State Wage Case 2010 (No 2) [2011] NSWIRComm 29

DECISION 1In its 2010 State Wage Case decision ( State Wage Case 2010 [2010] NSWIRComm 183) the Full Bench proposed a new set of Wage Fixing Principles and subject to the parties having an opportunity to consider the proposal, indicated that it was the Commission's intention that the new Principles would apply to claims made after 1 March 2011. The proposed Principles were set out in Appendix B to the decision. 2The parties were invited to provide their responses to the draft new Principles in proceedings that were scheduled for 17 February 2011. Written responses were filed. However, on 17 February the Commission was advised that it had been agreed amongst the parties that they should be provided with the opportunity of having further discussions amongst themselves regarding the Commission's draft Principles, then to file any further submissions they considered necessary and for the Commission to determine the final form and content of the Principles having regard to the submissions filed. The Full Bench acceded to this approach. As a consequence, the proposed commencement date of 1 March 2011 was abandoned without objection from any party.

Unions NSW 3Unions NSW supported the establishment of new Wage Fixing Principles that were intended to address contemporary industrial circumstances and submitted that the proposed Wage Fixing Principles contained in Appendix B of the Full Bench's 2010 State Wage Case decision substantially addressed those circumstances. Unions NSW proposed only one modification to the proposed Principles, namely, Principle 8, Arbitrated Case, should be modified to permit a claim for an economic adjustment to be considered under that Principle without needing to fall under the rubric of a Special Case. The modification proposed was in the following terms: 8.4 Economic Adjustment Considerations 8.4.1 Economic considerations, including the changing value of money over time, may constitute a basis for increases to wages and salaries without the need to make out a special case where the employees in question are not entitled to State Wage Case Adjustments under Principle 4. 8.4.2 Matters which may be considered in this regard are the date on which the last wage increases for the employees in question took effect, changes in money values which have occurred since that time or are forecast during the prescribed period of the award to be made, and any other relevant economic criteria. 4It was submitted that it was not intended by Unions NSW that the modified Principle 8 become a vehicle for a form of automatic wage indexation. The Commission would retain its discretion as to the amount of increase, if any, to be awarded, having regard to a range of relevant economic factors as well as the public considerations embodied in s 146(2) of the Industrial Relations Act 1996 ("the Act"). In that context, the Commission would approach the assessment of a claim for an economic adjustment under the proposed modified Principle in a way similar to that which it traditionally has taken in State Wage Cases.

Minister for Industrial Relations 5The Minister for Industrial Relations proposed a number of mechanical changes to the draft Principles. Additionally, the Minister:

• noted that Principle 8 as drafted did not address the following matter: The Commission would be cautious before granting any part of a claim that rests on productivity and efficiency changes that arose prior to the date of the last consent or arbitrated increase to avoid undoing an industrial resolution that was reached at a time when this new Principle was not known.
• concurred with the appropriateness of including a provision such as Principle 9.3 to encourage bargaining in good faith, however the Minister suggested that it be redrafted in order to address two potential issues: The words do not in express terms give the Commission the discretion to permit an arbitration where good faith bargaining has not been complied with in full. As drafted, there would be a real potential for parties to press a threshold point to prevent an arbitration by seeking to prove that a party had failed to meet one of the criteria, which may unnecessarily delay legitimate proceedings. Also, read literally it prevents an arbitration proceeding if any party has failed to meet the good faith obligations, giving rise to a possibility that a party could prevent a legitimate claim proceeding by not meeting its own obligations; As drafted Principle 9.3(a) requires that those attending the negotiations are "capable of making decisions" in respect of negotiations. It may not always be easy to objectively assess the negotiating capacity of persons, creating uncertainty in any subsequent litigation as to whether a party has met this criterion. Second, if the expression is intended to convey a requirement that those attending have full authority to negotiate and reach binding agreement on each and every issue, it is a criterion that neither employers nor unions are likely to be able to easily meet. (emphasis in original)
• suggested the following text would address the foregoing two issues (replacing the opening words of Principle 9.3 and subparagraph (a)): "9.3 Subject to the provisions of the Act, and unless the Commission otherwise determines, a party is not entitled to prosecute an arbitration unless that party has bargained beforehand in good faith and, in particular, the party has: a. Attended meetings they have agreed to attend and been represented at the negotiations by persons capable of giving genuine consideration to the proposals of other parties and giving reasoned responses to those proposals, and"

Director of Public Employment 6The Director of Public Employment ("DPE"):

