ASC PTY LTD, ASC SHIPBUILDING PTY LTD & ASC AWD SHIPBUILDER PTY LTD - [2011] SAEOT 4

Equal Opportunity Tribunal
(District Court Administrative and Disciplinary Division)
In the Matter of AN APPLICATION FOR EXEMPTION UNDER THE EQUAL OPPORTUNITY ACT 1984
ASC PTY LTD, ASC SHIPBUILDING PTY LTD & ASC AWD SHIPBUILDER PTY LTD
[2011] SAEOT 4
Reasons for Decision of His Honour Judge Costello, Member Mr D Shetliffe and Member Mr H Yapp (ex tempore)
22 July 2011
DISCRIMINATION LAW
Application for exemption from the operation of Sections 52, 54 and 103(1) of the Equal Opportunity Act 1984 (SA) - Exemptions sought to permit discrimination on grounds of nationality or country of origin of employees, prospective employees and contract workers - applicants require access to sensitive technology controlled by government of United States of America - in order to access this technology applicants must discriminate against persons on the basis of their nationality or country or orgin - consideration of public and private interests in determining whether there is a proper basis for discrimination - Application granted subject to conditions.
Equal Opportunity Act 1984 (SA), referred to.
Pulteney Grammar School v Equal Opportunity Tribunal & Ors [2007] SASC 308, discussed.

ASC PTY LTD, ASC SHIPBUILDING PTY LTD & ASC AWD SHIPBUILDER PTY LTD
[2011] SAEOT 4
Introduction

ASC Pty Ltd, ASC Shipbuilding Pty Ltd and ASC AWD Shipbuilder Pty Ltd (“ASC”) have all applied pursuant to s 92 of the Equal Opportunity Act (1984) SA (“the Act”) for an exemption from the provisions of s 52, 54 and 103 of the Act, to enable each of them to discriminate with respect to particular employment practices they wish to adopt on the grounds of race (which, relevantly here, is with respect to nationality or country of origin).
Without the exemption, the proposed employment practices would constitute breaches of the Act.
The Acting Commissioner for Equal Opportunity has appeared through her counsel, Mr Love, on the application. Although she does not oppose the application, she does not consent to it.
S 52, 54 and 103 of the Act provide as follows:
52—Discrimination against applicants and employees
(1)     It is unlawful for an employer to discriminate against a person on the ground of race—
(a)     in determining, or in the course of determining, who should be offered employment; or
(b)     in the terms or conditions on which employment is offered.
(2)     It is unlawful for an employer to discriminate against an employee on the ground of race—
(a)     in the terms or conditions of employment; or
(b)     by denying or limiting access to opportunities for promotion, transfer or training, or to other benefits connected with employment; or
(c)     by dismissing the employee; or
(d)     by segregating the employee from persons of other races; or
(e)     by subjecting the employee to other detriment.
54—Discrimination against contract workers
(1)     This section applies to a principal for whom work is done by persons (contract workers) under a contract between the principal and another where the contract workers are employed or engaged by a person other than the principal.
(2)     It is unlawful for a principal to enter into a contract or arrangement with another for work to be performed by contract workers under which a person is to discriminate against a contract worker on the ground of race.
(3)     It is unlawful for the principal to discriminate against a contract worker on the ground of race—
(a)     in the terms or conditions on which the contract worker is allowed to work; or
(b)     by not allowing the contract worker to work; or
(c)     by denying or limiting access to a benefit connected with the employment or position concerned; or
(d)     by subjecting the contract worker to other detriment.
103—Discriminatory advertisements
(1)     A person must not publish or cause to be published an advertisement that indicates an intention to do an act that is unlawful by virtue of this Act.
Maximum penalty: $2 500.
(2)     In proceedings for an offence against subsection (1), it is a defence to prove that the defendant believed on reasonable grounds that the publication of the advertisement would not contravene that subsection.
S 5 of the Act defines race as follows:
race of a person means the nationality, country of origin, colour or ancestry of the person or persons or of any other person with whom he or she resides or associates.
