Labour Law and Poverty: Exploring the Connections

By Anthony O’Donnell

La Trobe Law La Trobe University Anthony O'Donnell

Senior Lecturer Anthony O’Donnell

The recent decision of the Fair Work Commission to cut Sunday penalty rates for retail and hospitality workers has drawn attention to the key role our regulatory institutions play in ensuring people’s financial well-being. In fact, this role is highlighted each year when the Commission determines a framework of minimum wage rates for most forms of work in Australia.

In setting minimum rates, the Commission is continuing in the tradition of its predecessor institutions. In the first decades of the 20th century, the then Commonwealth Court of Conciliation and Arbitration set the absolute minimum wage by reference to the basic needs of a household comprising an unskilled labourer, his wife and three kids.

Wage setting has changed a lot in the intervening 100 years, with many employees now having their pay determined by agreements that are bargained — or simply imposed — at the workplace level. But the federal tribunal — the much touted ‘independent umpire’ — still sets the floor below which bargained wages cannot fall.

In a contribution to a just-published book of essays examining the links between law and poverty, La Trobe Law School academic Anthony O’Donnell points to research suggesting that, thanks to this regulatory intervention, ongoing full-time work still offers a fairly effective bulwark against poverty for small households.

Larger families, where there is only one breadwinner relying on the federal minimum wage, one full-time carer and three or more children — the archetypical family that earlier tribunals used as the benchmark for their wage determinations — don’t fare so well. This doesn’t necessarily translate into large numbers of households in poverty, because this type of family is increasingly rare.

But the furore over penalty rates highlights two other dimensions that suggest we shouldn’t be too sanguine about our system of labour market regulation. One is that many workers rely on penalty rates to make up an adequate weekly income because they can only get part-time work. The second is the issue of enforcement: how easily can employers simply evade their obligations to pay proper wages, penalty rates or otherwise?

So Anthony’s chapter argues that a proper examination of the links between labour law and poverty needs to focus on a regulatory ‘triad’: not just the setting of a minimum wage adequate to meet household needs, important as that is, but also the construction of work relationships around full-time, secure employment, and the enforcement of employer compliance.

The Australian labour market is now characterised by a high prevalence of part-time work. Around one in three workers are employed part-time, the third highest rate in the OECD. This is reflected in our high rates of underemployment: while some part-time work reflects personal preferences, we have a high level of people who want more hours of paid work than they have. And labour law is partly implicated in this. Restrictions on the use of casual and other forms of precarious work have become less and less common over the past few decades.

When it comes to enforcement, the penalty rates decision elicited the cynical but understandable response from some quarters: ‘who gets penalty rates anyway?’ And it’s true that the hospitality and retail sectors are notorious for employers evading many of their wage obligations, penalty rates included. So enforcement of wage rates has now emerged as a key issue in our labour law system.

The problem of enforcement, whether it’s regarding wages or other terms and conditions of employment, is partly the result of the decline in trade union coverage. Unions play a key role as enforcers of workplace terms and conditions — so join your union! But unions are finding it increasingly difficult to enlist workers in the changed world of work, particularly in small workplaces populated by casual workers.

Well-publicised examples of underpayment of wages in the chicken meat processing industry and in franchise-operated small retail businesses have also highlighted issues surrounding particular groups of vulnerable workers. And this vulnerability can often spring as much from our immigration regulation as it does from labour law. Migrant workers are often involved in precarious work, mediated by small labour hire firms who enter a commercial contract to supply the migrant workers to a host employer, in non-unionised workplaces. In the case of working holiday visa holders, there is an incentive to achieve a given level of work experience in regional agricultural labour markets if they want to have their visa work conditions extended for a second year; in the case of student visa holders, there is a strict cap on weekly working hours and should they breach this cap – however inadvertently – they face deportation.

Overall, the vulnerability of migrant workers arises from a combination of visa conditions; precarious work arrangements; and, in the case of some franchise ventures, a business model that requires franchisees to repatriate such a percentage of profits back to head office in the form of franchise fees that systemic underpayment of employee wages becomes one of the few strategies to keep businesses viable.

For more, see Anthony’s contribution ‘Labour Law and Poverty: The Transformation of a Wage-Earners’ Welfare State’ in “Law and Poverty in Australia: 40 Years After the Poverty Commission”, edited by Andrea Durbach, Brendan Edgeworth and Vicki Sentas and published by Federation Press.

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