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Friday Workplace Briefing

Enterprise Agreements Are Expiring – How Do You Get the Best Bang for Your Buck From an EA?

In this week’s Friday Workplace Briefing, Andrew and Kim discuss what are the best processes to follow to review your Enterprise Agreements when they are expiring, so you can get the best commercial outcome for your business.

To view the full episode and catch up with the week’s latest news and developments please visit this link.

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About the Hosts

Managing Principal - Victoria

Principal Lawyer - Head of Workplace Relations

Episode Transcript

Andrew Douglas: Kim’s leading this discussion.

Kim McLagan/strong>: This is Andrew’s area of expertise. I’m just kicking back.

Andrew Douglas: Okay. Okay, well let’s go. All right, when you doing an enterprise agreement, and we’ll go to the first slide on this. We have another slide here, we do have, yeah.

So what you do before you start is you set up steering committee document who makes decisions, so negotiators actually have a power and they don’t go around behind your back. That sets out the history of the last one. It sets out what you think you want now, it is a fully costed thing, and it gives you parameters of what you’re allowed to negotiate without coming back. Okay?

So it’s a pretty important thing. In that document, you must have your golden rules. And the golden rules are things like no back pay. So you can commence three months before, you can commence well before, but your nerd needs to go out at least three months before the normal expiry date. You send it out, you there negotiating. Do you really want this to drift on for a year or two years?

And if we look in the school sector, it’s very common for enterprise agreements to go 15 months or more because the union’s just dawdles, and know that they will get back pay. So one of the things you need to say right up front is the things we will not negotiate on and be very clear up front, and the first one is no back pay, no sign on benefit. That way there is a pressure on understaffed unions to deal with the matter quickly. And it is more likely if you deal with it quickly, you are dealing with your employee’s concerns. The longer it goes, you are dealing with the patent agreement from a union trying to get what they want and your people becoming disaffected and angry.

Kim McLagan/strong>: Yeah.

Andrew Douglas: So that’s step one. Step two, all right. Have you worked out what you want? Most negotiations are about money and responding and trying to tick off and prevent what is the union log. When you get an enterprise agreement, the first thing you should do is go back to your staff and say, look, I want a green, amber and red, green, good cause for us, amber, we don’t care about it, red, really bad.

Kim McLagan/strong>: Neutral. Yeah.

Andrew Douglas: Look at your next 10 years of operation when you’re introducing capital, doing all those sort of things to work out, how long do I want it to be? So I’m about to do major redundancies in three years time. No, I only want this agreement two years ’cause I don’t want to fight about redundancies in the middle of it, okay? And about redundancy entitlement.

Work out your timing, work out what you want, get your list and then go, what are the two or three most important, I’ve got to get it, okay? So that’s that part of it.

Let’s go onto the next part. So we’re doing this as normally a whole day training. See how quickly we doing this? Very good.

Look at the union one and analyse it against what competitors around you both for labour and your competitors have got it, so you can actually show your people it’s bullsh*t. That’s a good start, okay?

Because they will say everyone is getting these things and it’s a lie. Next one.

Now you’ve got your SWOT analysis. So you worked out what you want in. This is a really critical part where you get your leaders in a room and you say, look, what do we do really well? And what do we need? So what’s the strength we’ve got? What’s the weakness we’ve got? Okay, weakness tells us there might be an industrial element we need to fix in there.

Then we look externally, you know, what’s the opportunities? What are the risks of us getting cleaned up? Okay, we need to look at market, we need to look at supply chainKim McLagan/strong>: sorry, I spat on you-

Kim McLagan/strong>: That’s all right.

Andrew Douglas: Supply chain, a whole range of stuff. But until you know what your business case for the enterprise agreement is, based on strengths, weakness, opportunities and threats, you actually can’t negotiate, ’cause you dunno where your risk is sitting. Okay?

Kim McLagan/strong>: Yup.

Andrew Douglas: Once you’ve got that, you’ve locked in your negotiators, they totally get why they’re in the room. And it’s not about the union log, it’s about business viability and cost neutrality. In other words, ending this process where you are not paying more for the wages you give away and knowing what is the appropriate wage that you can give away and what is the true cost. So let’s move on. We’re going well, aren’t we?

Kim McLagan/strong>: I’m enjoying this.

Andrew Douglas: So, yeah. So when you cost an enterprise agreement, you don’t look at just the wages, you cost the entire agreement as a payroll. And the amount you give is a true cost, it’s not the wage component. So when someone says we want two days extra here, that goes out of what you pay people in wages. So if you don’t do total costing, you’re actually giving away a lot more than you think because you’re giving away leave loading, you’re giving away extra personal leave or extra redundancy. They’re all add-ons. So if you use four, four, and four over three year cycle, the composite of that is actually 13.2% accumulate at the end of it, it’s a lot. But if you do that as a wage, it’s actually around about 16 to 17% in a normal enterprise agreement based on all the add-ins. So it’s not four, four and four, it’s closer to six, six and six.

