THE King’s Shilling Mark 2

HISTORY OF WAGE SETTING IN AUSTRALIA

 and its relevance for the determination of military remuneration 

1. The purpose in providing a history of wage setting in Australia relates to understanding the context and special role played by the Defence Force Remuneration Tribunal (DFRT) when in accordance with its statutory powers it determines  military remuneration in Australia.  Last year at this induction training day I delivered a paper entitled The King’s Shilling, Military Industrial Relations in Australia.  That paper has been published in Thompson Reuters quarterly journal, Workplace Review.[1]
2. In that paper, I set out the origins of the DFRT and the powers it holds with respect to its function to determine the salaries and allowances of members of the Australian Defence Force (ADF). In particular, its powers are to be found in s58H of the Defence Act 1903 (the Act), in particular s58H(2) which reads:

“The Tribunal shall, as provided for by this section:

(a)       Inquire into and determine the salaries and relevant allowances to be paid to members.”

1. In making these determinations, the DFRT was instructed to have regard to s58K(7) of the Act which reads:

“The Tribunal shall, in making a determination, have regard to:

(a)       Any decision of, or principles established by, the FWC that is or are relevant to the making of the determination; or

(b)       If the FWC has not yet made any such decision or established any such principles, any decision of, or principles established by, the AIRC (that is or are relevant to the making of the determination).”

1. The reference to the FWC is to the Fair Work Commission; and the reference to the AIRC is to its predecessor body called the Australian Industrial Relations Commission.
2. Over time, the DFRT has established its own jurisprudence, that is, its own way of formulating how it makes its determinations for members of the ADF.  In the article last year I stated as follows:

“Even though the procedure in s58K(7) refers to principles established by the Fair Work Commission, the Fair Work Commission’s principles under the Fair Work Act do not have as much relevance as the principles formerly established by its predecessor organisation, the Australian Industrial Relations Commission.  This is so because the Fair Work Commission operates on a different basis to previous Acts such as the Commonwealth Conciliation and Arbitration Act 1904 (Cth) and the Industrial Relations Act 1988 (Cth). The Fair Work Act, in the formulation of wages and conditions at an enterprise level, has a focus on bargaining and permits protected industrial action, two matters which are contrary to military discipline.”[2]

1. Accordingly, an understanding of the history of wage setting inAustraliagoing back before the Federation of the States into the Commonwealth of Australia is relevant to understand what might guide members of the DFRT in determining salaries and allowances.  This is particularly so when one considers that the membership of the DFRT has as its President a person who is a Deputy President of the Fair Work Commission and a lay member who was appointed because of that person’s extensive industrial relations experience.  In addition to those two persons, there is also a retired service member who is able to add his or her experience having been a senior officer in one of the branches of the ADF.
2. This paper does not purport to set out a full history of wage setting in Australia, many scholarly books have been written on that topic .This paper’s purpose is somewhat more modest. It seeks to describe general concepts  which have some relevance to proceedings before the DFRT.
3. An important matter to keep in mind is that members of the ADF are not employees but serve the Crown at its pleasure, subject to the Act and various Defence regulations.[3] The use which one can derive from the history of wage setting in Australia for employees is because one needs to have regard to how employees are regulated. This is in accordance with of the statutory instruction given to the DFRT by s.58K(2)  the Act and by way of analogy.

