Employee Relations Update June 2010

Fair Work Australia scrutiny of enterprise agreements at the approval stage

Introduction

Central to the concept of enterprise bargaining since its introduction in 1993 has been the approval of the resulting enterprise agreement. It is the approval of the agreement which gives it the force of law and allows it to override, or displace, the terms of any otherwise applicable award.

The approval process for enterprise agreements under the Fair Work Act 2009 (Cth) (Act) has changed. In the 11 months since the Act took effect, it is apparent that the approach taken by Fair Work Australia (FWA) to the approval process has also changed, quite substantially.

This article looks briefly at some of these changes and in particular a mechanism to rectify some difficulties by the employer giving an undertaking.

The approval process

From 1993 until March 2006, applications for approvals of agreements were made to the Australian Industrial Relations Commission (Commission). It was quite rare for the Commission to issue detailed decisions comparing the terms of the particular agreement against the applicable award and weighing up whether, considered overall, the agreement disadvantaged employees. Whilst there were exceptions, they were rare, and particularly where a union was party to an agreement, the Commission was more likely than not to accept the union’s submission about the no disadvantage test.

A significant change occurred in March 2006 when the Work Choices reforms were passed. Rather than agreements being scrutinised by the Commission, they were simply lodged with the Workplace Authority Director. Approval happened in private and decisions were not communicated publicly. Originally, these agreements did not have to pass any no disadvantage test, but this was later changed with the introduction of the ‘fairness’ test.

The return of the role to scrutinise and approve agreements to the public forum of FWA has led to far greater scrutiny than what has been seen in the past. Essentially there are three issues which we are seeing FWA subject to this additional scrutiny:

1. the procedural requirements around the distribution of the agreement to employees, the explanation of its terms and the ballot process
2. the better of overall test (BOOT), and
3. agreement content rules.

In the case of procedural requirements, FWA relies upon a sworn declaration of the employer (a Form 17) in order to determine if the requirements have been met. The completion of this form is, accordingly, extremely important. There is also scope for other bargaining representatives to lodge declarations as to the process but the obligation is on the employer to get it right.

In relation to the BOOT, although FWA will rely upon the employer’s declaration, (which is required to specify which terms of the agreement involve a reduction in terms and conditions in comparison to the award and which provide advantages), it will also conduct its own assessment on the basis of the agreement itself.

It is becoming common for FWA to raise concerns with the parties through correspondence after it receives a copy of the application, and requiring written submissions on particular issues of concern.

BOOT

Obviously, in any given approval application, whether an agreement satisfies the BOOT will depend on the terms of the agreement and the terms of the award to which it is being compared. As a result, there has been little guidance from FWA regarding general rules that would help employers determine whether their agreement would pass the BOOT.

However, a recent decision of the Full Bench of FWA made it clear that agreements which contained so-called ‘preferred hours’ clauses would have some difficulty passing the BOOT. Preferred hours clauses provide that if an employee requests or elects to work a particular shift which would normally be paid at an overtime rate, the employer could pay the employee less than the normally applicable overtime rates in the agreement. Although employers have argued that preferred hours clauses benefit employees by giving them access to more shifts, FWA has been clear in its assessment that, given that rates of payment would be lower under preferred hours clauses, they represented a disadvantage to the employee which may justify rejecting the agreement.

Agreement content rules

The Act contains several rules dealing with the kinds of clauses which must be included in all agreements and which clauses cannot be included. The application of these rules in particular cases has already created some controversy. Some of the more important issues in this area which have been explored by FWA have been the following:

• A decision of the Full Bench of FWA earlier this year confirmed that there is no requirement that agreements must include in the dispute resolution clause, a power for FWA to resolve disputes by arbitration. This overruled an earlier decision which had rejected an application to approve an agreement on the basis that in not permitting FWA to arbitrate in the case of disputes, the dispute resolution procedure did not comply with the Act.
• A Commissioner rejected an agreement because it contained a clause which allowed employers and individual employees to enter ‘individual flexibility arrangements’ which varied the agreement as between the employer and the individual employee. All agreements must contain clauses which allow individual flexibility arrangements (IFAs) to be made, but Commissioner Ryan adopted a narrow reading of the Act and held that IFA clauses must only allow IFAs to vary the effect of an agreement, and not the agreement itself. This decision was overturned on appeal, the Full Bench finding that while an IFA does not actually vary the enterprise agreement itself, it does have the effect of varying the enterprise agreement as between the individual employee who enters the arrangement and the employer.
• Commissioner Ryan also approved an agreement which provided for union rights of entry which were more extensive than those provided in the Act. The clause provided that ‘an authorised NUW representative is entitled to enter at all reasonable times upon the premises and to interview any employee but not so as to interfere unreasonably with the employer’s business’. That approval has been appealed on the basis that the Act appears to provide that agreements must not include clauses that provide more extensive entitlements to entry than those provided in the Act.