S 92 of the Act is relevantly, expressed in these terms:
(1)     The Tribunal may, on application under this section, grant exemptions from a provision of this Act in relation to—
(a)     a person, or class of persons; or
(b)     an activity, or class of activity; or
(c)     circumstances of a specified nature.
(2)     An exemption under this section—
(a)     may be granted unconditionally or on conditions; and
(b)     may be revoked by the Tribunal on breach of a condition; and
(c)     subject to revocation, remains in force for a period, not exceeding three years, determined by the Tribunal, but may be renewed from time to time for a further period, not exceeding three years, determined by the Tribunal.
(2)     An exemption under this section—
(a)     may be granted unconditionally or on conditions; and
(b)     may be revoked by the Tribunal on breach of a condition; and
(c)     subject to revocation, remains in force for a period, not exceeding three years, determined by the Tribunal, but may be renewed from time to time for a further period, not exceeding three years, determined by the Tribunal.
…
(6)     In determining an application under this section, the Tribunal may—
(a)     have regard (where relevant) to the desirability of certain discriminatory actions being permitted for the purpose of redressing the effect of past discrimination; and
(b)     have regard to other factors that the Tribunal considers relevant.
Background
ASC Pty Ltd (the first applicant) is a Proprietary Limited Company limited by shares, registered under the Corporations Act 2001 and is operated as a government business enterprise under the Commonwealth Authorities and Companies Act 1997 (CTH).
All shares issued in the capital of ASC are owned by the Commonwealth.
ASC Shipbuilding Pty Ltd (the second applicant) is wholly owned by the first applicant and was incorporated on 1 May 1991.
ASC AWD Shipbuilding Pty Ltd (the third applicant) is wholly owned by the second applicant and was incorporated on 13 December 2004.
The first and third applicants have current and future contractual arrangements with the Commonwealth, through the Department of Defence, to maintain Collins Class Submarines, known as ‘Through Life Support’ or ‘TLS’ (Submarine TLS) and to build Hobart Class Air Warfare Destroyers (AWD Project) for use by the Royal Australian Navy.
The first and second applicants supply personnel to the third applicant for the purpose of the AWD project. The second applicant also supplies personnel to the first applicant for the purpose of the submarine TLS.
Personnel employed by the first applicant are also directly engaged in the submarine TLS.
The contracts referred to above (in aggregate) amount to several billions of dollars. They involve the performance of highly sophisticated technological work of considerable value to the South Australian economy. They serve the national interest in providing for the maintenance of submarines and the supply of surface vessels to the Royal Australian Navy for the defence of Australia.
In the course of carrying out these contracts, the applicants employ over 1,782 people in South Australia.
In order to meet their contractual obligations, the first and third applicants have entered into various sub-contracts that include the supply of defence technology, principally sourced from the United States of America (US Defence Technology).
Suppliers of this US Defence Technology (US contractors) are required to satisfy US export controls before they can transfer the US defence technology to the first and third applicants.
Compliance with the US export controls is also passed on to the first and third applicants through their contractual arrangements with the US contractors.
The Commonwealth has also entered into a number of contracts with other US companies for the delivery of goods and services in relation to the submarine TLS and the AWD projects.
Pursuant to these contracts, it is often necessary for these US companies to provide specialist defence technology for the first and/or third applicants.
The export controls imposed by the US have a significant impact on the business operations of the applicants. The Commonwealth has elected to contract with a number of US companies to provide critical goods and services in relation to the submarines and the AWDs. These US companies provide US defence technology to the first and/or third applicant.
To obtain access to the US defence technology which is required for them to be able to perform their contractual obligations, the applicants have entered into agreements that require compliance with certain legislation enacted in the US, and in particular, the Arms Control Export Act and the associated International Traffic in Arms Regulations (ITAR).
