Australia: The challenge of reducing labour costs in the resources sector

Low commodity prices look like they will continue to challenge Australia's resources sector for some time to come. Many operations conceived during the commodities boom and the businesses that serve them are confronting the reality that a step change in the cost of production - including labour costs - is required.

Achieving this step change is a significant challenge. However, there are options to consider:

• Modern awards and enterprise agreements contain minimum standards which impede options for change. But there are usually many options available to change the way things are done. Implementing change through assertive consultation and dispute resolution procedures is a real and viable option.
• Enterprise agreements can be varied before their normal expiry, with employee agreement (in the form of a simple majority in an employee ballot). Employees of contractors may be particularly motivated to agree a variation where the variation is needed to maintain competitiveness and to navigate their employer losing their contract.
• Re-negotiations of enterprise agreements at the end of their nominal term present the opportunity to achieve transformational change, provided management is well-prepared and clear on the leverage points and objectives. Protected industrial action will be available and employers should plan to minimise its impact.
• A rarely used option is to seek termination of agreements by the Fair Work Commission after the agreement’s normal expiry date. In the resources sector, there has been a recent tribunal decision to terminate an enterprise agreement applying to Peabody at its Coppabella and Moorvale mines. The company had insourced work from Sedgman, making Sedgman’s enterprise agreement (negotiated at the height of the boom in 2011) binding on Peabody. The FWC found that the coal price, having fallen by more than half, as a relevant factor in support of termination.

Australia’s prescriptive and, in many respects, inflexible industrial relations system is a reality of doing business here, but gains in the form of reduced costs are possible.

Author: Anthony Longland, Partner