Procedural requirements

Recently, FWA has refused to approve agreements, on the basis of the employer’s failure to comply with procedural requirements, in the following circumstances:

• Employees were engaged after the pre-approval process began, and were not given the opportunity to cast a vote.
• The employees’ employment was conditional upon the agreement being approved.
• Employees were given 21 days notice of representational rights before voting, including the day of the vote. FWA said that the reckoning of the period cannot include the day of the vote.
• Employees were given seven days access to the proposed agreement before voting, including the day of the vote. Again, FWA said the reckoning of the period cannot include the day of the vote.
• The employer made a general announcement (on a notice board) of employees’ representational rights. FWA said that employees must be given individual notice of representational rights.
• Copies of materials incorporated into the agreement (eg an award) were not distributed to every employee.
• The copy of the proposed agreement given to employees had a page missing. The complete copy was later sent to managers for distribution. FWA said that no effort was made to ensure every employee received a copy.
• The date of the vote given to employees was incorrect. Again, the complete date was later sent to managers for distribution. FWA said that no effort was made to ensure every employee was advised of the date.
• Employee representatives (other than unions) were not appointed in writing, even though they had been elected by employee vote.
• There was a lack of evidence of the vote, especially of when the vote closed, and a lack of evidence that there was an explanation of proposed agreements to employees (especially more vulnerable employees).
• There was a disregard for the form and context of the statutory declaration.

Undertakings

If FWA has concerns about the agreement (whether relating to the BOOT, agreement content rules, or procedural issues) the Act provides that they can be resolved by the employer providing an undertaking.

Once again, this has been a feature of the legislation since 1993 but the new legislation includes important changes.

The 1993 legislation allowed the Commission to accept an undertaking from one or more of the parties to the agreement ‘in relation to the operation of the agreement’. The same wording appeared in the Workplace Relations Act 1996 (Cth). When the fairness test was introduced into the Work Choices Legislation, a slightly different mechanism was included where the Workplace Authority Director decided that the Workplace Agreement did not pass the fairness test. In this case the Director was required to give the employer or the employees an opportunity to lodge a variation to deal with that issue of concern.

In the Act, the concept of undertakings has returned but, rather than simply being undertakings ‘about the operation of’ the enterprise agreement they can go much wider. The undertaking must:

1. be in writing
2. be from the employer party to the enterprise agreement
3. deal with any concern raised by FWA—that being a concern about any procedural requirement or about the BOOT
4. not cause financial detriment to any employee covered by the agreement, and
5. not result in ‘substantial changes to’ the agreement.

The significance of this point is that it is clear that an employer’s undertaking—even though it is delivered after the employees have agreed to the document through their employee ballot—can in fact change the agreement; so long as that change is not ‘substantial’.

This is a significant change and has been utilised by many employers with whose agreements FWA has had concerns.

This option removes the need to amend the agreement itself and once again circulate it among employees in order to conduct another employee ballot.

The obvious question is, when is a change affected by an employer’s undertaking too ‘substantial’? There is not yet any authoritative pronunciation upon this question. It suffices to say that there are some FWA members who have refused to accept undertakings on this basis.

Implications for employers

It is apparent from the above that significant care should be taken with the procedural requirements relating to bargaining. These concern not simply the manner in which the agreement is to distributed, the explanation given to employees and the conduct of the ballot, but extends further to matters concerning the appointment of bargaining representatives and the like.

Employers should ensure that the Form 17 statutory declaration is completed precisely and in some detail so as to enable FWA to perform its task under the Act.

Care should be taken with the BOOT and employers should expect that FWA will scrutinise the agreement in some detail.

The scope for providing FWA with written undertakings to overcome any concerns it has about the agreement has been widened and should be looked at carefully where employers wish to get their agreement approved rather than have to return to their employees for a further ballot process.