These agreements are generally in the form of export licences or technical assistance agreements that operate as the export authorisation by which a US contractor is able to transfer, or provide access to, controlled defence articles and services including technical data (Controlled Defence Articles) to the applicants.
The ITAR stipulates that US defence technology that falls within the definition of controlled defence articles cannot be transferred to a person from a third country or to a national of a third country except as specifically authorised by the US Department of State.
In addition, the ITAR denies access to controlled defence articles by certain proscribed countries and their nationals, whether directly or indirectly by US based suppliers or foreign based third parties.
Under the ITAR, US contractors that manufacture and/or export controlled defence articles are required to apply for a US export authorisation - usually an export licence or technical assistance agreement - before exporting controlled defence articles.
In granting export approval, the US Department of State will require conditions in licenses and agreements (US Export Authorisations) that include:
(1)The identification of the nationality of all employees who will have access to Controlled Defence Articles;
(2)Disclosure to the US contractor of the nationality of all employees who will have access to the Controlled Defence Articles; and
(3)Restrictions or prohibitions on persons of particular nationalities having access to the Controlled Defence Articles.
In addition, the applicants are also required to disclose information to the Commonwealth regarding those employees who require access to relevant Controlled Defence Articles that have been supplied to the Commonwealth under a Foreign Military Sales (FMS) agreement with the United States government.
In order to comply with its obligations pursuant to US export authorisations and to satisfy the compliance procedures imposed by the Commonwealth in relation to FMS agreements, the applicants must establish security systems and procedures which are sufficiently rigorous to satisfy the US Department of State and the Commonwealth that ITAR conditions are being satisfied.
In particular, the applicants must ensure that unauthorised re-export or re-transfer of Controlled Defence Articles does not occur, for example by disclosure to a person of a nationality not identified and authorised in the relevant licence or agreement or to a person of a proscribed nationality.
It is submitted on behalf of the applicants that: -
(1)In order for the first applicant to obtain the required information in compliance with its contractual obligation with US contractors and to comply with its obligations to the Commonwealth, it may be obliged to engage in conduct in respect of certain persons which may contravene sections of the Equal Opportunity Act.
(2)In order for the second applicant to comply with its contractual obligations to the third applicant (the third applicant must comply with its contractual obligations with US contractors and with the Commonwealth) it may be obliged to engage in conduct in respect of certain persons which may contravene sections of the Act.
(3)In order for the third applicant to comply with the terms of US export authorisation (as required pursuant to its contractual obligations with US contractors and the Commonwealth) it may be obliged to engage in conduct in respect of certain persons which may contravene sections of the Act.
The applicants also contend that if they are unable to obtain exemptions from the provisions of s 52, 54 and 103 of the Act:
(1)They may suffer significant financial penalties for breaches of their contractual and security obligations;
(2)They may be debarred from future arrangements with US contractors;
(3)It will be difficult to obtain future Commonwealth contracts through the Australian Department of Defence;
(4)They may suffer substantial financial and employment loss.
As a result, the applicants seek a series of orders which (generally speaking) will enable them to:
·     Request nationality and country of origin information from potential employees and contractors;
·     Take those persons’ nationality and/or country of origin into account in determining who should be offered employment where that work involves access to Controlled Defence Articles;
·     Maintain records of nationality and country of origin of employees who have access to Controlled Defence Articles;
·     Disclose to Commonwealth or US contractors’ nationality and country of origin of all employees and contractors having access to Controlled Defence Articles.
We note that on 16 May 2011, the US State Department published amendments to the ITAR which will come into effect on 15 August 2011.
The amendments will allow the applicants to authorise an employee to access unclassified defence articles provided that employee either holds an Australian defence security authority security clearance or successfully passes a screening process.
Not all employees of the applicants hold or will be able to obtain a security clearance. Accordingly, these employees must be screened if they need to have access to defence articles.
If an employee is found to have substantive contacts with proscribed countries, the employee will not be authorised access to defence articles. Substantive contacts could include matters like regular travel to, business relationships with, or maintenance of a residence in such countries.
