So Much For Compulsory Arbitration


26 March 2011 is a milestone in Australia’s social and industrial history. On this date, Australia’s industrial relations legislation will no longer be in any way based on the power given by section 51 (35) of the Constitution to the Australian Parliament to make laws for the prevention and settlement of industrial disputes by the means of conciliation and (compulsory) arbitration. It might sound obscure but it’s an important change in industrial relations in this country. 

First proposed by South Australian Charles Kingston in 1890, a dedicated power for conciliation and arbitration was an antipodean innovation. The power was included in the Australian Constitution at the suggestion of Henry Bournes Higgins, Australia’s pre-eminent labor relations jurist. It was the basis of the Conciliation and Arbitration Act in 1904, one of the few pieces of early Australian legislation not drawn from a UK or US precedent. In those societies, collective bargaining ruled, meaning that the state had little role in establishing standards for wages and conditions.

Australia was different.

As a response to the great disputes of the 1890s in the pastoral and maritime industries, Australia shunned strikes and lockouts in favour of state intervention and compulsory binding arbitration when workers and employers could not reach agreement. While the state had a significant role to play, the legislation also encouraged the formation of representative bodies of employers and employees who became the driving forces of industrial relations.

The Conciliation and Arbitration Act was repealed in 1988 and successive governments began to vary the constitutional basis of industrial legislation.

The Howard government’s 2005 WorkChoices laws were based on the Commonwealth’s power to legislate with respect to corporations — rather than the conciliation and arbitration power. By this means, the government was able to put into effect its radical conservative program which took much of the initiative in the system out of the hands of the industrial parties — except with respect to collective bargaining.

For example, before 2005 a national wage case commenced only when the ACTU made an application for an increase in minimum and award wages. Awards were created and varied on application by unions or sometimes by employers.

WorkChoices took these roles from the industrial parties and gave them to government agencies such as the former Fair Pay Commission. All existing industrial awards and agreements based on the old conciliation and arbitration power were given a five year sunset clause from the date of proclamation of the WorkChoices laws: 26 March 2006.

The Rudd/Gillard Government’s 2009 Fair Work Act also placed its eggs in the corporations basket — albeit with some continuing reliance on the external affairs power and referral of State IR powers to the Commonwealth.

Thus on 26 March 2011 all instruments based on the conciliation and arbitration power will cease to have effect.

In an immediate practical sense, this will have little impact since all states other than WA have already referred their IR powers to the Commonwealth. But down the track, the new reliance on the corporations power may have significant consequences. This is because the idea — and the practice — of compulsory arbitration is fading away.

Fair Work Australia still acts as an arbitral tribunal but the emphasis has changed.

Employers and employees are consulted by Fair Work Australia as it goes about its work of award making and wage setting, but they do not drive the process in the way they used to: Fair Work Australia operates on its own motion, so to speak. The Rudd/Gillard government abolished the Fair Pay Commission and gave the job of annual wage reviews back to the new Fair Work tribunal. The timing of the reviews is now set by legislation, not by the parties.

Similarly, the "modern" awards created by the former Industrial Relations Commission were created by the tribunal at the direction of then Workplace Relations Act Minister Julia Gillard in accordance with terms dictated by her and the Workplace Relations Act. Employers and unions were consulted but did not really own the outcome.

The one area in which the parties can still operate largely independently is bargaining for enterprise agreements. Here, the state has stepped back and allows the parties to slug it out while tribunal members are forced by law sit on their hands.

Certainly enterprise agreements must meet certain minimum requirements, but in normal circumstances, the parties can resort to the old methods of strikes and lockouts to pressure each other into agreement — and the State is legislatively powerless.

The Fair Work Act requires parties to bargain with each other in good faith, but does not require them to reach agreement. If they do not reach agreement, Fair Work Australia will not arbitrate any outcome, other than in certain relatively narrow circumstances. If they do reach agreement, agreements must include a dispute settling clause — but this does not have to include binding arbitration as a last resort.

In adopting this course of legislative policy, the Australian Government is now imitating the American model of collective bargaining whereby the state and the process of arbitration have no place in negotiating an agreement — and where strikes, lockouts and striker replacement by non-union workers are common.

Under the Fair Work Act there is really only one form of enterprise agreement — one made between an employer and his or her employees. Unions can play a role as bargaining agents if they have members. This is a significant right but it is also the nub of the problem. The Conciliation and Arbitration Act of 1904 had as one of its fundamental objects: "To facilitate and encourage the organisation of representative bodies of employers and employees."

That’s gone out the window. You won’t find this object in the Fair Work Act — the current system is totally agnostic as to whether unions are to be encouraged or not.

Under the Conciliation and Arbitration Act, unions flourished, representing at their peak in 1962 more than 60 per cent of all Australian workers. Today, unions represent just 20 per cent of all workers and in the private sector the figure is closer to 14 per cent.

This means that 80 to 86 per cent of workers are not organised and really have no collective strength. Non union workers can appoint bargaining representatives to negotiate an agreement but their ability to pressure an employer is — for all practical purposes — non-existent. Most non-union workers will ultimately be forced to make an agreement with their employer if they want a pay increase above the minimum rates set by awards.

Non-union agreements are unlikely to contain dispute settling procedures which contain binding arbitration clauses. Awards do not have them. National Employment Standards rights would have to be enforced by the courts if there is no enterprise agreement with a binding arbitration clause.

Awards will continue to be set by a tribunal — but not as the result of arbitration of claims by employees or employers. Disputes arising from awards cannot be arbitrated. Thus only if the parties to an enterprise agreement actually agree to include a binding arbitration clause in an agreement will they have any access to state imposed arbitration — and even this is called "private arbitration".

And thus the unique Australian vision of access to conciliation and binding arbitration as the bedrock of a fair and equitable industrial relations system will be laid to rest on 26 March 2011.


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Launched in 2004, New Matilda is one of Australia's oldest online independent publications. It's focus is on investigative journalism and analysis, with occasional smart arsery thrown in for reasons of sanity. New Matilda is owned and edited by Walkley Award and Human Rights Award winning journalist Chris Graham.