Prior to Federation

1. Prior to the Federation of the States to form the Commonwealth of Australia, the States were independent self-governing colonies.  With respect to industrial relations matters, the contract of employment between employers and employees was essentially governed by the common law, that is, the common law dealing with contracts as derived   from the laws of England.  In the nineteenth century various Australian colonial Parliaments followed what was happening in England and  started to pass legislation which modified the harsh effects of the common law with respect to the relations between an employer and an employee, although in those days referred to quaintly as a relationship of  ‘master and servant’. The altered terminology reflected the changing dynamic in the employment relationship brought about by statutory intervention.
2. The legislation passed by the self-governing colonies or States ameliorated the contractual imbalance between master and servant, by imposing minimum wage standards and protections to workers.  This was done on the basis that was recognised there was an inequality of bargaining power between employers, particular large ones, and individual workers.  The rise of the trade union movement in England and subsequently in the self-governing colonies is reflected in the greater protection given to workers. The latter part of the nineteenth century was also a time of strikes and other industrial turmoil. Such strikes required an enduring settlement outside of the normal civil and criminal sanctions for strike action under the common law. At common law strike action is potentially a breach of contract and therefore unlawful. The enduring settlement of disputes was necessary because of the on-going need for workers to continue to earn their wages by the supply of their labour and employers need for that labour. Accordingly specialist tribunals were set up, by legislation, to conciliate (i.e., settle or mediate disputes) and to determine or arbitrate a result should conciliation fail.
3. Industrial tribunals arbitrated or determined minimum wage standards and conditions as found in the terms of industrial awards which applied to a particular industry or calling.  When the States combined to form the Commonwealth of Australia, they did so under the Australian Constitution (the Constitution)  and in particular,  industrial relations were in part to be regulated by legislation of the Commonwealth Parliament by use of s.51(xxxv) of the Constitution.  That part of the Constitution has been referred to as the ‘industrial power’. It permitted the Commonwealth Parliament to make laws with respect to industrial relations on originally a limited basis. The States continued to play a significant role in their own right with respect to intra-State industrial relations.
4. The relevant industrial power under the Constitution is found in s51(xxxv) it reads:

“The Parliament shall, subject to the Constitution, have power to make laws for the peace, order and good government of the Commonwealth with respect to … 

…… (xxxv) Conciliation and arbitration for the prevention and settlement of industrial disputes extending beyond the limits of any one State…..”

After Federation

1. Within a short period after Federation the Commonwealth Parliament enacted the Conciliation and Arbitration Act 1904 which set up the Commonwealth Court of Conciliation and Arbitration which had both arbitral and judicial roles until the High Court in R v Kirby; ex parte Boilermaker Society of Australia [1956] ALR 163; 94 CLR 254 held that the mixing of the arbitral  and  judicial    function in one tribunal was not permitted by the Constitution. The difference between an arbitral role and a judicial one is that an arbitral body creates new rights whereas a judicial body enforces existing rights. The making of an industrial award is an exercise of an arbitral power. The DFRT is an arbitral body in that it creates by its decision new salaries and allowances or increases existing salaries and allowances within its limited jurisdiction. It is not a court that exercises any judicial function.
2. The industrial power under the Conciliation and Arbitration Act 1904 was limited in that it was only designed to resolve industrial disputes which extended beyond the limits of any one State. Although the original intention of these words were extended by various decisions of the High Court of Australia which widened the federal industrial power. However,, the powers of the various tribunals set up by the States to resolve internal industrial disputes continued to play a significant role in industrial relations in Australia . A significant shift occurred under the Workplace Relations (Work Choices) Amendments by the Howard Liberal National Party Government.  The so-called Work Choices legislation  continued into the Fair Work Act no longer relied upon the Constitution’s limited ‘industrial power’, but relied upon a broader power  referred to as the ‘corporations’ power’ under s.51(xx) of the Constitution.
3. Section 51(xx) provided for the following:

“The Parliament shall, subject to this Constitution, have power to make laws for the peace, order and good government of the Commonwealth with respect to (xx) foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth; …”

1. In due course the States ultimately , voluntarily surrendered other industrial powers which related to other entities (e.g. partnerships,sole traders,unincorporated associations and trusts) which were not corporations, save for State public sector and local government employees (except Victoria where no Industrial Commission exists).
2.  Within a very short period of time the State Industrial Relations Commissions have been reduced to merely looking after State public sector employees and local government employees in New South Wales, wherein some States such as Victoria there is no independent Industrial Relations Commission.
3.  The WorkChoices’ legislation effectively nationalised the industrial relations system in this country.

Principles used by the Fair Work Commission and its predecessors

1. A number of principles used by the Fair Work Commission and its predecessors have a role to play with respect to the functions exercised by the DFRT.

