A failure of enterprise bargaining mechanics

Enterprise bargaining is meant to let employers and employees negotiate mutually beneficial deals. When companies struggle, as in the case of auto manufacturers, it can leave both worse off.

History is set to repeat itself in the pampered world of automotive manufacturing.

According to recent media reports, General Motors and Toyota may seek additional financial assistance from the Commonwealth government on top of an estimated $1 billion they have received over the past decade.

Automotive manufacturing has struggled to remain profitable amid rising costs, an appreciated currency and robust competition. Once again the industry, in concert with the unions, has its hand out for more public assistance in the name of ‘saving jobs.’

One reason automotive manufacturers may find it difficult to improve their performance and save jobs is because of difficulties in our current enterprise bargaining system.

Enterprise bargaining is supposed to be a flexible system where employers and unions or employees negotiate mutually beneficial deals. It is the cornerstone of our current industrial relations system, with roughly 40 per cent of workers covered by enterprise agreements.

However, enterprise bargaining is not as flexible as it purports to be, particularly in periods of economic hardship.

Last year, Toyota shed 350 workers from its Altona plant, and Holden announced 200 workers would be cut from its Adelaide production line. Yet consider the deal negotiated between Holden and its unions early last year: An 18 per cent wage increase over three years, made up of 3 per cent each year, and bonuses of up to $1,750 for workers disadvantaged by the global financial crisis.

Sacking some workers and giving other workers a pay rise does not sound like a sensible strategy for a company in financial trouble. An agreement that cut the largest single business expense – wages – would have made it possible to hold on to more jobs.

Yet this rational outcome is difficult to achieve in the cosseted car industry.

Part of the problem is the ready recall that the industry has to public subsidies. Sweetheart deals between car companies and unions could not continue without government ‘co-investment.’

Simply withdrawing subsidies would not solve all the problems. Car companies would still need to make deals with their unions that meaningfully cut labour costs, and this is where our bargaining system becomes inflexible.

General Motors, Toyota and co still have to deal with an enterprise bargaining system that is flexible upwards, but not downwards.

It is easy to negotiate productivity measures when profits are healthy: If the company is competitive, the employer can incentivise workplace change with pay increases. Cutting costs in tougher times is much more difficult, especially if the union is not willing to contribute to job-saving cuts in labour costs.

There is very little an employer can do if the union or the workforce simply refuse wage cuts. The employer cannot take industrial action to enhance its bargaining position, because under the Fair Work Act, employers can only take industrial action in response to employee action.

This makes the situation even worse if the enterprise agreement is relatively new. Enterprise agreements typically lock in yearly wage increases, so the employer could be looking at the prospect of even higher wage costs the following year.

Management is thus left between a rock and a hard place, where the only option is expensive and divisive – redundancies. Some workers keep their jobs, while others have to take one for the team.

This is not how we want our enterprise bargaining system to operate. These rules affect the ability for all businesses to remain competitive.

When introduced in the early 1990s, enterprise bargaining was slated as a game changer in labour market reform – a framework that would facilitate productivity, inject flexibility into the labour market, and address Australia’s competitiveness problem.

Bill Kelty, then Secretary of the Australian Council of Trade Unions, announced that the new system would ‘create more interesting and financially rewarding jobs, by stimulating greater worker involvement in all aspects of the way their... workplace operates, thereby driving enterprise reform and pushing up productivity levels.’

Although enterprise bargaining has produced positive results, the system needs, at the minimum, some flexibility downwards.

Employers need to be able to negotiate tough enterprise deals if and when financially necessary, particularly when jobs are at stake. Making the enterprise bargaining system more flexible is also essential to finally end the saga of government-funded sweetheart deals between car companies and manufacturing unions.

Alexander Philipatos is a policy analyst at The Centre for Independent Studies.

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