BDS Support Services T/A Broadmeadows Disability Services
[2024] FWCFB 404
•22 OCTOBER 2024
| [2024] FWCFB 404 |
| FAIR WORK COMMISSION |
| DECISION |
Fair Work Act 2009
s.225—Enterprise agreement
BDS Support Services T/A Broadmeadows Disability Services
(AG2024/1952)
SEPTEMBER 2011 FAIR WORK ACT 2009 SINGLE ENTERPRISE AGREEMENT BROADMEADOWS DISABILITY SERVICES ABN 56 089 812 402
| Social, community, home care and disability services | |
| DEPUTY PRESIDENT CLANCY COMMISISONER LEE COMMISSIONER ALLISON | MELBOURNE, 22 OCTOBER 2024 |
Application for termination of the September 2011 Fair Work Act 2009 – Single Enterprise Agreement Broadmeadows Disability Services ABN 56 089 812 402 – not satisfied that the continued operation of the enterprise agreement would pose a significant threat to the viability of a business carried on by the employer – not satisfied termination of the agreement likely to reduce the potential of terminations of employment – not satisfied appropriate in all the circumstances to terminate the agreement – agreement not terminated – application dismissed.
Introduction
BDS Support Services T/A Broadmeadows Disability Services (Applicant) has filed an application (Application) pursuant to s.225 of the Fair Work Act 2009 (Cth) (Act) to terminate the September 2011 Fair Work Act 2009 Single Enterprise Agreement Broadmeadows Disability Services ABN 56 089 812 402 (Agreement). A Form F24C – Declaration in relation to termination of an enterprise agreement after the nominal expiry date (Form F24C) was filed in support of the Application.
The Agreement is a single enterprise agreement. It was approved by Commissioner Gooley, as she then was, on 4 November 2011.[1] The nominal expiry date of the Agreement is 30 September 2015.
Pursuant to clause 1 of the Agreement, the Australian Education Union (AEU) and the Health Services Union are covered by the Agreement. The relevant branch of the Health Services Union is the No. 2 Victorian Branch T/A the Health and Community Services Union (HACSU).
The AEU and HACSU oppose the Application.
Background
The application was initially allocated to Commissioner Lee. At a mention convened on 9 July 2024, representatives for the AEU and HACSU appeared and advised that they objected to the Application and sought to be heard. Having regard to s.615A(3) of the Act. the matter was referred to the President of the Commission. The President directed the matter be heard by this Full Bench.
Briefly stated, if a valid application is made pursuant to s.225 of the Act, the Commission must terminate the enterprise agreement pursuant to s.226(1)(a) if satisfied that the continued operation of the agreement would be unfair for the employees covered by it or if satisfied pursuant to s.226(1)(b) that the agreement does not and is not likely to cover any employees. The Applicant in this matter does not rely on either of those provisions.
The Applicant in this matter relies on s.226(1)(c) of the Act, which is set out and considered in detail below. Applying s.226(1)(c), the Commission must terminate the agreement if satisfied its continued operation poses a significant threat to the viability of the Applicant’s business and that termination of the Agreement would be likely to reduce the potential for the terminations of employment of employees covered by the Agreement. Section 226(1)(c) also includes a requirement for guarantees relating to termination entitlements, where relevant.
Evidence in support of the Application was provided by Mr Brookes, the CEO of the Applicant. There was no witness evidence led on behalf of the two unions. Permission was granted to the Applicant and the AEU to be represented by counsel. The HACSU was represented by Mr Stephenson, a HACSU industrial officer.
The Evidence
Mr Brookes stated that upon commencing his tenure as CEO in December 2023 and reviewing the finances of the Applicant, he found that it had been losing substantial amounts of money for several years. Mr Brookes claimed that if significant “structural issues” are not quickly addressed, the Applicant faces winding up by June 2025 to avoid insolvency. Mr Brookes also claimed that the draft 2023/24 financial report indicates a loss of $780,000 on a revenue base of $4.6 million. Mr Brookes did not provide the financial reports for the FY2023/24 to the Commission. However, copies of reports from earlier financial years were provided. The Applicant recorded deficits in FY2021/22 and FY2022/23.