• supported the Minister's proposal to slightly amend the Negotiating Principles;
• supported the Minister's submission in relation to persons being "..capable of making decisions" in respect of negotiations;
• had substantial concerns in relation to the potential impacts of the proposed Arbitrated Case Principle, specifically in relation to proposed Principle 8.3, Productivity and Efficiency Considerations;
• submitted that the existing Special Case principle has enabled the Commission, with appropriate limitations, qualifications and safeguards, to take into account productivity and efficiency considerations when dealing with wage claims being pursued through the special case process;
• submitted there was nothing in the material placed before the Commission by Unions NSW, which demonstrated any need for the creation of a new Principle in the terms of proposed Principle 8.3 Productivity and Efficiency Considerations;
• submitted the significant widening of the scope to pursue productivity based wage claims had the potential to undermine the stability, equity and fairness which underpins the existing arrangements and to create unrealistic expectations amongst employees who happen to be employed in areas where identifiable productivity and efficiency enhancements are achievable, to the potential detriment of other employees who are not employed in such areas;
• submitted that the final form of the Wage Fixing Principles should not include proposed Principle 8.3 Productivity and Efficiency Considerations. 7In its later submission, whilst remaining opposed to proposed Principle 8.3, the DPE submitted that if the Commission were to proceed to confirm the creation of a "Productivity and Efficiency Considerations" Principle many of the DPE's concerns could be addressed by certain points being added to, or incorporated within, the proposed Principle. Those points are as follows: (a) Claims will only be considered in respect of award groupings of employees, as distinct from departments or agencies, so as to prevent different rates of pay arising for the same classifications within the same award. (b) A party making a productivity and efficiency application will need to justify any change to wage relativities that might result not only within the relevant internal award structure but also against any external classification to which that structure is related. There must be no likelihood of wage leapfrogging arising out of changes in relative position. (c) The extent of any net productivity or efficiency improvement will be determined over a reasonable period of time, but not prospectively. (d) Wherever an identified productivity or efficiency improvement would also be reasonably regarded as impacting on "work value", that matter must be determined consistent with the work value principle. (e) Care should be exercised to ensure that changes in productivity and efficiency which were, or should have been, taken into account in any previous work value adjustment or in a productivity and efficiency adjustment are not included in any evaluation under this Principle. (f) In determining whether employees should share in the achievement of net productivity and efficiency improvements, and, if so, to what extent, regard must be had to the nature and extent of employee contribution to those achievements. (g) A component of any net productivity and efficiency improvements should always be retained by the employer for the purposes of expanding programs, funding new services, reducing taxation or levies or improving the balance sheet. (h) Productivity or efficiency improvements may only be counted once. The time from which productivity and efficiency changes in an award can be measured is from the date of commencement of the last award. (i) In applying the Productivity and Efficiency Considerations Principle, the Commission will have regard to the need for any alterations to wage relativities between awards to be based on skill, responsibility and the conditions under which work is performed. (j) In arbitrating an application made under this Principle, the Commission will determine whether or not future State Wage Case general increases will apply to the award. 8The DPE submitted that if the Commission were to adopt the above suggestions, one fundamental concern with the proposed "Productivity and Efficiency Considerations" Principle would persist. That concern was that any Wage Fixing Principle that could lead to the granting of pay increases or improved conditions based upon the varying capacity of an agency or department to generate productivities and efficiencies could operate unfairly or unreasonably, as the ability to achieve such productivities and efficiencies will vary greatly between agencies and departments and may be independent of the level of contribution by employees. 9The DPE opposed Unions NSW proposed Principle 8.4 Economic Adjustment Considerations. The DPE supported the Local Government and Shires Associations of NSW ("LGSA") submissions and strongly supported the inclusion of a new Standard Hours clause as proposed by LGSA.

Local Government and Shires Associations of NSW 10The LGSA supported the Commission's proposed principles, with amendments. In addition to a number of mechanical amendments, the LGSA:

• opposed Principle 8.3, Productivity and Efficiency Considerations in its current form, contending it would adversely affect the arrangements in the local government sector that have benefited employers and employees alike over a long period of time;
• supported the position of the DPE in its opposition to Principle 8.3;
• suggested that Principle 4, State Wage Case Adjustments should be amended to make it abundantly clear that State Wage Case adjustments do not apply to wages, allowances and service increments provided by consent awards (such as the Local Government (State) Award 2010 ) currently in operation with negotiated increases over their nominal term;
• proposed that Principle 7, Minimum Wage for Award/Agreement Free Employees should be amended to include employees engaged on a casual basis;
• proposed that Principle 8.2, Arbitrated Case - Work Value Considerations should be amended to account for work value changes that have been appropriately rewarded through wage increases provided by consent awards since State Wage Case 1989 (1989) 30 IR 107;
• supported the proposal of the DPE (and the Minister) to slightly amend Principle 9;
• proposed that Principle 14, Current Awards not Affected should be amended to clarify: that the Principles which are Appendix A to the State Wage Case 2010 [2010] NSWIRComm 183 will continue to apply to consent awards (such as the Local Government (State) Award 2010 ) currently in operation with negotiated increases over their nominal term ; and that save for specified exclusions, the Draft Proposed Principles, once made shall not apply to consent awards (such as the Local Government (State) Award 2010 ) currently in operation with negotiated increases over their nominal term.
• proposed that Principle 7, Standard Hours should be retained, albeit in an amended form;
• opposed the proposal by Unions NSW for an Economic Adjustment Considerations Principle.

Australian Federation of Employers and Industry 11The Australian Federation of Employers and Industry ("AFEI"):

• opposed any substantive change to the existing Wage Fixing Principles as proposed by Unions NSW. Correspondingly, the AFEI opposed the proposed Principles to the extent that they reflected those substantive changes proposed by Unions NSW;
• expressed support for and reliance upon those submissions made by the DPE insofar as they relate to amendments to the existing Wage Fixing Principles including the draft Principles;
• shared the view of the DPE that a separate productivity and efficiency Principle should not be created.

Consideration 12There have been a number of constructive suggestions by various parties as to how the draft Principles might be improved and we have adopted those in the new Principles, which are set out in Appendix A. For example, the Arbitrated Case Principles will require that the initiating party has bargained in good faith. 13The two major issues, however, are: (i) the Unions NSW proposal to modify Principle 8, Arbitrated Case, to permit a claim for an economic adjustment to be considered under that Principle; and (ii) the objections to the proposed Principle 8.3, Productivity and Efficiency Considerations. 14We do not intend to modify Principle 8 to encompass economic adjustment considerations. The modification appears to have been an afterthought and insufficient justification has been provided to support such an amendment. The LGSA raised a number of objections including that it is contrary to the objects of the Act and inconsistent with other Wage Fixing Principles, it would result in double counting, it is unnecessary, it would result in the ratcheting up of labour costs over time and it is against the public interest. There is some merit in these objections and in the absence of any proper debate in respect of those objections and the concept generally of the Unions NSW proposal, we reject the proposed modification. 15In respect of the objections to Principle 8.3 Productivity and Efficiency Considerations, it should not be necessary for us to point out that the opportunity provided to comment on the proposed Principles was not an opportunity to cavil with or reject what had been proposed, but rather to make "constructive observations". 16Nevertheless, we have had regard to the LGSA's concerns and the suggestions for change submitted by the DPE. There are some issues that have been raised in the submissions that may require further consideration, and some which may be considered fundamental to an exercise of discretion in determining a productivity case. We have decided that the appropriate course is to leave the proposed Principle in its current form and to consider, as appropriate, the issues of the kind raised by the DPE and LGSA on a case-by-case basis rather than attempt to predetermine such matters in a vacuum. In this way the Commission will be able to consider the issues in the context of the case before it and to develop and refine the Principle accordingly if that is where the cases lead. In the meantime, we are satisfied the proposed Principle provides an appropriate initial framework in which to consider claims to which the Principle is directed. 17The LGSA, supported by the DPE, submitted that Principle 7, Standard Hours in the current Wage Fixing Principles should be retained, albeit in an amended form. It was submitted the Standard Hours Principle provided employers with stability by removing the threat of industrial action arising from claims for a reduction in standard hours below 38 per week. The LGSA proposed that the existing Standard Hours Principle be amended to read as follows: Claims for reduction in standard weekly hours below 38 will not be allowed unless by consent. 18We consider the proposed Principle unnecessary. However, we should make it clear that the removal of the existing Principle 7 should not be seen as an invitation to pursue shorter hours claims. 19The new Principles shall operate on and from 4 April 2011.

Orders 20The Full Bench makes the following orders: (1)Pursuant to s 51(1) of the Industrial Relations Act , the Commission orders that the Commission's Wage Fixing Principles shall be as set out in Appendix A to this decision and shall operate on and from 4 April 2011. (2)The Principles in Order (1) supersede the Principles that are Appendix A to the State Wage Case 2010 [2010] NSWIRComm 183. (3)The new Principles shall be reviewed in the 2012 State Wage Case.

Appendix A DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 25 March 2011