This article was written by Anthony Longland, Partner, Sydney.

Bargaining orders: The end of direct employee engagement?

Introduction

The new bargaining regime introduced by the ALP’s ‘Forward with Fairness’ reforms brought with it challenges and opportunities for all bargaining participants. However, it was feared that employers with non-unionised workplace arrangements or employment models underpinned by direct employee engagement strategies would face the greatest challenges due to the ability of employees (through their appointed bargaining representatives) to force employers into bargaining and through the regulation of the bargaining process by ‘bargaining orders’.

This article focuses on recent cases involving applications for bargaining orders and their impact on elements of direct employee engagement strategies during the bargaining process.

Bargaining orders: what are they?

Bargaining orders can be granted by FWA where:

• a bargaining representative is not bargaining in good faith, or
• bargaining is not proceeding efficiently or fairly because there are multiple bargaining representatives for the agreement.

A bargaining representative for an agreement can apply for a bargaining order provided specific procedural requirements are followed. These relate principally to the other bargaining representatives being given written notice of the relevant concerns and a reasonable timeframe to respond to those concerns.

The nature of the orders which might be made appear to be broad in compass. Although bargaining orders cannot require concessions to be made in the course of bargaining or force a party into an agreement, they can be used to correct behaviour which is viewed as contrary to the good faith bargaining requirements or which otherwise impedes the efficient or fair progress of negotiations. To date, unions have demonstrated a much greater enthusiasm for pursuing bargaining orders than employers. The reasons for this are varied, but there is a increasing trend of unions seeking to interfere with unilateral decisions by employers during bargaining through applications for bargaining orders.

The early days

The new bargaining regime became effective from 1 July 2009. Not surprisingly, some bargaining participants were caught out by the new regulatory environment in the initial phases. Many of the early cases involving bargaining orders concerned union applications to prevent an employee vote to approve an agreement under negotiation. The cases generally involved an allegation of bargaining representatives being ‘bypassed’ by employers or that the vote was being conducted at a time when bargaining had not been exhausted.

As a general rule, FWA was prepared to intervene in these circumstances and order that the planned vote not proceed. This was not an indefinite prohibition. The relevant orders focused on the further process for bargaining before a vote of employees could be legitimately undertaken in the absence of agreement reached with appointed bargaining representatives.

As bargaining participants became more familiar with the new regime, the focus of the cases has quickly turned to ‘tactics’ during the bargaining process. This might have arisen as a result of many negotiations becoming quite protracted and the difficulties that bargaining participants were generally finding in reaching an agreement. Bargaining orders are a lever in negotiations and it is clear that sophisticated bargaining participants believe that strategic advantages can be gained from pursuing bargaining orders that further their negotiating agendas. If nothing else, a bargaining order made against an employer can have a significant impact on the way in which employees view the negotiation and the inevitable posturing that occurs between an employer and union bargaining representative.

The current state of play

There is little doubt that the good faith bargaining obligations prevent bargaining representatives from being bypassed in negotiations. This has, to some extent, called into question the capacity of an employer to communicate directly with their employees during bargaining or to unilaterally decide on a course of action which may have an impact on the bargaining process.

Again, not surprisingly, these issues have been agitated in recent times before FWA. This follows attempts by unions, in particular, to rely on the good faith bargaining requirements to regulate employer conduct which involves direct communication with employees in order to control or regulate the communication flow.

The starting point appears to be that FWA will be slow to interfere in the legitimate tactics undertaken by parties during the bargaining process unless an applicant for a bargaining order has demonstrated that there are sound reasons for doing so.¹

The leading recent case on bargaining orders is the Full Bench decision in Tahmoor Coal.² The negotiations in that case were variously described as ‘long and torturous’ and ‘vigorous and often acrimonious’. The CFMEU alleged that the employer had engaged in unfair or capricious conduct which undermined collective bargaining. They sought broad orders to correct the offending behaviour, which was constituted variously by having discussions about the proposed agreement with employees in the absence of their bargaining representatives, disseminating information to employees about the proposed agreement (including written communications to their homes) and proceeding to conduct a vote on the proposed agreement without the consent of the bargaining representatives.