And that busts you, so you can’t do it. So total cost analysis critical. Okay, we’ve talked about the next one briefly, which is there are two competitor analysis you’ve got to do. One is your labour market locally. And your competitor labour market, you’ve got to work out your margin against your competitors in the industry.

But you’ve also got to be able to attract good staff locally, which means you may need to fiddle with your classifications, which might be a 2A or a 3B classifications that allows you to hire someone a slightly higher level so you’re not just hiring the swap, okay?

So remember, track turnover of employment is the most expensive process in any business. If you’re doing all the classification one, you’re going to have a 40% churn, very expensive. So you may only turn over one or two people, we get 10 good people, knowing what you can get is really important.

All right, total cost. So here we are, we’ve got to the next one, we’ve gone to the steering committee, we’ve fully costed what we want and what we must have. Okay?

So the steering committee can see the true cost you’re negotiating and not just about numbers on wages, but what is true cost, and we get them to sign off. And that means every time a union tries to go around their back to the owner or to a more senior person, they go, no, no, no, no, no, these people have the authority. Okay? Which is a great place to be.

Okay, this is the one that no one wants to do is the next one, which is once you’ve got the total cost, you sit down with your management crew and say, you need to find me this total cost out of production.

You need to show me how we can build efficiencies, build better processes, and you’ve got to sign in your own blood how we are going to recover the 12% if it is that we’re paying over that three year cycle. Particularly in an environment where supply costs are going up.

Labour quality is down, and labour availability is slight. You’ve got to make sure you recover the cost, ’cause the true cost in product and services hasn’t jumped in accordance with inflation. It’s jumped about another 15 or 20% this year. So you’ve got to get it back.

All right. Communications. You can’t go every time to your employers and saying, we’re tight with money, ’cause actually can see the BMW you’re driving.

Okay? You got to go to them with why what you’re doing is good. And that takes a period of conditioning where they trust you more than the union. So never lie. We’re the golden haired boys in this. We’re always telling the truth, but we’re telling them a story which is good for them and good for the business. We’re getting them to buy into the business as a trusted source of reliable information.

So we’re showing them what the rates are of pays in these 12 months out, this is what’s happening in the industry. This is where our competitors are. This is where we need to be to succeed. This is sustainability, and this is why we’re going to need to change a couple of things, we need your help to work it out. That consultation process means there’s a level of investment in the change you want, before the union tries to stop it. Very, very successful, you wait for three months before, you’re just going to respond to the union log.

The last part, I’m not talking about the negotiation today, I’m talking about all the the pre-negotiations stages. These are your people. They’re not the union’s people. So don’t let unions think they’re the only people that can run meetings. Don’t wait for the union to take their members to a vote. These remain your people all the way through and they’re your most dangerous capital, and also your most important capital.

So can I just remind you of that? ‘Cause it seems like a dumb thing to say, but we treat IR as a something we just stick on the side of a business. But it’s actually part of business strategy. But it’s so often a bolt on, you’re just responding to a union log, from the moment you’ve got an enterprise agreement, you spend about 15 months looking at how it’s landing and how you can improve it.

So you can then start the cycle of improvement, communication and change management for the expiry date. So communications right from the word go. And having this view that the people you’re dealing with are precious and they’re yours, they’re not something that can be dictated to and run by a third party, is fundamental to any negotiation. So there’re my notes, Kim.

Kim McLagan/strong>: It’s a lot.

Andrew Douglas: I thought what we might do next week is the negotiation.

Kim McLagan/strong>: Okay.

Andrew Douglas: Yeah. So we’ll talk about what the negotiation is next week, but I just wanted to say, this is what you do beforehand.

Kim McLagan/strong>: Yeah.

Andrew Douglas: Let’s do the negotiation next week, okay? Now I reckon we’ve got very little time left, which is lucky ’cause I’ve got nothing left to do. All I can say is it’s good having Kim on this time.

It’s like you can see her looking like this way. What’s that Andrew’s written there? Why did you change the heading off? You would’ve been sued if you hadn’t used that heading. There you go. But it has been fun, hasn’t it?

Kim McLagan/strong>: Haven’t done the case study yet.

Andrew Douglas: Haven’t we done the case study?

Kim McLagan/strong>: No.

Andrew Douglas: We’re going to go to the case study.

