The Pros & Cons of Collectivism vs. Individualism, Part 2, 30th Convention, Busselton 2001


THIRTIETH ANNUAL CONVENTION

Busselton

19-21 October 2001


JON LONG & NERIDA AITKEN, presented by JON LONG, Clayton Utz, Lawyers

Jon Long, Partner, Perth Office

Jon has practiced in the workplace relations area for the last 15 years having worked initially in the trade union movement, as an advisor to government, and currently as a partner in the national law firm of Clayton Utz.

PART 2

EXPLODING THE MYTHS

"Individualism" lowers costs and is more efficient

It is a common assumption that an individual agreement is better for employers than a collective agreement because an individual agreement, whether it is a state workplace agreement or an Australian workplace agreement, will permit employers to contract out of the applicable award and pay their employees less than the award rate. However, it is interesting to note that a recent ABS survey shows that employees covered by Australian Workplace Agreements ("AWAs") earn $185 a week more than those covered by federal enterprise agreements (ABS Survey 6306.0 May 2000), although part of that differential is accounted for by high-income managers.

There is also the cost of administering individual agreements and the possible penalties that might be awarded against an employer who breaches a statutory individual agreement. For example, AWA`s require a lot of paperwork. Separate documentation must be completed and lodged for every employee and the transaction costs can be considerable. There may be delays while the applications are being processed by the Office of the Employment Advocate because the "no-disadvantage" test has to be applied separately in relation to each employee even where the Office receives a batch of identical AWA`s.

"Individualism" equates to flexibility

It is necessary to use the term "flexibility" in a wide sense to encompass issues such as remuneration, operational requirements/rostering and also the general ability of a company to implement change.

There are two points which need to be made here. Firstly, individual arrangements do not necessarily guarantee flexibility and secondly, flexibility is not limited to individualised work practices.

In relation to the first point, flexibility will be dependent on a number of factors, including the nature of the enterprise, the form of the flexibility being proposed, the relationship between management and its employees and the perceived benefits for employees. If individual agreements are truly individual, a point I will come to in a moment, presumably care would need to be taken by management to ensure that the combined effect of the individual agreements achieve the intended goal. I offer an example of where this was probably the intent but not the result.

Funny Money Finance had previously employed all of its employees (with the exception of its upper management) on an enterprise agreement in combination with common law employment contracts. The company`s human resources policies were based on the working arrangements provided for in the enterprise agreement. Funny Money Finance entered into agreements with all but three of its workforce for state workplace agreements, and developed a new set of human resources policies for the "workplace agreements" employees. The three employees were not upper management but just declined to sign a workplace agreement. The end result was that Funny Money Finance was forced to retain the old human resources policies because it applied to three people, while also implementing a new set of policies for the "workplace agreements" employees. Hardly, I would suggest, a recipe for corporate efficiency.

The second point to be made is that flexibility and collective arrangements are not mutually exclusive. Hopefully, the following aviation industry examples bear out this point.

The first example is Impulse Airlines. You may recall that when Impulse Airlines commenced operations it had engaged its flight attendants through an arms-length arrangement with the attendants working for a labour hire company Air Crews Control. This company engaged the employees as unit trust holders rather than employees - the ultimate in individualised work practices it would seem. Since May 2001, Impulse Airlines has been a contract provider of services to Qantas and in July 2001, Impulse Airlines abandoned the unit trust arrangement in favour a greenfields certified agreement with the Flight Attendants Association of Australia under section 170LL of the Workplace Agreements Act 1996 (Cth). The agreement provides Impulse Airlines with significant hours flexibility in comparison with the relevant award, (the National Jets System Flight Attendants Award 1999), while giving the employees the ability to earn extra money if they work on "available days". These days are paid working days where the employee is not allocated any work and must be ready to be called in for duty. The threshold for rest periods and the length of rest periods has also been reduced and the number of hours required to work before overtime is payable has been extended.

The second example concerns Virgin Blue. This company has achieved significant improvements in flexibility through its enterprise agreements. Workers in some of its call centres have been cross-skilled to check in and handle baggage. Virgin Blue has also been able to achieve timely turn-arounds by the ground crew assisting with the cleaning of the aircrafts. The company`s collective approach is significant given the highly competitive industry within which it operates. The success of the Virgin group internationally would suggest this decision by Virgin Blue is a long way from being a "flash in the pan" arrangement.

Individual agreements are truly individual

There are two arguments to consider here. Firstly, the way individual agreements are prepared and negotiated is anything but individual. Secondly, within an individual agreement or even an "individualistic" set of work practices, there may well be collective elements.

