Australian industry groups and unions need oversight

Through the years, I have written quite a lot about trade unions. From an economic point of view, trade unions can operate like monopolists, given their ability to institute collective boycotts against businesses by calling on workers to strike. Were it not for a specific law, such activity would be illegal.

To be sure, economists have also noted that trade unions can give a collective voice to workers, which may improve workplace performance.

But irrespective of the net economic impact of trade unions, there is a case for regulating the governance and conduct of trade unions. This is done in Australia, although the rules are weak and enforcement is feeble. Registered trade unions have frequently breached the law but nothing has happened.

But what about employer associations? Shouldn’t they be subject to the same laws and regulatory oversight?

Of course, employer associations are not in the game of shutting down the operations of businesses and so do not inflict the same direct economic harm as trade unions. But the conduct of employer associations in Australia also has damaged the economy and the functioning of the labour market.

Most are part of the industrial relations club, living in the dark ages when the impact of a regulated labour market was offset by industry protection. Many remain deeply protectionist by disposition.

Some are essentially rackets that try to eliminate competition in respect of labour costs by advocating pattern bargaining or sticking to award coverage.

This is particularly the case in industries where firms bid for work; electrical contracting and printing are examples. By ensuring labour costs are identical across all firms, work can be shared around, safe in the knowledge that the bids will be very similar.

The records of the Fair Work Commission show that there are 71 registered employer associations compared with 45 registered trade unions.

Many are effectively branches of industry groups, separated for legal and operational reasons. For example, Clubs Australia Industrial and the NSW Farmers (Industrial) Association are simply offshoots of larger groups.

Registered employer associations must meet the same legal obligations as registered trade unions set down in the Fair Work (Registered Organisations) Act 2009. These include annual audited accounts and information related to membership, officials and elections. The rules are weak and poorly enforced. Employer associations enjoy the same benefits as trade unions, such as tax-free status and exemption from fringe benefits tax.

There is a disappointing lack of up-to-date information for trade unions and employer associations – the latest financial records are often for 2011. The Fair Work Commission undertakes its compliance role extremely poorly.

Anecdotal evidence suggests that many employer associations are struggling to retain and recruit members. This is not surprising. After all, when the system of industrial relations was highly centralised and the real argy-bargy occurred at the award and national levels, it made some sense for employers to sign up to ensure strength in numbers.

With the shift to enterprise bargaining, however, employers have little reason to be part of employer associations. Their incentives are to tailor agreements with their workers on the basis of the specific features of their operations, rather than be dragged down to the lowest common denominator, which the employer associations offer.

Some employer associations opt to be part of government processes and accept government funding. Does this compromise their principal roles representing employers?

We witnessed this danger in the formulation of the Fair Work Act, in which the Australian Industry Group was intimately involved. It was prepared to sign off on the bill, even though other associations had very many concerns and suggested amendments that were still to be considered. The capitulation of the AI Group was sufficient for the government to discontinue consultations with other employer groups, citing the AI Group’s claim that employers needed as much certainty as possible.The many glaring faults and adverse consequences of the Fair Work Act have become all too apparent across time. Ironically, the AI Group more recently has been one of the act’s most vociferous critics.

The government also realises that providing grants to employer associations is a none-too-subtle means of getting them to toe the line. Grants to educate members on new laws, for studies, for travel – there surely comes a point where grant income is so significant that an association’s independence can be called into question.

Another point to note about Australian employer associations is their dubious roles in nominating trustees of industry superannuation funds. The vast majority provide for equal numbers of union and employer association trustees. These paid gigs are very attractive for the nominated trustees. In fact, a number of individuals nominated by employer associations hold multiple trusteeships.

The role of employer associations in nominating superannuation trustees potentially raises a very serious conflict of interest. Employer associations have been known to prevent new superannuation funds from being listed as default funds in awards and agreements to protect the funds on which their nominated trustees sit.

As voluntary associations, many employer associations provide some useful functions for their members, but their strength and influence are on the wane. If they wish to secure their futures, they would be better served by asserting their independence from the government of the day and unconditionally sticking up for their members’ interests, rather than looking after their organisations.

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