Awards

1. When a particular case is brought before the DFRT to establish a new work category or an increase to salary or allowance to an existing category or group, it is little different to the award making powers exercised by  Federal or State industrial tribunals. A determination made by the DFRT is like the making of an award by an industrial tribunal. Award making has been one of the core activities of industrial tribunals’ when exercising an arbitral role. An award is an instrument made by an industrial tribunal which sets the wages and conditions regulating the work of employees in the particular craft, industry or occupation to which the award relates. Another way of looking at the award or DFRT determination process is that it a piece delegated legislation  arising out of its particular statute.
2. In Australia, awards are made by industrial authorities constituted either under the Fair Work Act or its predecessor Commonwealth legislation or State industrial statutes. In all cases, the terms of an award must be observed as a minimum by the parties bound by it. Any contract which provides wages and conditions below what is provided by the award is ineffective.
3.   Awards could be made to cover employees in particular crafts or callings, for example, carpenters , plumbers or nurses .Awards may be industry-based in order to cover all employees in a particular industry or section of industry, irrespective of their craft or occupation, for example, the power generation, retail  or maritime industries. The terms of most awards cover a similar range of subject matters with differences in classifications, pay rates and conditions.  The terms in relation to each subject matter covered may differ widely as each occupation or industry has its own particular features which may require special attention, regulation or qualifications. [4] 
4. In determining either the settlement of industrial disputes or determining what should be fair remuneration and conditions for employees, from time-to-time the Federal tribunal and the State tribunals have been guided by various changing principles.
5. Similarly the DFRT makes decisions which apply salary and allowances to particular ADF members, groups or categories.

The industrial power produces a living wage and fairness

1. In the  WorkChoices case  in the High Court, NSW v The Commonwealth (2006) 231 ALR 1, Mr Justice Kirby wrote about the ‘industrial  power’ in s51(xxxv) of the Constitution.  He said that it was designed to protect industrial fairness.  He referred to an early decision of the Commonwealth Court of Conciliation and Arbitration, and at paragraph [524] said this:

“The story can be traced back to at least the decision of Higgins J in ex parte HV McKay (1907) 2 CAR 1 (the Harvester Case) which, with his successors, had a profound effect upon the wages and conditions of life of Australian workers and their families.  But it also extended to decisions concerning standard hours of work; the principle of equal pay for women workers; fairness and training requirements in the conditions of juniors and apprentices and the removal of discriminatory employment conditions for Aboriginals.  The regulation of excessive overtime to compensate workers and to encourage employers to a better system of organising work; the introduction of bereavement or compassionate leave entitlements; the introduction of provisions for retrenchments or redundancies; and reinstatement in case of unfair termination are just some of the matters arising in industrial disputes in Australia decided by a process of Federal conciliation and arbitration over the course of a century.  Work value cases frequently ensured attention to the provision of fair wages for manual and other vulnerable workers which market forces and corporate decisions alone would probably not have secured.  Attention to particular conditions of work, including arduous, distressing, disagreeable, dirty or offensive work, instilled in Australian work standards and egalitarian principle not always present in the pure operation of the market or the laws and practices of other countries.

[525] The effect of this history, clearly anticipated by the language of the grant of constitutional power in s51(xxxv), profoundly affected the conditions of employment, enhancement of ordinary life, of millions of Australians.  It did so in the years following Federation, and indeed until very recently.  Inherent in the guarantee and procedures of conciliation and arbitration was transparent process, decided in a public procedure which could be subjected to appeal and review, reason criticism and continuous evolution.”

1. The relevance of the Harvester decision was that Justice Higgins established a ‘living wage’ which set   a fair and reasonable wage having regard to the needs of a family of five and also the rates being paid at the time by reputable employers to unskilled labourers.[5]

Margins for skill and features of the work

1. Margins for skill above the basic wage became an important part of wage fixation , see  the Metal Trades Case re Margins[6] as follows:

“Margins are minimum amounts awarded above the basic wage to particular classifications of employees for the features attaching to their work which justified payments above the basic wage, whether those features are the skill or experience required for the performance of that work, it’s particularly the laborious nature, or the disabilities attached to its performance.  Furthermore, the assessment of each margin should be made in relation to each other margin, so that the margin awarded to one employee should bear, as far as possible, its proper monetary comparison with that of every other employee awarded a margin, having in mind the various matters which in each case should be weighed in assessing the margin.