With the exception of individual agreements for specialised positions or upper management, what usually occurs is that employers will offer a generic individual agreement to their employees, with the only difference being rates of pay, job description and hours of work. Reviewing the research conducted by the National Institute of Labour Studies on individual agreements in Australia, Wooden (1999 p. 41) has concluded "only rarely does individual agreement-making involve the substantive differentiation of terms and conditions across different workers. Instead, individual agreements more often than not involve standardised packages".

Secondly, although remuneration based on personal effort is often used to justify individual agreements, a number of performance pay clauses in individual agreements calculate the employee`s remuneration not only on their own individual performance but also the performance of their section or team within the company. Implicit in this is that management recognises the merit in acting collectively to achieve milestones and that employees are rewarded for their ability to work in a team.

"Individualism" helps to foster a "high commitment" work environment

The notion of a "psychological contract is often used to explain employee commitment to an employer.

The idea being that individualised arrangements will help to strengthen the "psychological contract because of the increased interaction between an individual employee and the employer. At the centre of a psychological contract is the understanding both parties have about where the business is going and what the employee`s role will be. Unfortunately, this is not always translated into practice.

If not managed correctly, employees can develop a sense of mistrust about their employment agreement (and their employer in general) which may result in a difficulty to retain valued staff. A study by Craig Littler and Heather Maguire concerning the effects of restructuring on a bank found that there were signs that internal labour markets were crumbling in the face of restructuring because, amongst other things, employees perceived a breach of the psychological contract which lead to a reduction in their organisational commitment (The Australian, 30 July 2001, p32).

Unions are increasingly irrelevant

Much has been written about the worldwide decline in union density. Apparently, union membership in Australia is below 25%, compared to approximately 66% forty years ago. Union membership in Australia dropped by 200,000 in 1999, but there was a membership boost of about 20,000 in 2000 (Sunday Herald Sun 19 August 2001, p.31). The reasons for the decline include structural changes and its effects on labour markets, increased competition in product markets, technological change, changing work organisation and changing values (Wooden 2000 p. 18). I would also add legislative changes to that list. However, care needs to be taken in drawing conclusions on the statistics, in particular about the relevancy of unions.

A survey by the University of Sydney in July 2001 found that 52 percent of 1,001 workers said they would rather be in a union, against 44 percent in 1999, and only 14 percent believed Australia would be better off without unions compared with 23 percent two years ago. Part of the increased union propensity can be attributed to a reversal in industrial relations policy in some Australian states following the return of an ALP government and also union campaigning in growth industries such as call centres and the IT industry.

Individualism means no or minimal interference from third parties

As mentioned earlier, the registration of AWA`s with the Office of the Employment Advocate or even the registration of state workplace agreements with the Commissioner of Workplace Agreements can be a time-consuming and involved process. This is particularly so with AWA`s due to the application of the "no disadvantage" test.

If a dispute occurs about the interpretation of a state workplace agreement, for example about the payment of an entitlement, it will be referred to an independent arbitrator and if it cannot be resolved, and the employee can seek to enforce their entitlement or benefit in the workplace agreement, the employee`s claim will lie in the Industrial Magistrates` Court.

DISADVANTAGES OF INDIVIDUALISM

Politically sensitive

Current Australian political ideology suggests that industrial relations is one of the few areas of public policy where the Liberals and the Australian Labor Party can be distinguished. The reasons for this are pretty obvious - the constituents of each party. Traditionally the Liberals have represented the interests of business, particularly small business, while the Australian Labor Party is still largely dominated by trade unions. The result has been that the issue of individualised workplaces has become highly politicised. One only has to look at the debate surrounding the scrapping of state workplace agreements in this year`s state election and the Federal Opposition leader`s comments regarding his intention to remove AWA`s, to appreciate that the longevity of individual agreements in Australia is always going to be subject to the vagaries of the governing party. This in turn has created uncertainty for business as workplace agreements are passing their expiry date. This makes it difficult for business to consider its options and to develop a proactive human resources strategy.

May encourage self-interest to the detriment of the company and create deficiencies in team skills

Individualisation may also undermine trust and actually damage organisational performance (Deakin 1999). This is because the strong emphasis on rewards and sanctions linked to individual output combined with the presence of systems designed to monitor individual performance may result in employees simply meeting their contractual obligations and resisting extra-contractual co-operation, or "community" interest. In particular, perceptions of unfairness have invariably undermined systems of individualised performance-related pay (Deery & Mitchell 1999). As Keffer commented recently, "most individual merit or performance~based pay plans [in the United States] share two attributes: they absorb vast amounts of management time and resources, and they make everybody unhappy" (Pfeffer 1998 p. 115).

