Discussion Paper

The Transformation of Australian Industrial Relations

*** This series is now complete ***

The Role and Significance of Individual Agreements in Australian Industrial Relations - Discussion Paper Series No 6 (March 1999)

Executive Summary

- There is a growing body of evidence suggestive of the rising importance of individual employment arrangements. The key word here, however, is `suggestive'. Previously no data were available that enabled the quantification of trends in the use of individual contracts and agreements, let alone provided details about the types of firms that introduce individual agreements, the reasons why those firms introduce them, the relationship between such agreements and the relevant awards, and the impact those agreements are having. It is these questions that this paper seeks to address. The main vehicle for achieving this is a data set collected as part of a survey of workplace managers conducted in September 1998.

- Both the 1995 AWIRS and the workplace manager survey analysed in this paper suggest that about 30 per cent of non-commercial workplaces (with 20 or more employees) use individual agreements to structure employment arrangements with at least some workers. The AWIRS, however, did not distinguish between written and verbal agreements, whereas the survey conducted as part of this study focused solely on written agreements. Our best estimate is that these written individual agreements cover, in total, only about 7.5 per cent of the non-farm, non-managerial workforce.

- The use of individual agreements varies widely across industries, is associated with the extent of both foreign ownership and export activity, is sensitive to the composition of the workforce (particularly in terms of skill, occupation and employment status), is greatly affected by the presence of trade unions, and is linked to a company's previous experience with the awards system and the management style in place at the workplace.

- The trend in the utilisation of individual agreements is upwards, with about 20 per cent of workplaces reporting that the use of such agreements had increased over the previous three years. Further, almost 60 per cent of the sample expected their use of individual agreements to increase further during the years ahead.

- Perhaps surprisingly, increased use of individual agreements was found to be most pronounced in workplaces with a relatively strong union presence. Moreover, these same workplaces were found to be very likely to report that indicators of union activity and power were in decline. While these findings do not establish causation, they are nevertheless consistent with claims that individualisation of the employment contract will mean a reduced role for unions.

- The reason most frequently cited for using individual agreements to set pay and conditions for non-managerial employees is management preferences. Just over 70 per cent of respondents at workplaces where individual agreements were in place indicated that an important reason for the presence of such agreements was management preferences. Such findings are consistent with the view that preference for individualistic employment arrangements is a function of unilateralist management styles.

- Relatively few workplaces - less than one in five of those using individual agreements - had referred their individual agreements to industrial tribunals or other statutory authorities (such as the Employment Advocate) for approval. Such referral was much more common at workplaces where unions were present and organised, and where relatively few women were employed.

- Just under 60 per cent of the workplaces reporting using individual agreements described them as substantially replacing relevant awards. Such responses were even more common among those workplaces where individual arrangements had been approved by a statutory authority. The coverage of employees by individual agreements was also found to be greater at those workplaces where the agreements were described as replacing awards.

- Many firms appear to negotiate individual agreements on a pattern basis - that is, the conditions specified do not vary greatly across employees. Indeed, less than a quarter of workplaces with individual agreements are classified here as having `non-standard' agreements. Standardisation of agreements was more common in large firms and where the agreements substantially replaced awards.

- The responses are very favourable, with almost no respondents pointed to a deterioration in the various outcomes. Moreover, the proportion of respondents who indicated there had been an improvement was relatively large (ranging from 32 per cent to 65 per cent depending on the outcome). It is thus not surprising that 86 per cent of managers at workplaces with individual agreements indicated that they were satisfied with the individual agreements that were currently operating.

- Satisfaction with individual agreements was found to vary depending on whether or not those agreements had been formalised under industrial legislation. Formalised individual agreements were associated with much more favourable responses, suggesting that there may be distinct productivity advantages to firms from formalisation.