as it for example was argued that wage negotiations now would be negotiated in accordance with measures to improve efficiency and productivity (p. 635). However, awards still remained an important instrument in regulating employment relations. In 1996, Australia changed its government. John Howard and his coalition liberal and national party government took office and started a period of the most significant legislative changes in industrial relations Australia had seen in 100 years (ACCI, 2006, p. 2). With the Workplace Act 1996, focus was now on bargaining on an individual workplace or enterprise level with negotiations occurring directly between individual employers and employees. It was argued that the enterprise level was the most appropriate level of bargaining in order to maximi[s]e economic efficiency and cooperation within the working relationship (Lansbury, 2007, p. 636). Award conditions were reduced and Australian Workplace Agreements (AWAs) were introduced. For the first time in Australia registration of individual, union or non-union, agreements was permitted to prevail over awards or collective agreements. The introduction of the AWAs made it easier for employers to avoid the unions and the changes thereby, arguably, increased employer managerial power. The Act furthermore outlawed closed-shop agreements and secondary boycotts and restricted the right to strike to the duration of the bargaining period of a collective agreement (Dabscheck, 2008, p. 1; ACCI, 2006, p. 1; Lansbury, 2007, p. 635-637, Blandy, 2006, p. 10-11). Work Choices Act 2005 In 2005 the famous and, as will be discussed below, widely criticised Work Choices Act was passed. It was an amendment to the Workplace Act of 1996 and since the Howard government now had a majority in the Senate, it could pass industrial reforms which previously had been rejected by the Senate. They included:

The award system was reformed further and reduced to five statuary minimum employment conditions (annual leave, parental leave, personal or carers leave, maximum ordinary working hours and minimum wages) Pay rates and classification scales were separated from awards A new independent body, the Australian Fair Pay Commission, was established to set and adjust minimum wages and even tighter control with trade unions and industrial action was imposed. The liberal government argued that the reforms were necessary in order to achieve higher productivity, lower unemployment and increased wages, and to many employer groups this act was the achievement of the neo-liberal reforms they had advocated since the 1980s (Lansbury, 2007, pp. 636-637). On the other side of the industrial relationship we have the unions. They were highly critical of the legislative changes of the Work Choices Act. They were concerned about a great array of issues such as: the minimum wages which they said would have no guarantee of keeping up with inflation, the reduction in the number and scope of enforceable minimum conditions and the rationalisation of awards would further disadvantage the low-paid and workers with weak bargaining power, and the restrictions on the right to take lawful industrial action and engage in pattern bargaining breached Australias obligations under International Labour Organization conventions (Lansbury, 2007, p. 637). In general was argued that with the Work Choices Act many rights and working conditions of workers were heavily restricted. The changes the Act imposed made it difficult for unions to do their job, namely protect the rights of the workers. It was made difficult for them to enter workplaces, organise workers and negotiate on their behalf (p. 637). Furthermore, it has been a major argument that the laws in connection with the Work Choices Act focused on the economic needs of the corporations rather than on the balance between the interests of employers and employees. Dabscheck (2008) argues that given the reductions in rights the Act imposed, it came as no surprise that some employers took advantage of that and cut back on wages and other employment conditions (p. 1). The supposedly loss of a safety net which came with the award

system and underpinned agreements and its replacements by a few statutory conditions created great concern. Low-paid and low-skilled workers would arguably suffer from the fewer safeguards (Lansbury, 2007, p. 638). A change in government After 11 years in opposition, the Labor Party won the federal election of November 24, 2007. By that time, the Work Choices Act, and thereby the government had become increasingly unpopular, partly because several studies, including one of the governments own, had shown that almost all AWAs disadvantaged workers (Harkness, 2008, p. 16). Labors opposition to Work Choices was argued to be the single reason for their victory. Labor wanted to abolish AWAs and create a new safety net. Furthermore, collective enterprise bargaining was to be in the centre of the Labors new industrial relations system. Improved worker conditions were in focus in Labors new act on industrial relations as employers now had to engage in good faith negotiations if the majority of the workers voted to bargain collectively (Dabscheck, 2008, p. 2; Cooper, 2010, p. 265). It was argued at the time however that Labor, and thereby the new PM, Kevin Rudd, generally softened its anti-WorkChoices policy because of loud opposition from business (Harkness, 2008, p. 17), which shows just how many actors in the policy making of industrial relations have to be heard in order to be satisfied. 1 July 2009 marked yet again a new turn in the development of industrial relations in Australia. Labors new industrial relations policy Fair Work Act came into effect. Many of the above mentioned wishes for a new policy became a reality. The Fair Work Act, which functions today, is vested in the new national regulator, Fair Work Australia (FWA), which to some degree contains elements from the Howard government legislation, but also includes a rather extensive modernisation of the award system and the introduction of the new National Employment Standards (NES). At the end of 2009, 122 new awards was created, with the purpose to neither disadvantage employees nor increase costs for employers (as stated by Gillard (2009) in Cooper, 2010, p. 264). Furthermore, AWAs are now completely removed and unions are supposed to be bargaining representatives in enterprise agreements. Unions are now also allowed to enter a workplace and hold discussions with workers (Cooper, 2010, p. 265). The NES includes a minimum standard of conditions which is to function in cooperation with the new award system. The protections are for example: maximum weekly hours of work, parental leave, redundancy pay, notice of termination and annual leave.