On appeal, the Full Bench upheld the decision at first instance that the employer had not offended the good faith bargaining requirements. Importantly, the Full Bench made clear that any alleged failure to observe the good faith bargaining requirements needed to be determined in light of all relevant circumstances and that the issue will rarely be decided by reference to one action or series of actions. In this case, the lengthy period of negotiation assisted the employer in defending its right to communicate directly with their employees and to seek to influence their views in support of a positive vote on the proposed agreement. In contrast to other decisions, the Full Bench did not need to find that negotiations had reached an ‘impasse’. Significantly, the materials used in the communication process and the messages delivered in employee meetings were not considered to be ‘deceptive or otherwise objectionable’. As a result, the Full Bench was able to find that employees were not being mislead or otherwise pressured into a particular outcome.

Having regard to all relevant circumstances, the Full Bench endorsed the right of the employer to communicate directly with its employees and to put its proposed agreement to a ballot to see if progress could be made.

When is the line of ‘legitimacy’ crossed?

The outcome in Tahmoor Coal should be contrasted with the factual circumstances confronting FWA in the CBA case³ and Murray Bridge.⁴ In both these cases FWA found that intervention in the bargaining process was warranted by reference to a breach by the employer of the good faith bargaining requirements.

In the CBA case, the union complained about the employer’s conduct in granting unilateral pay increases to staff whilst it was negotiating for an agreement. Commissioner Smith concluded that this ‘approach can be viewed as undermining collective bargaining’. This followed in the Commissioner’s view from the employer adopting a different position on their wages proposal when dealing with employees through their bargaining representatives, as opposed to the manner in which they approached this issue outside of bargaining (and with employees directly). Importantly, FWA’s intervention stopped short of requiring the employer to decide on the particular wages proposal and ‘put it on the table’ during bargaining. The bargaining orders required the employer to notify bargaining representatives within 24 hours of deciding to implement any wage increase and to provide them with 14 days to respond before any increase is implemented or communicated to employees.

In Murray Bridge, the AMIEU complained that the employer was not bargaining in good faith due to its insistence to conduct negotiations through a joint consultative committee (JCC) and secondly, through its failure to respond or give genuine consideration to the union’s proposals. Commissioner Hampton considered that it was appropriate, reasonable and convenient to use the JCC as a negotiating vehicle, and this of itself did not mean that the negotiating process adopted by the employer was lacking in good faith. However, on the evidence, the Commissioner did find that the employer’s responses to the union’s claims were ‘dismissive and very general’, and on that basis was satisfied that the employer had not been bargaining in good faith. Orders were issued delaying the employee vote to enable further good faith bargaining steps to be undertaken.

Perhaps the clearest statement on the legitimacy of direct employee dealings or communications during bargaining was made by Vice President Watson in Mingara Recreation.⁵ The Vice President’s comments pre-dated the Tahmoor Coal ruling and therefore need to be assessed in this light, but do nevertheless provide some guidance as to the place of direct employee communications in the new bargaining regime:

‘In my view, communicating with staff is good management practice. If such communications are not accompanied by a refusal to meet and communicate with a bargaining representative, then in my view there is no breach of the good faith bargaining requirements of the Act.

The obligations under the Act relate to genuine recognition and genuine bargaining activities with other bargaining representatives. They do not preclude concurrent communication and discussions with employees who may be requested to approve the agreement. In my view, an employer is free to meet with its employees to discuss employment issues, including matters relevant to enterprise bargaining in the absence of bargaining representatives. Widespread communication is to be encouraged – not regulated, diminished or monopolised.’

This article was written by Paul Burns, Partner, Chris Gardner, Partner, Melbourne and Natalie Spark, Solicitor, Melbourne.

Scope orders and bargaining: The importance of employers taking the lead

Introduction

Whilst the ‘scope order’ provisions of the Act have been in operation for less than 12 months, we have already seen a raft of decisions from FWA that demonstrate the complexity of the provisions.

In circumstances where an employer anticipates that the ‘reach’ of the proposed enterprise agreement will be an issue in negotiations, these cases have established the importance of employers:

• considering their strategy on scope in advance of bargaining for a new enterprise agreement, and
• taking the lead in setting scope at the commencement of bargaining.

What is a scope order?

Where a disagreement over the scope (or coverage) of a proposed agreement arises, a bargaining representative can apply to FWA for an order that specifies who the proposed agreement is to cover. Relevantly, FWA can only make a scope order where satisfied that the order ‘will promote the fair and efficient conduct of bargaining.’