While the proposed amendments will come into force on 15 August 2011, the effect of these amendments will then need to be incorporated into relevant export authorisation agreements, which the applicants have in place with US contractors.
It is anticipated that the process of incorporating the amendments into existing export authorisation agreements may take up to 12 months or more, or in some cases the process may not be completed at all.
Hence, the applicants will still require the exemptions sought for their existing contractual arrangements.
In coming to our decision in this matter we have taken into account and relied upon the material contained in the statements and affidavits of Mr Kuhlmann the General Manager, Corporate and Commercial for ASC, Mr Robinson the Configuration and Technology Manager for ASC, Mr Archer the former General Manager for Human Resources with ASC and Mr Hunter the current General Manager for Human Resources.
We have also taken into account the contents of a letter from the Premier of South Australia outlining his government’s support for the application, subject to appropriate conditions and safeguards which the Premier understands have been agreed to between the applicants and the Commissioner for Equal Opportunities.
Discussion
In s 92(6) of the Act, Parliament has set out the matters to which the Tribunal may have regard in determining whether to grant an exemption.
In the case of Pulteney Grammar School v Equal Opportunity Tribunal & Others (2007) SASC 308, White J, for the Full Court, referred to the long title of the Act.
His Honour noted that the prevention of discrimination was not the sole object of the Act, but that its objects included:
The promotion of equality of opportunity between the citizens of this State, and the facilitation of the participation of citizens in the economic and social life of the community.
The Court concluded that the purposes of the Act went beyond the prevention of discrimination simpliciter. His Honour said at paragraph 33:
In my opinion it is also natural to construe the EOA as intending to achieve some larger purpose than the mere elimination of discrimination for its own sake. The elimination of discrimination is a means of achieving the wider purpose of equality of opportunity amongst all citizens of the State.
Although his Honour made it clear that he did not intend to state exhaustively the circumstances which would justify the granting of an exemption, he referred to three circumstances as follows at paragraph 14:
The exemption is desirable, if not necessary, to achieve a purpose of the EOA; the general prohibition would be unreasonably harsh or burdensome in the applicant's particular circumstances; or there is some wider public interest (perhaps to be found in other legislation) which the grant of the exemption will serve.
… The circumstances of particular cases may reveal other occasions in which the grant of an exemption will be appropriate.
Accordingly, we accept that an exemption may be granted (in the exercise of our discretion) where, amongst other things, the general prohibition against discriminatory conduct under the Act would be unreasonably harsh or burdensome in the applicants’ prospective circumstances or where there is some wider public interest.
Subject to any other mechanisms available to the applicants (which mechanisms are to our knowledge not currently available) we accept that it is necessary in a practical as well as a commercial sense for the applicants to obtain an exemption pursuant to s 92.
We also accept that it would be unreasonable to refuse an exemption, if otherwise justified, when to our knowledge, similar exemptions have been granted to competitors of the applicants within this State.
At present the discriminatory conditions imposed by the United States Government in the ITAR remain prerequisites, unless otherwise exempted, for any access being permitted to the subject technology.
We are satisfied that at present there are no other reasonable alternatives open to the applicants which would enable them to avoid the effects of the ITAR.
There can be no doubt that it is in the commercial interests of the applicants that an exemption be granted.
In our opinion it is also in the wider public interest that Australians gain access to high levels of US defence technology. It is further an interest of the State of South Australia for it to develop and maintain a viable defence-based industry. This will ensure that its workers have the opportunity to undertake tertiary education and develop skills in areas previously unavailable to them.
We accept that if the applicants were unable to access US technologies or, more correctly, were unable to employ that technology in South Australia, it would have significant adverse consequences for the defence-based industry in this State.
The applicants have acknowledged that if an exemption were granted, it would be necessary for them to change their employment policies to make it clear to those potentially affected employees, that the request for information as to nationality or country of origin was solely for the purpose of meeting the requirements of US legislation.