Mr Brookes asserted that one significant reason for the financial deficit is the “misalignment” of the Agreement, with the Applicant’s current source of funding, the National Disability Insurance Scheme (NDIS). The Agreement, which was made prior to the commencement of the NDIS, is predicated on State government block funding arrangements which no longer apply. Mr Brookes stated that the NDIS prices are capped based on the NDIS Disability Support Worker cost model, which is in turn based on the rates of pay and conditions in the Social, Community, Home Care and Disability Services Industry Award 2010 (Award). Mr Brookes said that the Applicant does not operate any other services outside of the NDIS funded services and has no other funding sources.
The NDIS cost model recognises and funds the National Employment Standards (NES) leave entitlements, including 20 days of annual leave; 10 days of public holidays; 10 days of personal leave and some component for family and domestic violence leave. The Agreement, however, includes more beneficial annual leave entitlements (5 or 6 weeks depending on whether employees are engaged in day service funded activities); 3 weeks of personal leave (15 days); and 3 days of paid compassionate leave per occasion. Mr Brookes claimed these Agreement entitlements represented an additional cost to the Applicant of approximately $165,000 in FY2023/24.
Mr Brookes made a general reference to the misalignment of the Agreement with the operation of the NDIS, but it is apparent that it is the cost of the additional leave entitlements under the Agreement which is the key contributor. Other factors, if indeed there are any, where described by Mr Brookes as “trivial”.[2]
It is not in dispute that if the Agreement were terminated there would be no effect on employees’ base rates of pay. The rates of pay for employees covered by the Agreement are now derived from the Award, which now provides higher rates of pay than those found in the Agreement. We observe that s.206 of the Act compels an employer to pay the higher award rate.
Mr Brookes also disclosed that there are a number of employees at Band 2C under the Agreement who are paid at the Award classification level 3, pay point 4 and described this as a classification error. Mr Brookes claimed that the classification error occurred prior to the commencements of his tenure but added that he has committed to maintaining these rates of pay for the individuals concerned and suggested that there was, in any event, a contractual obligation to maintain those payments.[3] Mr Brookes opined that even if the Agreement is terminated, the Applicant would not be relieved of its obligation to pay these higher rates.
Mr Brookes also referred to recent reports on the disability sector more generally, which he contended highlight that many disability service providers are running at a deficit. We consider the generality of that material renders it not particularly relevant to the consideration of whether the Application should be granted.
Mr Brookes concluded his first statement as follows:
“I submit that it is not viable for BDS to continue operating under the Single Enterprise Agreement which was instituted in a previous era of State Government block funding, when we now live in an era of the NDIS with price limits set by the NDIA on the basis of the SCHADS Award provisions, and that it is preferable we save employees jobs and existing pay than face having to make many people redundant and potentially closing down an organization with a 50 year history of serving people with disability.”[4]
In his further statement responding to the submissions of the unions, Mr Brookes asserted the following: that if the Agreement is not terminated the next course of action for the Applicant is to engage in a process of making employees either partially (through conversions of full-time employees to part-time) or totally redundant; that financial viability of the business is affected by the NDIS price model; that the business is taking other action (aside from the Application) to reduce costs; that casual conversion requests from new staff as well as an ageing workforce will further contribute to the losses as a result of the Agreement’s leave entitlements and; that there is evidence that employees have a tendency to exhaust their personal leave entitlements.
