Appeasing unions is taking its Toll

Toll’s deal with the Transport Workers Union underscores that cartel-style agreements are not confined to construction and are damaging Australia’s productivity.

We now at last know a vital but hidden reason why Australia’s productivity is so bad: a series of employers in key industries have done deals with unions which greatly curb their own -- and their competitors’ -- ability to lift productivity.

We have known for some years about the cartel-style deals in the commercial building industry to restrict competition by giving unions the right to approve subcontractors and to cause productivity to fall, lifting prices by 15 to 30 per cent. Now, we discover that such anti-productivity deals between employers and unions extend to transport, Australia-wide. In transport our largest operator, Toll, has done a deal with the Transport Workers Union which takes the commercial building cartel-style deals much further.

The existence of cartel-style deals between employers and unions to restrict productivity in two of our key industries -- transport and commercial building -- and the likelihood that similar deals exist in ports and some areas of mining means that we have all been looking in the wrong directions to improve Australia's low productivity, albeit that productivity is improving.

The Toll-TWU deal is described in graphic detail in this morning’s Australian by Grace Collier (Little people are the victims of union-business harassment, July 16). Her source is none other than evidence given to the TWU Royal Commission under oath by Damian James Sloan, Toll’s senior legal counsel, workplace relations and safety.

I never dreamed these sort of deals existed in Australia so let me explain how the Toll-TWU deal works.

  • Toll pays some $150,000 a year into a union-owned company. A portion of the money (about $25,000) is dependent on the TWU taking action against Toll competitors

  • In 2011, 2012 and 2013 the agreement required the union to attack one Toll competitor each year. It appears the union and Toll would each year agree on the target and the union was required to conduct audits, wage inspections or other ‘compliance’ investigations. The union was also required to report to Toll what it discovered and ‘prosecute’ the Toll competitor if any breaches were discovered. The union used its special rights of entry under the Fair Work Act.
  • Last year the agreement was extended so the union was required to attack five agreed Toll competitors each year in 2013, 2014, 2015, 2016 and 2017. Again the union reports all results to Toll. We do not know the Toll rivals listed for attack but Allied Express believes it was picked out and is talking about suing. 

  • Incorporated in the $150,000 is $25,000 a year for training that is not required because Toll does its own training. And the union is required to find more contributors to the union-owned company to match Toll's contributions. Is there any way that such an agreement be defended? It's true that as a result of investment Toll'ductivity has improved but it could have done do so much more with flexible labour when it was not worrying about competitors. 

Damian Sloan has a chilling, but I have no doubt truthful, explanation. Toll found that the only enterprise agreement that it could secure might put it at a significant disadvantage to its competitors. It had three choices: have a fight with the union, which would hit profits and market share; operate on a higher-cost basis and again lose market share; or get the union to bring everyone into line. (There is also mention of the need for high industry standards.)

Bringing everyone into line made most sense to Toll. We see a similar pattern in commercial building where the unions approve all subcontractors and many employers contribute to the union slush fund. In both cases prices simply rise and productivity improvement is greatly diminished because anyone who can do a better deal with their labour force is discovered and the results reported to Toll (transport) or they lose their right to subcontract (building).

Now we know why when Daniel Grollo challenged the building cartels only Boral supported him. Boral shareholders were then hit and their rivals took the business. Institutions like the ACCC and the Productivity Commission are either looking in the wrong directions or, deep down, reckon it's all too hard. But Boral's Mike Kane has shown that the deeper and less recognised problem is with big employers.

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