…

In assessing margins it may be, of course, relevant to consider history, past expressions of wage fixation and the economics both of industry generally, and of the particular industry, but it is vital, in order to try to attain industrial justice where there is a contest, to have information about the work done and the conditions under which it is done.”

1. In an earlier case dealing with margins, Justice Beeby, in the Metal Trades Case[7] said as follows:

“I have never agreed that margins for skill should be uniform in all occupations.  Some callings call for more intensive training and more knowledge than others.  Independent investigation of differing industries is necessary in assessing margins for degrees of skill, knowledge and experience.

My decision in this group of industries is not to be taken as an opinion that margins in all industries should be similarly assessed.

…

The fixation of margins must necessarily be arbitrary.  There is no measuring rod for ascertaining the relative value of skilled, semi-skilled or unskilled labour. An assessment can only be based on consideration of the past practices and changes in methods of production.

…”

1. In the Remuneration Reform Project,  heard between February 2003 and December 2005, with a date of effect of 1 July 2006, the DFRT said this by way of background:

“The Officer’s Common Scale (OCS) was introduced in 1948, applying an ‘all of one company’ philosophy to the profession of arms in the ADF.  Officers at the same rank and seniority received the same base salary, regardless of differences in work and performance.  This system has come under stress with the accelerating pace of change, such that additional allowances have grown in number and amount over time to recognise differences in work and the pressure of market forces.  A number of reviews and reports have recommended change to introduce greater flexibility in salary outcomes across the wide range of officer roles and, for approximately 10 years the ADF has been exploring options for change

1. Similarly, when one considers cases which have been determined by the DFRT there is a base rate or a lower pay grade for all new recruits and ranks at the lower end of the spectrum.  Thereafter, in accordance with the principles set out in the Graded Officer Pay Structure case (GOPS) a base rate (Pay Grade 2) was the starting point to which was added additional pay grades for skill, training and experience. A similar process which has guided the civilian industrial tribunals for wage setting.
2. These concepts of basic wage and margins for skill have some echo in the way in which the DFRT since its inception in 1984, and earlier Commissions of Inquiry have made determinations in relation to salaries and allowances of ADF personnel. In ADF pay placement one as a starting point had to take account of relativities between officer groups, i.e. rank.

Relativities

1. Industrial tribunals and the DFRT often are concerned if an arbitrated movement in wages for one category or group may have an unintended consequence or expectation raised elsewhere. That is would a movement  have a ‘flow on’ effect elsewhere. This ‘fear’ comes under the general heading of ‘relativities’.
2. In this regard consideration should be given to the principles established by the DFRT in the Graded Officer Pay Structure.[8]  In that case, the DFRT stated:

“Instead, the Tribunal sought from the ADF a plan to place all officer categories simultaneously in the new structure, taking account of relativities in work done and any other relevant factors.”

It went on to say:

“The ADF’s placement principles and the Service proposals have evolved over the life of the Remuneration Reform Project.  While the structure allows for flexibility and differentiation across the officer population, the placement proposals involve only limited differentiation within rank, at least up to 04 level.  Vertical progression with seniority in the Officer’s Common Scale is largely replaced by diagonal progression up and across the pay grade matrix.  So, for example, all Army general service officers (not including engineers) progress from Pay Grade 2 at 02 rank to Pay Grade 5 at 04 rank; differentiation comes only at that point with various command appointments. 

