Undue Affluence: The ‘Free Riders’ Who Benefit From Union Bargaining Without Paying Fees

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In Australia, unions routinely negotiate better worker wages and conditions, while those who benefit avoid paying for the service, write Giri Sivaraman and Jim Stanford.

Free market ideology dictates that you rarely get something for nothing in the private sector. That is, it seems, unless you’re the beneficiary of improved working rights and conditions secured by a union, the only private sector entities forced to provide their services to those that don’t pay their way.

Self-professed free market evangelist and US president Donald Trump perfectly illustrated the double standard in his tweeted response to the US Supreme Court Janus union case ruling in June this year. That decision overturned 41 years of settled law allowing public sector unions to collect agency fees from non-union members who benefit from union-negotiated collective agreements

Trump seems oblivious to the irony of forcing unions to act in a manner contrary to other free market players. Where else in the private sector are organisations prevented from charging for services they provide that benefit others?

This week at its annual congress, the ACTU vigorously debated this and other issues as it looks to the future of enterprise bargaining and how to deal with this and other bizarre and unsustainable restrictions on unions.

In most cases law and law-makers generally recognise that the viability of any entity depends on being able to charge for the goods and services it provides. Yet unions in Australia have for most of recent history been legally compelled to carry all free riders.

In the early 2000s a number of Australian unions successfully negotiated bargaining fees into collective agreements. However the High Court soon put a stop to that in the Electrolux decision in 2004, upholding a Howard government measure prohibiting such fees as being somehow outside of ‘the employment relationship.’

Such judgments pay little regard to the immense resources unions put into bargaining an enterprise agreement. The results speak for themselves: ABS data confirms that union negotiated collective agreements consistently provide better terms and conditions than non-union collective agreements.

It seems difficult to think that getting a pay rise from someone else’s efforts negotiating with your employer somehow doesn’t pertain to your employment relationship. As noted by Justice Kirby in 2004 in his sole dissent, employees who didn’t join the union still stood to gain from the collective bargaining by the union.

While it is well understood that union membership has been in decline in Australia, what has been unclear until relatively recently is the effect of unlimited free ridership on the resource base and growth of unions.

Academic research has now identified unlimited legal protection for free riding as one of the key factors explaining the long-term erosion of union membership and influence, and notes that Australia (along with the US) is an outlier among industrial countries in providing no institutional support for what in essence is a public service provided by unions.

As the powerful dissenting judgment in Janus stated, an economically rational actor who realises they can get the same benefits without paying their fair share or joining the union is likely to let their membership lapse, or perhaps never join. Those who stay are left to carry the slack and in the words of the dissenting judges, “feel like suckers”. In turn the union will lack the resources to perform its important responsibilities effectively such as policing agreements – which in turn further diminishes the attractiveness of joining the union.

All of this is occurring in a context where the governor of our Reserve Bank has called for higher wages, the Finance Minister bemoaning workers’ lack of ‘bargaining power,’ and international data showing that higher rates of coverage through collective bargaining leads to lower poverty.

It would be naïve to think that overcoming the free riders wouldn’t bring its own complications. Settling on the manner of deducting payments and dealing with the prospect of union demarcation disputes are just a couple of examples. Those are issues though that can be worked through, and should not be a disincentive to ensuring that unions are appropriately acknowledged and recognised for the contribution they make.

The US Supreme Court prior to Janus recognised that workers making a collective decision to all contribute to their own bargaining power is in fact a democratic decision, not a ‘violation.’ And most other countries provide one of a range of different ways of paying for collective bargaining by all those that benefit. Furthermore, nothing prevents a non union member expressing any view they want (including trying to convince their workmates to reject the idea of bargaining fees); all that is being sought is the right to collectively decide on a contribution that reflects the benefits all workers gain through the work of a union on theirs and everyone else’s behalf in a workplace.

Unions have an important role in our democracy and workplaces. They are essential for ensuring that Australians get to share in the wealth we collectively produce. It’s time to recognise that role, and ensure that unions can viably fulfil their role in raising the living standards of working Australians.

Giri Sivaraman & Jim Stanford

Giri Sivaraman is an employment law principal at Maurice Blackburn lawyers. He tweets at @GiriDSivaraman Jim Stanford is an economist with the Centre for Future Work. He tweets at @JimboStanford.

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