There was some evidence and submissions going to the willingness of the parties to engage in enterprise bargaining as a means of resolving the matters of concern to the Applicant. We would observe that the attitude of the Applicant to bargaining has been somewhat equivocal. At the mention before Commissioner Lee, the response from the Applicant’s representative, when asked whether there was a willingness to engage in bargaining, was “Not at this time.”[5] At the hearing, Mr Brookes gave evidence that he asked the unions to consult with their members to see whether “…their membership felt…bargaining would be productive given the fact that realistically the leave entitlements are going to be non-negotiable.”[6] The unions advised they remain willing to bargain for an enterprise agreement and would not press any claim that is not sustainable.[7] Regardless, bargaining has not commenced.
Evidence from a number of employees by way of emails was admitted. In summary, these employees objected to the termination of the Agreement. Some expressed a willingness to bargain for a lesser annual leave entitlement, but others were not willing to consider a change. All employees seemed to strongly support the retention of the more beneficial personal leave requirement due to the particular nature of the work environment, which was said to expose them to an increased risk of contracting illness.[8]
There was an objection made to various aspects of the evidence of Mr Brookes, in particular that Mr Brookes provided evidence in his witness statement as to the financial performance of the organisation for the most recently completed FY2023/24 and yet did not provide any documentation supporting this evidence. Nor, it was submitted, was there any documentary evidence tendered in support of claims that Mr Brookes made in respect to the financial performance of the business in the current (2024/2025) financial year.[9] The Bench ruled that the subject evidence was to remain in the statement subject to cross examination and final submissions as to weight.[10]
Mr Brookes was cross-examined in respect to his evidence as to the current financial position of the Applicant. Mr Brookes conceded that aspects of his financial evidence were incorrect. As to the additional cost of the leave provisions in the Agreement compared to the Award, Mr Brookes provided an estimate in his statement that this equated to $165,000 annually.[11] However, the calculations provided by Mr Brookes suggested a lesser amount of $144,611.30. During subsequent cross examination, Mr Brookes conceded this lower amount was itself, in fact, overestimated in the order of $3,000, which further reduced the estimated additional cost to approximately $141,000.[12]
There was also an exploration of the impact of the overclassification error (referred to during the proceedings as the “mistake rate”) on the financial information provided by Mr Brookes. It was established that the “mistake rate” in FY2023/24 constituted a difference of $3.46 per hour for the relevant employees.[13] It was also established that 31 of the 45 employees holding the additional annual leave entitlements are paid at that rate. Therefore, it appears the estimated additional cost of $141,000 is inclusive of leave accrual at the higher “mistake rate”. The amount that could be attributed to the “mistake rate” for the relevant period is $31,724.91. Mr Brookes accepted that this amount was not a requirement of the Agreement and acknowledged that the “mistake rate” was contributing to the additional amount in annual leave[14]. Deducting the $31,724.91 from the $141,000 leaves an amount of approximately $110,000. We consider this $110,000 is the more accurate additional cost of the leave liability under the Agreement compared to the leave liability under the Award.
During his testimony, Mr Brookes also gave evidence that employees who enjoyed the more beneficial leave entitlements took up 96.7% of the NDIS funding. For similar reasons associated with the incorrect classification of a large number of employees, Mr Brookes conceded that this estimate was not correct and that if the overclassification error is taken into account it is likely that approximately 88% of the NDIS funding is taken up by the additional costs that are attributable to the operation of the Agreement and the additional leave provisions.[15]
Mr Brookes also sought to emphasise that he was taking additional action to deal with the Applicant’s financial situation. He gave evidence that this had been yielding savings of approximately $30,000 per month for the last 6 months.[16] There was, however, no documentation provided to the Commission to support this claim.
Legislation
The relevant provisions of the Act are as follows:
“225 Application for termination of an enterprise agreement after its nominal expiry date
If an enterprise agreement has passed its nominal expiry date, any of the following may apply to the FWC for the termination of the agreement:
(a) one or more of the employers covered by the agreement;
(b) an employee covered by the agreement;
(c) an employee organisation covered by the agreement.
