Symposium: State Systems of Industrial Relations

The future of state industrial regulation: Can we learn from Victoria?

Peter Gahan, Monash University


In 1996 the Victorian Government took the radical step of referring the bulk of its industrial powers to the Commonwealth. At the time, the Kennett government intended to provide a unified industrial framework, as well as continue a radical experiment in labour market reform that it had commenced after winning office in 1992. The reform sought to destroy a state-based system of industrial regulation through wages boards, and industrial conciliation and arbitration. Despite the election of the Bracks Labor Government in 1999, the referral of powers has not been reversed, even though the Victorian Labor Party gained control of both houses of state parliament when re-elected in 2003. While the Bracks Government has been a strong critic of the federal reforms it has resisted pressures from unions and other groups to re-establish a state system of industrial regulation.

Like other states, Victoria established a system of industrial relations in the 19th century.

Given the proposed federal reforms with which the Commonwealth seeks to undermine and, if required, forcibly marginalise state systems, the central question is: can Victorian experience give us with a sense of what the future holds? The short answer, of course, is: ‘yes, but perhaps not the type of answer that most would expect’.

Background to the 1996 referral of powers to the Commonwealth

Like other states, Victoria established a system of industrial relations in the 19th century. (See Table 1 for a list of key legislation in the Victorian system.) Unlike most other states, however, Victoria did not introduce a system of industrial conciliation and arbitration. Instead, it introduced a wages board system in 1896 (Gahan & Hearn-MacKinnon 2005). These boards aimed to counter the practice of ‘sweating’ by employers, which had grown to alarming proportions during the depression of the 1890s (Chan 1971; Davey 1975; Macarthy 1968).

Employers opposed the continuation of wages boards, but by mid-1901, 32 new boards had been established (Lee 1987) and, by 1913, there were more than 130 (Hince 1966). At their apex in the 1970s, more than 150 boards operated in a wide range of industries and occupations. As well as increasing the number of wages boards and proportion of the workforce covered by them, the scope of issues over which wages boards could deliberate was also extended over time. Thus, like arbitration in other jurisdictions, Victorian wages boards developed from ad hoc dispute resolution mechanisms with limited jurisdiction to systems of industrial governance covering a considerable range of industrial issues and a substantial number of workers (Gahan 1996; Hince 1966).

Yet the composition of wages boards and their mode of operation made them in many ways different from other state systems. For much of the time after their establishment, wages boards consisted of an independent chairperson and two or more employer and employee representatives each, elected by registered employers and employees. Further, although the decisions of wage boards were intended to be binding, appeals to the Minister enabled any board determination to be rescinded and, where a board was seen to have ‘overstepped the mark’, the board and its determinations were abolished altogether (McCarthy 1968).

Table 1
Key Legislative Enactments in Victoria, 1873-2005
Year Legislation  
1873 Supervision of Workrooms and Factories Act  
1884 Trade Unions Act  
1885 Factories and Shops Act  
1886 Trade Unions Act  
1890 Trade Unions Act  
1896 Factories and Shops Act (Wages Boards Amendment)  
1958 Labour and Industry Act  
1958 Trade Unions Act  
1979 Industrial Relations Act  
1992 Industrial Relations (Enterprise Bargaining) Act  
1992 Employee Relations Act  
1994 Employee Relations (Amendment) Act  
1996 Commonwealth Powers (Industrial Relations) Act  
2003 Federal Wards (Uniform System) Act  
2003 Outworkers (Improved Protection) Act  
2003 Child Employment Act  
2005 Owner Drivers and Forestry Contractors Act  


The wages board system was the primary means of setting wages and conditions in Victoria for much of the period until 1992. However, Table 1 draws attention to the raft of industrial legislation enacted over the last century or more. There is no space here to discuss them at any length, but it is worth noting two points. First is the continued role of 19th century trade union Acts in Victoria. In most other jurisdictions, the introduction of arbitration involved the repeal of these Acts and their incorporation into arbitral regulation (Gahan 2000). However, in the Victorian case, the Trade Unions Act remains on the statute books today. Although there are no active regulations accompanying this Act, the last few years have witnessed some interest by unions in seeking registration.

