Job security clauses in enterprise agreements

Job security and outsourcing clauses were tested in a Full Court of the Federal Court decision handed down Tuesday.

The Court backed an earlier decision of a Full Bench of Fair Work Australia to allow the clauses, and went on to give its own reasons.

Job security and outsourcing clauses have become a feature of the industrial relations landscape.

Unions ask employers to agree to a range of measures. For example, these types of clauses usually require the employer to look to existing employees to do work before outsourcing, and, if they do outsource, the outsourced labour will get pay no less than that of employees. The idea is to ensure that outsourcing is not a way to undercut pay and conditions, but only occurs when there is a genuine need (such as for specialist knowledge or skills).

The Australian Industry Group (along with other employer groups) has taken a public position against such clauses, and has argued before the industrial commission and the court that they offend against the Fair Work Act. Their arguments are summarized in the AIG’s submission to the recent federal government-instigated review of the Fair Work Act (here).

The commission (Fair Work Australia) and the court have not accepted those arguments. Among other things, they have pointed to the fact that the explanatory memorandum published with the Fair Work bill explicitly envisages clauses such as those under challenge.

We can now confidently say that job security provisions which support permanent employment being preferred over other forms of employment, and which seek to prevent outsourcing being a de facto means of reducing pay and conditions, are able to be included in enterprise agreements under the Fair Work Act.

These types of clauses have been in the news lately. I spoke to the ABC news about the LNP government’s decision to make a directive allowing job security clauses in its public sector agreements to be overridden.

For the Fair Work Act, the issue is not whether the employer party can unilaterally override job security clauses, but whether they can be validly included in an enterprise agreement in the first place.

Behind the technical legal arguments is a fundamental disagreement about policy.

(Some) employer groups argue that these types of clauses represent a restriction on flexibility for employers, and they should not be allowed in agreements.

The Fair Work Act and other Labor measures sought to remove Howard-era mechanisms aimed at ensuring employers were free to outsource. The Fair Work Act allows enterprise agreements a wide scope as to the content that the parties can agree to include.

In this debate it should be remembered that these types of clauses are obtained through enterprise bargaining, not unilaterally imposed on employers.

There are incentives for all involved – employers for the one part, and employees and their unions for the other – to make agreements of this nature, and any such agreement is going to involve some compromise. So there can be incentives for employers to agree to such clauses as part of the normal trade offs of workplace bargaining. For employers, clauses like these are part of the price of sealing the deal for the forthcoming few years, just like pay and other conditions.

For workers and their unions, clauses like this are paid for with things such as productivity improvements, a commitment not to make any claims outside of the deal that has been made, and the relinquishment of their right to strike during the period of the agreement (because the Fair Work Act makes doing so unlawful).

In bargaining, assuming that each side has some bargaining power, it is naturally that each will get some benefits, and each will pay some price. It is easy to see, at the moment, why employees would consider job security protections to be a real benefit.