Kim McLagan/strong>: We’ve run out of time.

Andrew Douglas: We’ve run out of time. I think we’ll do a quick case study, do we?

Kim McLagan/strong>: Yeah.

Andrew Douglas: Come on. Let’s do the quick case study. I was about to go then.

Kim McLagan/strong>: Neil was not an easy employee to manage. He was the accounts clerk for Big Lift crane hire.

Andrew Douglas: Sh*t, I forgot all about the case study.

Kim McLagan/strong>: Yeah, I know. What are ya talking about?

Neil had worked there for 15 months and he became very difficult at around the time that the new accounting software was introduced, 12 months after he started.

Muriel, his supervisor, had made sure he was involved from the start of the information migration and new system process, at every step he complained it wasn’t as good as the old system and started to miss deadlines for core work. He blamed getting used to the new system. The other four clerks work speed improved because of the high performing software. His arguments around delaying complexity made no sense as everyone acknowledged the job was now easier.

On 3 April, Muriel arranged to catch up and counselled Neil about her expectations and arranged for his training. Neil turned up late for the training and when he got there, he was outspoken, critical of the system and did very little work.

His performance continued to decline and he had a performance management meeting with Muriel, HR, and his support person. It was a fair process and they agreed on a PIP.

By May he was way behind his expected outcomes and the second performance management process was implemented, asking him to show cause why he should not receive a warning. He attended and when Muriel pointed to his repeated failures, he said he felt unsupported and bullied by Muriel. She agreed. She did daily checks on his performance and shared them with Neil, encouraging him to do better and asking if he needed help. He said he was no longer safe and left the room halfway through. Muriel directed him to stay in, he refused.

Neil went to a doctor, obtained a certificate of capacity, complaining of anxiety disorder and bullying. He did not disclose he had a long history of chronic anxiety. He left his last job because his anxiety was triggered dealing with disgruntled debtors, which was the exact same job he had with this employer.

Andrew Douglas: Okay. Question one, did the employer have a workers’ compensation and Fair Work Commission bullying defence of reasonable management action?

Kim McLagan/strong>: Definitely had a good workers’ comp defence because they formalised the management action.

Andrew Douglas: Yep.

Kim McLagan/strong>: And the insurer love it if it’s got a formal PIP, they will absolutely.

Andrew Douglas: Yep. The only is that her behaviour of daily check-ins before was probably a causative.

Kim McLagan/strong>: Could be a bit unreasonable.

Andrew Douglas: So I suspect-

Kim McLagan/strong>: Yeah.

Andrew Douglas: It would’ve failed.

Kim McLagan/strong>: If he complained about that.

Andrew Douglas: If he complained about it.

Kim McLagan/strong>: Yeah.

Andrew Douglas: And he had.

Kim McLagan/strong>: Okay. I’ll take your word for that.

Andrew Douglas: Did any of Muriel’s conduct amount to a psychological hazard, and if so, yes? This constant daily check-in, remember when you trigger someone’s neuropsychological limbic activity by constantly telling them to improve, what happens, if I keep asking you for marketing, what happens?

Kim McLagan/strong>: I get a bit shitty and say, “Lay off, I’m working really hard”.

Andrew Douglas: So it is not going to work, okay? So remember, be dignified with people, be generous to people. And in a PIP, talk about when you are going to feed back to them, don’t keep chipping away at them. Was the misrepresentation of the medical history a material matter in regard to his ongoing employment and right under workers’ compensation? Absolutely. Okay?

Kim McLagan/strong>: Yeah.

Andrew Douglas: Absolutely it was, because had he disclosed what he had, he was not fit for the inherent requirements of his job. So in the disclosure process, even though it’s part of workers’ compensation, you would then put to him a question external from workers’ compensation say, we’re going to get you medically assessed.

Kim McLagan/strong>: Yeah.

Andrew Douglas: We’re going to speak to your doctor, the doctor’s going to speak to our person, at that stage, we’re going to terminate your employment. That’s it, isn’t it?

Kim McLagan/strong>: Okay.

Andrew Douglas: I don’t think there’s any other questions, is there?

Kim McLagan/strong>: That’s it, that’s it.

Andrew Douglas: That’s it. It’s definitely the end of it, by the way.

Kim McLagan/strong>: Yeah.

Andrew Douglas: We did start a couple minutes late, so I reckon we’re still on half an hour, how are we going up there? I reckon not too bad.

Kim McLagan/strong>: All right. I’m five minutes late for my meeting though. Got a meeting to go to.

Andrew Douglas: I can’t believe it. We’ve got to go. See you later guys, thank you very much. Bye-bye.

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