The new ERC had limited capacities to resolve disputes and determine matters.

Second, notice the relatively high level of legislative reform from the early 1990s. The Industrial Relations (Enterprise Bargaining) Act 1992, introduced in the death throws of the Cain-Kirner government, sought to bring the Victorian system into line with federal enterprise bargaining reforms introduced by the Hawke government federally. This legislation was however, short-lived. The Kennett Liberal-National coalition government was elected in October 1992 and, within a month of coming to office, had introduced the most radical reform to any state system in Australia, The Employee Relations Act 1992.

The Employment Relations Act 1992

The Employment Relations Act abolished the system of boards and the Industrial Relations Commission, and replaced them with a newly established Employee Relations Commission (ERC). The new ERC had limited capacities to resolve disputes and determine matters. In effect, the legislation introduced a voluntary system of conciliation and arbitration (Naughton 1993). The centre-piece of the legislation was provision for individual employment agreements made between employees and employers. Individual agreements were to be in writing and were required to comply with the minimum terms and conditions set out under Schedule 1 of the Act, which provided for:

  • long service leave;
  • four weeks’ paid annual leave;
  • one week’s paid sick leave;
  • up to 52 weeks’ unpaid maternity, paternity and adoption leave; and
  • a minimum hourly wage rate (equal to the relevant base hourly or weekly rate provision in the relevant former State Award).

To give impetus to this radical reform, the legislation also provided for the abolition to all Victorian State Awards effective from 1 March 1993 (Naughton 1993; Victorian Industrial Relations Taskforce 2000a). Employees working under awards were from that date deemed to be working under a ‘rollover agreement’ until replaced by either an individual or collective employment agreement.

While collective agreements were still enabled, they were subordinate to any individual agreement made under its provisions. The Act contained no formal processes for certification of agreements. Nor were there formal arrangements for registration of industrial organisations; however, the provisions under the Industrial relations Act for recognition of industrial organisations was retained (Pittard 1998). The Employee Relations Act was subsequently amended in 1994. This amendment provided the ERC with extended powers to review minim wages and make determinations. This amendment followed criticism of the legislation and the limits on the Commission by its own President.

The referral of industrial powers to the Commonwealth

On 11 November 1996, the Kennett government announced its decision to refer the bulk of its industrial powers to the Commonwealth. The Commonwealth Powers (Industrial Relations) Act (1996) referred specific powers to the Commonwealth, enabling it to enact legislation on:

  • conciliation and arbitration for dealing with disputes within Victoria;
  • agreement making in Victoria;
  • termination of employment; and
  • freedom of association.
On 11 November 1996, the Kennett government announced its decision to refer its industrial powers to the Commonwealth.

Significantly, some powers were (implicitly or expressly) not referred to the Commonwealth. These matters have, therefore, remained subject to state regulation. These included:

  • workers compensation;
  • occupational health and safety;
  • apprenticeships;
  • long service leave;
  • matters concerning the employment of public sector employees and law enforcement officers.

In response to this referral, the federal government amended the Workplace Relations Act, providing for Part XV and Schedule 1A of the Workplace Relations Act.

Schedule 1A sets out minimum conditions for Victorian employees to be covered by the referral of powers. Largely based on Schedule 1 of the Victorian Employee Relations Act 1992, the Schedule provides for:

  • four weeks’ annual leave;
  • one week’s paid sick leave;
  • unpaid maternity, paternity or adoption leave;
  • notice of termination of employment; and
  • a minimum hourly rate of pay.

Minimum hourly rates of pay were set for work classifications in the industry sectors previously defined under the Employee Relations Act 1992, and confined to the first 38 hours worked per week. This situation still prevails.

Part XV, among other things, provides the Australian Industrial Relations Commission with the power to:

  • make awards to settle intra-state disputes in Victoria;
  • certify agreements, AWAs without reference to Corporations Power requirements;
  • hear matters relating to unfair and unlawful termination; and
  • set minimum wages (hourly rates) for Schedule 1A employees in specified industry sectors.