It is being argued that FWA finally makes up for the loss of rights and conditions in labour market relations Work Choices brought about. According to Burrow (2009), president of the Australian Council of Trade Unions, the Work Choices Act smashed job security and forced employees to sign unfair individual contracts in order to keep their jobs. With FWA everyone is protected from unfair dismissal (Burrow, 2009), and through NES wages are protected by a newly raised minimum wage, which now has reached AUD 15 per hour (Fair Work Australia, 2010). Unions are content, and since the FWA policy seems as cooperative approach to industrial relations policy seen in for example its collective enterprise bargaining, should not the businesses be as well? Evidence show that in 2009, employers in many sectors attempted to pre-empt the regulations of the FWAs new bargain regime. An overall increase in agreements made without unions suggested that employers were rushing to avoid both the requirements of FWA system and the increased involvement of unions in the new bargaining system (Cooper, 2010, p. 268). Concluding thoughts From what we have seen above, the struggle between employer associations, trade unions and governments is an ongoing process. The industrial relations policies seem to be shaped by their history and the time in which they function. Neo-liberal thinking is on the agenda and has been since the 1980s especially. Unions recognise a decentralised approach to industrial relations, but not a major reduction in employment protection and security as was seen in the period of the Howard government. Businesses want to protect themselves as well, their competitiveness on the market and economic prosperity and thereby contribution to the Australian economy, and do not wish to be regulated by a third party in matters which they feel they control much better themselves. How is this area of conflict best handled? The current government have put forward their suggestion, but maybe it is just a matter of time before the history and time in which we live change and a new government have their go.

List of references Australian Chamber of Commerce and Industry (2006). Implementing Work Choices reforming the industrial award system. Issues Paper, March 2006, 1-6. Retrieved October 9, 2010 from www.acci.asn.au/.../March%2006%20-%20Implementing%20WorkChoices.pdf. This is a text presenting an Australian employer associations point of view on industrial relations. It takes a very appropriate stand on the controversy regarding conciliation and arbitration systems, however and also explains very well the history of the award system in Australia. BBC News (30 September, 2010). Minimum wage up to 5.93 an hour. Accessed 11 October 2010 from:http://news.bbc.co.uk/onthisday/hi/dates/stories/april/1/newsid_2465000/2465397.stm Blandy, Richard (2006). Australian Labour Market Reform What Needs To Be Done?. Australian Bulletin of Labour, Vol. 32, No 1, 1-17. Retrieved October 9, 2010 from EBSCO database. Burrow, Sharan (2009). Employees Enter a New Era of Rights. Sydney Morning Herald. Center for Economic Performance. Policy Analysis: The National Minimum Wage: The Evidence of its Impact on Jobs and Inequality. Accessed October 11, 2010 from http://cep.lse.ac.uk/pubs/download/pa006.pdf An short but interesting analysis of the actual impacts the national minimum wage has had on jobs and inequality. It also covers the questions of whether the national minimum wage has reduced labour market inequality and employment. Cooper, Rae (2010). The New Industrial Relations and International Economic Crisis: Australia in 2009. Journal of Industrial Relations, Vol. 52, Issue 3, 261-274. Retrieved October 9, 2010 from EBSCO database. This is a rather interesting academic article about industrial relations in Australia in 2009. It brings into the argumentation the effects of the Global Financial Crisis and how it has contributed to shape Australias current policies in industrial relations. It sums up the framework surrounding the industrials relations polices and employment regulation as put forward by the current government and questions what is new and what is not, and what the new system means to its surroundings.

Dabscheck , Braham (2008). Industrial Relations Under The Rudd Labor Government: Establishing A New Safety Net. Eco Date, Volume 22, Number 3, 1-6. Retrieved October 9, 2010 from EBSCO database. Directgov (2010). Working time limits (the 48-hour week). Accessed October 11, 2010 from http://www.direct.gov.uk/en/Employment/Employees/WorkingHoursAndTimeOff/DG_10029426 This is a government site, where you can find a lot of information about the UK society targeted at the general pubic. If you are interested in finding specific details and up-dated information on employment regulation, e.g. the national minimum wage, scroll down to 'employment', and you will find everything there is know. It should be mentioned that site covers more factual information about the specific areas and not so much debate and discussion. Directgov (2010). Statutory Maternity Leave. Accessed October 11, 2010 from http://www.direct.gov.uk/en/Parents/Moneyandworkentitlements/WorkAndFamilies/Pregnancyand maternityrights/DG_10039631 Directgov (2010). Annual leave and holidays. Accessed October 11, 2010 from http://www.direct.gov.uk/en/Employment/Employees/Timeoffandholidays/DG_184563 Edwards, P. K. (28 April 1999). The UK's first national minimum wage. Accessed October 11, 2010 from http://www.eurofound.europa.eu/eiro/1999/04/feature/uk9904196f.htm Fair Work Australia (2010). Australian minimum wages. Retrieved October 10, 2010 from http://www.fwa.gov.au/index.cfm?pagename=minabout#current. Harkness, Peter (2008). Labor Market Reform in Australia: The New Industrial Relations Law and the Elections. Monthly Review: An Independent Socialist Magazine, Vol. 59, No 8, 38-56. Lansbury, Russell D., Wailes, Nick & Yazbeck, Clare (2007). Different Paths to Similar Outcome? Industrial Relations Reform and Public Policy in Australia and New Zealand. Journal of Labour Research, Vol. 28, No 4, 629-641.

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Other useful sources: www.businesslink.gov.uk Another government site, this time for the business community, but also very useful when searching for information about e.g. employment. www.fwa.gov.au Fair Work Australias website.

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