At an extreme end, the linking of economic incentives to individual performance can also have a negative impact on organissational outcomes. For example, Gibbins (1998 p. 117) has provided some examples:

"at Dun and Bradstreet, salespeople earned no commission unless the customer bought a large subscription to the firm`s credit-reporting services than in the previous year. In 1989, the company faced millions of dollars in lawsuits following charges that its salespeople deceived customers into buying larger subscriptions by fraudulently overstating their historical usage. In 1992, Sears abolished the commission plan in its auto-repairs shops, which paid mechanics based on the profits from repairs authorised by customers. Mechanics misled customers into authorising unnecessary repairs, leading California officials to prepare to close Sears auto-repair business statewide."

CONCLUSION

In conclusion, the decline of collectivism in industrial relations has been a result of a general trend towards individualism and not because collectivism itself is fundamentally flawed. In any event, the reality is that all workplaces will have collective and individual elements.

In some cases the true reason why Australian companies may favour one form over the other is influenced by the prevailing ideology at a political level. In a study of Australian and New Zealand enterprises, Gilson and Wagar (1996) found that organisations which were opposed to unionism were more likely to pursue individual contract. The Australian Workplace Industrial Relations Survey revealed that workplaces which had a majority of it`s non-managerial workforce on individual contracts were characterised by a clear and unequivocal management preference to deal directly and exclusively with employees (Deery & Walsh, Chapter 6).

Collectivism can take different forms and does not just simply equate to unionised workplaces. Collectivism has a long-standing history in Australia and has a number of attributes which can be overlooked when comparing the benefits to individual arrangements. These include simplified work practicts where employee representation mechanisms are correctly implemented, or where management is dealing with one union and also the collective interest. This helps to explain why some large employers have preferred to go down the path of collective workplace strategy, even when they conduct business in industries which are very much cost driven. The motivation cited by the majority of managers in the 1995 AWIRS for the presence of collective agreements was the desire to achieve better performance outcomes and the hope that relations between management and employees would improve (Wooden 2000 p48).

By contrast, individualism is still relatively new in Australia and I suggest that the jury (which is a collective body by the way) is still out on whether individualism will deliver on all of its promised benefits.

BIBLIOGRAPHY

Brown, W. 1999 "Individualisation and Union Recognition in Britain in the 1990s" in Employment Relations Individualisation and Union Exclusion, The Federation Press, New South Wales.

Burt, F. T 1955 Western Australia Parliament Industrial Arbitration Act 1912-1952 Government Printer, Perth.

Business Council of Australia, Enterprise Based Bargaining Units - A Better Way of Working, Report to the Business Council of Australia, vol 1, July 1989, p. 2.

Campling, J. and Gollan, P.J. 1999 Bargained Out: Negotiating without unions in Australia, The Federation Press, Sydney.

Deakin, S. 1999 "Organisational Change Labour Flexibility and the Contract of Employment in Great Britain" in Employment Relations Individualisation and Union Exclusion, The Federation Press, Sydney, chapter 7.

Deery, S. & Mitchell, R. 1999 "The Emergence of Individualisation and Union Exclusion as an Employment Relations Strategy" in Employment Relations Individualisation and Union Exclusion, The Federation Press, Sydney, p.3.

Gibbons, R. 1998 "Incentives in Organisations" 12 Journal of Economic Perspectives 115.

Giddens, A. 1998 The Third Way, Polity Press, Cambridge.

Gilson, C. and Wagar, T 1996 Individual Contracts and the Impact of Labour Legislation: TransTasman Comparisons" 22 Australian Bulletin of Labour Law 275.

Gollan, P. and Markey, R. and Ross, Iain. Additional forms of employee representation in Australia, ACCIRT Working Paper 64.

Fenton-O`Creevy, M. and Wood, S. and Callerot, E 1998 Employee Involvement within European Multinationals, European Works Council Study Group, Stage 1 Research Report, July.

Pfeffer J. 1998 "Six Dangerous Myths About Pay", Harvard Business Review, May-June, 109.

Wooden, M 1999 The Role and Significance of Individual Agreements in Australian Industrial Relations, Discussion Paper Series No 6, The Transformation of Australian Industrial Relations Project, National Institute of Labour Studies, Flinders University of South Australia, Adelaide.

Wooden, M 2000 The Transformation of Australian Industrial Relations, The Federation Press, Sydney.

END OF PART 2

END OF PAPER


Browse all Occasional Papers
 
 
 
Industrial Relations Society of WA

PO Box 6276
East Perth WA  6893
Phone: 0422 599 548
info@industrialrelations.com.au

©Copyright 2014 all rights reserved