Productivity Commission report: ‘Workplace Relations Framework’

Workplace Directions

On 4 August 2015, the Productivity Commission (‘PC’) released their draft report regarding Australia’s workplace relations framework. The key recommendations of the PC relate to penalty rates, the role of the Fair Work Commission (‘Commission’), introduction of enterprise contracts, payments for public holidays and unfair dismissal / general protections claims. The recommendations are summarised below.


In December 2014, the PC was commissioned by the Federal Government to undertake this inquiry. The scope of the inquiry is to assess the performance of the workplace relations framework, including the Fair Work Act 2009, focussing on key social and economic indicators important to the wellbeing, productivity and competitiveness of Australia and its people.

The ‘Workplace Relations Framework’ report is a report to government, not of government.

Penalty rates

The PC’s discussion on penalty rates focusses largely on the hospitality, entertainment, retailing, restaurants and café industries. The PC does not deny that penalty rates for working asocial hours are warranted, but rather they question the ‘right’ level for penalty rates, taking into account the particular demands of these industries.

In relation to Sundays in particular, the PC found that the social cost of daytime work on Sunday is similar to that on Saturday and is consistently lower than evening work. The PC has recommended a reduction in Sunday penalty rates for these industries so that they are equal to those for Saturday work.

The PC considers that this reduction will result in greater workforce participation, by providing employers with the capacity to employ more staff and increase their opening hours on Sundays.

The Fair Work Commission

The PC recommends some institutional reform regarding how the Commission conducts its conciliation and arbitral functions in contrast to how it administers the annual wage review and the four yearly review of modern awards.

The PC viewed that history and precedent play too big a role in award and wage determinations. It considers that the Commission should place more weight on economic, statistical and social data, and conduct award and wage reviews based on research and evidence rather than submissions from the major industrial parties. The PC also recommends that the four yearly review of modern awards should cease and that reviews be done on a needs basis in the future.

The PC also recommends that there should be two distinct divisions within the Commission. The first would be a ‘Minimum Standards Division’ to deal with wage and award determinations; this would be comprised of experts in economics, social science and commence. The other would be a ‘Tribunal Division’ responsible for the judicial function of the Commission, comprised of legal professionals as well as those from commercial dispute resolution backgrounds, Ombudsman offices and economists.

Enterprise contracts

The PC has recommended a new type of agreement that spans individual contracts and enterprise agreements – the ‘enterprise contract’.

The enterprise contract would permit employers to vary an award for entire classes of employees or a particular group. The current arrangements only allow an employer to do this on an individual level (‘IFAs’). An enterprise contract would be more flexible than an enterprise agreement, as employers could offer it as a condition of employment, workers would not be required to be part of the preparation, and employers would not have to undertake the lengthy and costly ballot process.

The PC considers that this type of agreement will meet the needs of small to medium sized businesses who may perceive the procedural aspects of bargaining to be daunting and expensive.

Public holidays

The PC report states that the national workplace relations system is not meeting its substantial goal with regards to public holidays because of interstate variations. Currently, each state and territory in Australia has the power to unilaterally vary public holiday conditions for workers in the national system.

The PC recommends that the National Employment Standards be varied so that employers are not required to pay for leave or any additional penalty rates for any newly designated state and territory public holidays.

In relation to awards more specifically, the PC recommend that all awards should provide more flexibility and include provisions that allow for the ‘swapping’ of public holidays to days that suit the needs of particular workplaces. At the moment, these provisions are contained in around 70% of the modern awards, but with varying terms.

Unfair dismissal / general protections

The PC report states that the purpose of the unfair dismissal laws is to balance the needs of business prerogative and the rights of employees to fair treatment. The PC considers that the most problematic aspect of the current unfair dismissal laws is the procedural aspect, which may allow an employee to be reinstated or awarded compensation because of procedural lapses by the employer. The PC recommends that procedural errors should not be a sufficient basis to award compensation or reinstate an employee.

In addition, the PC also recommends that there be:

  • More merit analysis of claims in the early lodgement stage
  • Higher lodgement fees (dependent on the employee’s income)
  • Removal of the emphasis on reinstatement as the primary goal
  • Removal of the Small Business Fair Dismissal Code, with a focus on other informative and regulatory means to assist small businesses.

The PC report states that the general protections provisions, although providing legitimate protections for workers, are broad and sometimes ambiguous. The uncapped compensation provides an incentive to workers to make adverse action claims as they appear more lucrative, and the reverse onus on employers can trigger problematic discovery in the event the claim goes to Court. The PC also recommends that the meaning of ‘complaints’ in adverse action claims requires better definition.

Final report

The recommendations made by the PC are recommendations only. It will be up to the Commission, as well as legislative reform for these recommendations, to have an actual effect. The PC has invited further comment and submissions on the draft report, and intends to publish its final report in November 2015. If you require any advice regarding the content of the report, or assistance with making submissions to the Productivity Commission please get in contact with us.

Authored by Tim McDonald, Partner, Sydney.

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