While we were not concerned with the extra recognition award for command roles – indeed we see it as warranted and timely – we did press the leadership team on the appropriate level of differentiation within and between categories.”[9]

Further over the page:

“While there may seem to be arguments for adopting a cautious approach we were satisfied that the ADF leadership had carefully considered relativities, understanding that pay grade 10 is the foreseeable limit of the 01 to 06 structure.  We accept the CDF’s view there is no realistic prospect of the ADF arguing for placement of a category higher than sea command or SAS officers.  Consequently, introduction of further differentiation in the future is to be accommodated within these bounds.”[10]

Further, the Tribunal said:

“We did, though, have difficulties with the Army’s proposal that completion of training courses provide the trigger points for advancing in pay grade.  Accordingly, we rejected the first proposal to place army engineers.  In our view, sound principle requires that payment be for skills applied, rather than skills acquired.”[11]

1. Comparative wage justice or relativities can also be based upon proved historical relationships in order to permit a comparison.[12]
2. The concept which appears to be relevant in the DFRT about which some of the above quotes make mention, is the concepts of relativities or comparative wage justice.  Relativities relate to whether a change to a particular category’s salary may have a knock on effect upon another which may concern similar work or where there has been some sort of historical connection between their rates of pay.  That is, if one particular classification of work moves there is a related classification which either moves to a similar extent or moves on a pro rata basis.  This in the past had been a major wage fixing principle whether those doing the same or very similar work should be paid the same or comparable rates.  The expression used had been described as “like with like” and has always existed in compulsory arbitration systems on the rationale of equality of treatment:  see the Professional Engineers Case.[13] A lot of these matters regarding relativities exist within the mind of the DFRT so that if movement in one particular place, particularly when one has systems such as the Graded Officers Pay Structure, may have an effect upon one pay grade or rank because of a nexus with another.

Work Value

1. Another principle used by industrial tribunals and at times adopted by the DFRT is the principle of work value.  The work value principles were highlighted in 1975 by the Federal Commission and subsequently adopted in other State Commissions. Although the principle of work value changes had been around for a long time,e.g. see a New South Wales decision called Re Crown Employees (Teachers – Department of Education) Award.[14] In that case it was stated that the applicant asked the tribunal to assess or re-assess the value of work for wage and salary purposes in light of the evidence called of the nature of the work, the responsibilities it involves and the condition in which it is done.  Work value generally relates to making a proper assessment of the nature of the work under consideration.
2.   In the Metal Trades Work Value case[15] it was said one has to have regard to the qualifications, training, attributes, responsibility, conditions, quality of work, versatility, skill required, knowledge acquired, supervision, importance of work to the employer.  When one looks at work value cases, one examines whether the work which had once been valued at a certain rate has changed. Is there more training required, more responsibilities, more work expected and more supervision given?  In such circumstances, one could confidently suggest that there should be an increase to the rate because the nature of the work had significantly changed.
3. In a significant case involving nurses (re Application by RANF[16]), the factors considered which satisfied the work value change principles were assessment of change of work value, new categories of work, revised career structure, transfer of education to colleges, effective shortages, national character of nursing, need for in-service and continuing education programmes.  In such cases the onus is always on the applicant.  Other factors might involve new skills acquired, greater mobility, new techniques and the like.
4.  The DFRT consistent with its statutory instruction to have regard to principles developed by the FWC or its predecessors the work value principle is an important guide for the DFRT in setting ADF salaries and allowances.

National Wages Cases

1. Another principle which has been established by federal industrial tribunals relates to overall cost of living increases, sometimes called National Wage Cases or sometimes adjustments to minimum rates of pay. Some of the states had their own State Wage Cases,e.g.New South Wales. Often percentage increases to all rates were applied or on other occasions a flat rate was added to all award rates. The comparable task to National Wage Case movements performed by the DFRT is the triennial Workplace Remuneration Arrangement (WRA). The WRA decisions in recent years have provided equal percentage increases staggered annually over the life of the WRA.