Against these factors must be weighed the fact that if an exemption is granted, conduct which was unlawful and seen as being discriminatory, will be deemed as lawful.
In our opinion the public and private interests in the grant of the exemption ought to prevail as they outweigh the detriment flowing from the discriminatory conduct. Having said that, the scope of the exemption should be restricted to the extent necessary to enable the applicants to comply with the ITAR. Conditions attached to the exemption which have been tendered to us should achieve the effect of minimising the discriminatory conduct.
Those conditions, which have been submitted by the applicants, reflect conditions imposed by previous divisions of this Tribunal, and in our opinion achieve the appropriate balance between enabling compliance with the ITAR and minimising discriminatory conduct.
Accordingly, upon the Applicants undertaking to incorporate into their employment practices certain measures designed to ameliorate the impact of discriminatory conduct on particular employees (which measures are particularised in the annexure to the draft minutes of Order handed to us today) we make the following Order:
1. Pursuant to Section 92(1)(b) of the Act, the Applicants are exempted from compliance with the provisions of sections 52, 54 and 103(1) of the Act, insofar as those sections relate to “nationality” and “country of origin” to the extent that they may:
1.1.request nationality and country of origin information from existing and potential employees and contractors;
1.2.take a person’s nationality and country of origin into account in determining who should be offered employment or contract work in areas requiring access to Controlled Defence Articles and when making decisions as to the participation of employees or contractors in such work;
1.3.maintain records of the nationality and country of origin of all employees and contractors who have or may have access to Controlled Defence Articles in the performance of their work;
1.4.ensure that Controlled Defence Articles are disclosed only to persons who are authorised by the US Department of State to receive that disclosure;
1.5.to the extent necessary to comply with its legal obligations, impose limitations or prohibitions on persons of particular nationality and/or country of origin having access to Controlled Defence Articles in the performance of their work;
1.6.to the extent necessary to comply with its legal obligations to the Commonwealth, disclose to the Commonwealth the nationality and country of origin of all employees and contractors who require access to Controlled Defence Articles in the performance of their work;
1.7.disclose to US Contractors with whom the Applicants are party to a US Export Authorisation and to the US Department of State, the nationality and country of origin of all employees and contractors who will have access to Controlled Defence Articles in the performance of their work; and
1.8.establish security systems which will prevent the unauthorised re-export or re-transfer of Controlled Defence Articles.
2.     This exemption will be granted for a period of three years from the date
of this Order, but will be subject to the following conditions:
2.1    That the exemption apply only to conduct by the Applicants where:
2.1.1.that conduct is necessary to enable them to enter into and/or perform contractual undertakings requiring access to Controlled Defence Articles; and
2.1.2.they have taken all steps that are reasonably available (including steps that might be taken in negotiating and performing the terms of their agreements with US Contractors) to avoid the necessity for engaging in conduct that would otherwise be in breach of sections 52, 54 and 103(1) of the Act.
2.2    Where, in the exercise of this exemption, an employee or contract worker is moved from a project involving the use of Controlled Defence Articles to any other work controlled by the Applicants or any of its related entities, the Applicants must through a duly authorised officer explain to the person why he or she is being transferred and must otherwise take all reasonable steps to avoid or limit harm or loss to that person.
2.3    Where the Applicants use a system of security passes to reflect the fact of access to Controlled Defence Articles or levels of access to any security-sensitive material by employees and contract workers, the passes may be coded but not in such a way as to identify the nationality and country of origin of the person or the reasons for that person’s level of access.
2.4    All information relating to nationality and country of origin and access to Controlled Defence Articles shall be restricted to Facility Security Officers, Technology Control Manager, Technology Control Officers, legal officers and human resources officers of the Applicants or their properly appointed nominees on a “need to know” basis.
3.   The Applicants’ employment policies shall be amended as soon as reasonably possible so as to refer to the terms of this exemption, including all conditions attaching to it, and to make it clear that the purpose of the request for information regarding nationality and country of origin is made solely for the purposes of compliance with United States laws.