The Effects of the Referral of Powers

Before discussing the effects of the referral of powers in detail, two observations about the Victorian industrial environment are worth noting. First, Victoria has a much greater proportion of the work force employed in manufacturing than most other states (Victorian Industrial Relations Taskforce 2000a). Industrial dispute figures reflect this: most industrial disputation occurs in manufacturing and the building and construction industry. Today, around 90 percent of all working days lost occur in manufacturing and building and constructions alone (ABS 2005).

Victoria traditionally has been subject to higher federal award coverage that other States.

Second, Victoria traditionally has been subject to higher federal award coverage that other States (Victorian Industrial Relations Taskforce 2000b). The relative dependence on federal award regulation was reinforced as a direct result of the Kennett reforms in 1992. Following the passage of the 1992 Act, many unions successfully sought to gain federal award coverage, including many occupations in the Victorian public sector, such as nurses and teachers. Thus, in 1990, two fifths of all Victorian employees were covered by federal award; by 2000, around two-thirds were (Victorian Industrial Relations Taskforce 2000b).

Industrial and Economic Effects

The best evidence on the effects of the reforms to the industrial relations system actually comes from research commissioned by the Victorian Industrial Relations Taskforce (2000b), which was established after the election of the Bracks Labor Government in 1999. The Taskforce Report found, among other things, that slightly more than half of all workplaces had Schedule 1A workers, and around one third of all employees were covered by the Schedule. (The remaining two thirds of employees were covered by federal awards.) The Schedule 1A employees were concentrated in business services, agriculture, construction and retail; employed in low paid jobs; and likely to enjoy fewer benefits (such as overtime, penalty rates, allowances, annual leave loading).

Since 1999, the Victorian government has commissioned two additional surveys on industrial relations in Victoria: the 2002 Victorian Workplace Industrial Relations Survey and the 2005 Victorian Industrial Relations Environment Survey, both carried out by acirrt. To date, only limited results of the first survey have been released publicly, so we have no comparable data with which to assess how much this picture has improved or worsened. There is some reason to believe that the position of Schedule 1A employees, many of whom are low paid workers, has probably improved with developments since 2002 (discussed below). But we can say that ongoing concerns about Victoria’s industrial relations environment remain. These include the general view that Victoria remains ‘strike-prone’, particularly in manufacturing and construction, and that Victoria continues to experience ongoing industrial unrest centred on enterprise bargaining (Productivity Commission 2002; 2003).

Legislative Changes

Since coming to power in 1999, the Bracks Government has sought to recast the Victorian system. During the 1999 election campaign, it committed itself to restoring the state industrial system and following the recommendations of the Taskforce, the government introduced its Fair Employment Bill in 2001. This bill, which would have involved the Victorian government rescinding its referral of powers to the Commonwealth, proposed reforms similar to those enacted in Queensland, where the Beattie government had also undertake a policy review on its election. However, without a majority in the Legislative Council, this bill was never passed. Notwithstanding the fact that a majority was gained in 2003, the Fair Employment Bill has not returned to parliament for consideration.

Instead, an alternative approach, which involved maintaining the current referral, sought to provide some relief to these more adverse economic affects. The Federal Awards (Uniform System) Act sought to have the federal government pass complimentary legislation to deem federal awards common rule in Victoria. The Commonwealth reluctantly agreed to allow the Australian Industrial Relations Commission to so rule.

Since coming to power in 1999, the Bracks Government has sought to recast the Victorian system.

In addition to the core industrial legislation, the Victorian government has passed three other significant acts. In 2003, the Child Employment Act and the Outworkers Act were both passed, and in 2005, the Owner Drivers and Forestry Contractors Act has regulated contracting arrangements for these workers. None of these has sought to displace federal regulation and re-instate a fully developed state system. They have been supplementary legislation intended to fill the worst gaps within the system. Each act has sought to deal with marginalised and vulnerable workers, but can rectify the balance of bargaining power and restore collective rights only in limited ways. In sum, while the Bracks Government retains a general commitment to collective industrial relations and supports the role of trade unions, none of these Acts reverse the Kennett reforms of the early 1990s.