A scope order will not necessarily prevent bargaining for an agreement of a different scope. However, it:

• may trigger an obligation on the employer to issue notices of employee representational rights where the scope of the proposed agreement has been ‘altered (ie extended, narrowed or otherwise changed; eg from national coverage to various state based agreements or vice-versa)’, and
• will require FWA to consider whether approval of the agreement would undermine good faith bargaining. Although this provision has yet to be interpreted by FWA, the likely effect is that the agreement will not be approved unless:
  • its scope matches the scope specified in the order, or 
  • all bargaining representatives have agreed to adopt a different scope.

How does an employer take the lead on scope?

Under the Act, there are three ways that bargaining can commence:⁶

• where the employer initiates bargaining
• where the employer agrees to bargain, following an approach by a union or employee for example, or
• where the employer refuses to bargain and a bargaining representative successfully applies to FWA for a majority support determination.

Only the first option allows the employer to control the negotiations by setting the scope of the agreement.

Why is it important for employers to set the scope at commencement of bargaining?

Prior to the commencement of the Act, it was common for employers, unions and employees to delay negotiating scope where immediate consensus on the issue was not reached. ‘Shelving’ such a dispute was often seen as a preferable alternative to delaying negotiations on the substance of the agreement.

FWA decisions to date have shown that ‘shelving’ these disputes under the Act is generally an undesirable tactic. Rather, taking control of the negotiations and setting scope at commencement is important for a number of reasons:

• once set, it is likely that the only way to change the scope in the absence of the consent of all bargaining representatives is through a scope order
• the bargaining representative wanting to change the scope must establish that the ‘new’ scope would ‘promote the fair and efficient conduct of bargaining’. On this basis, the applicant for a scope order is (arguably) at a distinct disadvantage, and
• setting the scope in a particular way may enable the employer to successfully oppose an application for a protected action ballot and potentially prevent protected industrial action.⁷

What have we seen so far?

Decisions of FWA to date establish the complexity of issues relating to the scope of a proposed agreement and demonstrate the importance of planning ahead to ensure that an employer is well placed to defend⁸ an application for a scope order. For example, FWA has found that:

• scope must be identified at the commencement of bargaining such that the employees to be covered by the agreement are ascertainable⁹
• scope can be the subject of bargaining¹⁰
• a scope order has been refused where the order would have disadvantaged employees who would have been excluded from the scope of the agreement¹¹
• a scope order has been made where negotiations for one national agreement, rather than a number of state agreements, was found to be more ‘fair and efficient’¹²
• a scope order has been made to exclude senior management from an agreement for reasons including that the agreement otherwise had the capacity to result in conflicts of interest and senior management would likely have had specific claims not common to the remainder of employees,¹³ and
• the opinions of employees as to the preferred scope of the agreement are relevant considerations but should not be given priority over other relevant considerations.¹⁴

This article was written by Paul Burns, Partner and Rohan Doyle, Solicitor, Melbourne.

Endnotes

1. LHMU v Fosters Australia Ltd [2009] FWA 750
2. CFMEU v Tahmoor Coal Pty Ltd [2010] FWAFB3510
3. FSU v Commonwealth Bank of Australia [2010] FWA 2690 
4. AMIEU v T & R (Murray Bridge) Pty Ltd [2010] FWA 1320
5. [2009] FWA 1442
6. Ford Motor Company of Australia Limited v Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia and others [2009] FWAFB 1240 (Ford).
7. Ford.
8. Whilst an employer can also make an application for a scope order, there will be no need to do so if the employer has set the scope at commencement of bargaining.
9. Ford, although note that Stuartholme School and ors v Independent Education Union of Australia [2010] FWAFB 1714 (Stuartholme) questioned the breadth of this proposition.
10. Stuartholme.
11. Clarence Coal Pty Limited [2009] FWA 462.
12. Wattyl Australia Pty Ltd v Liquor, Hospitality and Miscellaneous Union; Liquor, Hospitality and Miscellaneous Union v Wattyl Australia Pty Ltd and WP Crowhurst Pty Limited [2010] FWA 2587.
13. United Firefighters’ Union of Australia v Metropolitan Fire & Emergency Services Board [2010] FWAFB 3009 (MFB).
14. MFB.

More information

For information regarding possible implications for your business, contact a member of the Employee Relations team.