Allowances

1.   Industrial tribunals not only look at the level of salary or wages based upon the skill levels required and the training necessary to perform the work, but also look at other allowances for other matters.  Common provisions in industrial awards are for penalties rates for work on public holidays or weekends, and also work performed over and above ordinary hours.  Ordinary hours vary from industry to industry and may be at 35 hours per week or 7.5 hours per day, and any work done outside what is called the span of hours will be paid at overtime rates.  Overtime rates vary from 150% of the ordinary hourly rate to 200% depending upon the amount of overtime worked. Also, penalty rates can be for time and a half or double time depending upon whether the work is performed on a Saturday, Sunday or public holiday.  Such provisions have been found at various levels in industrial awards for many decades.
2.  When one considers the nature of military service , different circumstances exist.  There is no such thing for the permanent full-time force or Reserves as overtime or indeed penalty rates for working on a weekend or a public holiday.  What is in place  is a concept called Service Allowance that attempts to compensate on a roughly annualised basis for some of these factors.
3.   In a Report for the Committee of Reference for Defence Force Pay presented to the Minister of Defence on 4 November 1981. The following is stated at chapter 9 in relation to Service Allowance:

“9.1 Since February 1973 a Service Allowance has been paid to most service personnel in recognition of the following features of service life:

(a)       The need to be on-call at all times and to work long and irregular hours, as required.

(b)       The need to at times live and work in uncomfortable conditions short of those situations for which separate provision was made at the time.

(c)        The requirement to submit to discipline and control in many matters in which a civilian has some freedom of choice.

(d)       The general turbulence in postings to the extent that such disruptions are not compensated in on-occurrence allowance.”

1. In relation to Service Allowance, the following was stated at 9.5:

“Service allowance should not be an ‘on occasion’ allowance in whole or in part, to be paid only when ‘overtime’ is undertaken by individual service members or when ‘penalty rates’ would ordinarily be incurred.  Quite apart from the daunting administrative difficulties, especially at sea and in the field, we are satisfied that to most service members, life and work in the Defence Force has connotations which do not readily conform with notions of overtime, penalty rates and the like.  We are satisfied, however, that the first element or feature which service allowance is paid dominates the quantification of the allowance and must be considered in detail.”

1. In dealing with the incidence of Service Allowance, the following is stated:

“9.44 It will be seen from our recommended salary structure that there is a break in the orderly progression of salary for rank as the scale progresses upwards from and including Lieutenant Colonel.  The increased margins for rank in that part of the structure are designed to reflect the changes of role and functions which have been experienced by members in those ranks. 

9.45 In the public and private sector, payment for long and irregular hours disappears at a point which approximately corresponds with the Lieutenant Colonel.  This is because management in the real sense occurs at that point and the trappings and duties of management should not be associated with any scenario which includes the Bundy clock.

9.46 Officers at the rank of Lieutenant Colonel and above should therefore be paid a consolidated salary which gives full recognition to the responsibilities within the rank, to the time taken to discharge those responsibilities and to the other disabilities which are the lot of the military manager.  The salaries which we have recommended at those ranks take cognisance of the fact that those who received them will not be paid service allowance.

9.47 For similar reasons we rejected the service commission that brigadiers and major generals should receive a service allowance.”

Over Award Payments

1. In civilian employment even though an award  rate for work might be set by an industrial tribunal employers who only pay that rate  for labour may not be successful in engaging and keeping skilled workers . Employers therefore have paid over award payments that is a sum over and above the rate set by the award to attract and retain skilled labour. The DFRT by decision has also used this device in its broad discretion in determining fair salaries and allowances in certain categories. In cases such as the Submarine Capability Assurance Payment (SM-CAP) a component of the allowance paid was made up of ‘attraction and retention’.

“[46] The SM-CAP is a financial measure and one of seven components of the SM-DDP. It is the only component within the jurisdiction of the Tribunal. We accept that all seven components are intended to work together to achieve the impact sought. We accept the submission and evidence the SM-DDP is likely to provide for growth and retention of sufficient experienced personnel to allow workforce expansion in support of the SWGS”^[17]

1. The above summary of industrial principles was not intended to be exhaustive but to examine briefly how many industrial principles established historically by the various industrial tribunals have an on-going effect of the jurisprudence of the DFRT and the fair assessment of military remuneration in Australia.

Jeffrey Phillips,SC

The author is Australia’s Defence Force Advocate and delivered this paper in Canberra on   6^th February 2018 at the Directorate of Military Remuneration’s annual conference.