The end of state industrial relations?

Notwithstanding the referral of powers to the Commonwealth, it has proved difficult to maintain a truly unified state and federal regulatory regime. The Victorian government has continued to fill a need for additional regulation in specific areas and to force the Commonwealth to adjust its own approach. Given the current plans for the Commonwealth to assume state powers more generally, the Victorian experience may indicate what is to come.

Evidence suggests that even if the state government wanted to wash its hands of industrial relations altogether—as the Kennett government sought to do—it proves difficult in practice. Even during the Kennett period, when most powers were referred, the government retained a Minister for Industrial Relations who acted as a ‘lightening rod’ for local disputes.

And the Bracks Government has also used less formal consultative arrangements in a regulatory sense. For instance, the Manufacturing Industry Consultative Council has played an important role in attempting to advance harmonious relations between unions in specific sectors (such as auto and food manufacturing). The Building Industry Consultative Council, which consists of industry, union and government representatives, plays some role in dealing with disputes, resolving political conflicts and establishing a forum for unions and industry groups to avoid more confrontational industrial relations. In the public sector the Public Sector Consultative Committee has been formed for similar purposes.

Further, the Victorian state government has carved out a role through ‘soft’ regulatory initiatives that do not involve statutory intervention. For instance in 2002, the Partners at Work program introduced a grant scheme intended to support and promote progressive industrial relations practices. Many of these have been used as ‘lighthouse’ examples of best practice. (At the time of writing, however, it appears that this program has been reduced significantly.) Similarly, in 2002 the Bracks Government also launched a Premiers Awards for Workplace Excellence intended to promote co-operative workplace relations with unions. Other mechanisms include the use of codes of practice for bargaining in public sector agencies, a public sector call centre code of practice, and a government procurement policy which imposed industrial obligations on potential suppliers to government agencies.

It has proved difficult to maintain a truly unified state and federal regulatory regime in Victoria.


So what lessons can be drawn from the Victorian experience for the impending struggle over regulatory arrangements between the states and Commonwealth?

First, it is unclear how the Commonwealth will be able to forcibly displace the states’ regulatory roles completely. The states will obviously continue to regulate those matters that the Commonwealth does not seek to subsume in the national system, along with regulating employment of many public sector employees. Beyond this, the Victoria experience suggests it is difficult for the federal government to ‘cover the field’ and inevitably states will establish supplementary regulation to fill perceived gaps.

Second, assuming the Commonwealth is genuinely interested in a unitary framework that achieves a balance between regulatory simplicity, responsiveness to the needs of key stakeholders, efficiency, and fairness, unless it establishes the unitary system by force, it will need to collaborate with the states in an ongoing way. The Victorian experience, particularly in relations to the Federal Awards (Uniform Systems) Act demonstrates that the states may still retain some capacity to force the Commonwealth to collaborate. The Beattie government in Queensland has certainly indicated its intention to do so.

Even if we assume that the Commonwealth is able to find a way to displace the states’ regulatory role, the reality of industrial relations in Victoria demonstrates the need for a local capacity to respond to employers and union concerns about how the regulation operates in practice. State governments can in effect enhance the functioning of federal legislative intent where this role is recognised. Thus, a unitary system might be better thought as consisting of a co-ordinated federalism in which regulation at state and federal levels is harmonised collaboratively.

This view is supported by research in regulatory studies. Teubner (1987), for example, has shown that effective, sustainable regulation must balance consistency in application, responsiveness to the needs of stakeholders and regulatees, and effectiveness in achieving its stated objectives. From this perspective, regulation becomes a ‘negotiated order’. The Victorian experience demonstrates how, even in the absence of a willingness to do so, the federal government might be faced with a need to negotiate with the states.


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Peter Gahan is Associate Professor of Management at Monash.  Prior to 2004 he was Director, Workplace Innovation in the Victorian Department of Industry, Innovation and Regional Development.