226 When the FWC must terminate an enterprise agreement
(1) If an application for the termination of an enterprise agreement is made under section 225, the FWC must terminate the agreement if:
(a)the FWC is satisfied that the continued operation of the agreement would be unfair for the employees covered by the agreement; or
(b)the FWC is satisfied that the agreement does not, and is not likely to, cover any employees; or
(c)all of the following apply:
(i)the FWC is satisfied that the continued operation of the enterprise agreement would pose a significant threat to the viability of a business carried on by the employer, or employers, covered by the agreement;
(ii)the FWC is satisfied that the termination of the enterprise agreement would be likely to reduce the potential of terminations of employment covered by subsection (2) for the employees covered by the agreement;
(iii)the agreement contains terms providing entitlements relating to the termination of employees’ employment – each employer covered by the agreement has given the FWC a guarantee of termination entitlements in relation to the termination of the agreement.
(1A)However, the FWC must terminate the enterprise agreement under subsection (1) only if the FWC is satisfied that it is appropriate in all the circumstances to do so.
(2) This subsection covers the termination of the employment of an employee:
(a) At the employer’s initiative because the employer no longer requires the job done by the employee to be done by anyone, except where this is due to the ordinary and customary turnover of labour; or
(b) Because of the insolvency or bankruptcy of the employer.
(3) In deciding whether to terminate the agreement, the FWC must consider the views of the following covered by the agreement:
(a) the employees (unless there are no employees covered by the agreement);
(b) each employer;
(c) each employee organisation (if any).
…
(4) In deciding whether to terminate the agreement (the existing agreement), the FWC must have regard to:
(a) whether the application was made at or after the notification time for a proposed enterprise agreement that will cover the same, or substantially the same, group of employees as the existing agreement; and
(b) whether bargaining for the proposed enterprise agreement is occurring; and
(c) whether the termination of the existing agreement would adversely affect the bargaining position of the employees that will be covered by the proposed enterprise agreement.
(5) In deciding whether to terminate the agreement, the FWC may also have regard to any other relevant matter.”
Consideration
Section 225 of the Act
An employer covered by the Agreement may apply to the Commission under s.225(a) of the Act for its termination if it has passed its nominal expiry date. We are satisfied that the Applicant has standing to bring the Application under s.225(a) of the Act because, as noted above, the Agreement nominally expired on 30 September 2015 and the Applicant is an employer covered by the Agreement.[17]
Section 226 of the Act
As regards s.226(3) of the Act, the circumstances are such that the Applicant strongly supports the termination of the Agreement, each employee organisation covered by the Agreement strongly opposes its termination of the Agreement and the employees who have expressed their views have outlined varying degrees of opposition to the Application.
Section 226(1) of the Act sets out three grounds upon which an Agreement may be terminated after its nominal expiry date. The Applicant does not rely on s.226(1)(a) and, for reasons expanded upon below, we are not satisfied that the continued operation would be unfair for the employees covered by it. Section 226(1)(b) is neither relevant nor relied upon in this matter. Instead, the Applicant seeks to rely on the grounds set out in s.226(1)(c).
In relation to 226(1)(c)(i) of the Act, we are not satisfied, based on the evidence adduced in support of the Application, that the continued operation of the Agreement would pose a significant threat to the viability of the business carried on by the Applicant.
The Applicant did not provide updated and verifiable financial documents in support of the Application. There were no financial reports provided for FY 2023/24 financial, noting that the Applicant had until 7 August 2024 to file its initial materials and until 4 September 2024 to file material in reply. Instead, the Applicant relied upon the statement of Mr Brookes, in which Mr Brookes outlined that the Applicant suffered a financial loss of $780,000.00 in FY2023/24 but did not outline with clarity the extent of the losses currently being sustained, even with the $30,000 monthly savings he referred to. In addition, there were inconsistencies in the Applicant’s evidence going to the extent to which losses were attributable to the Agreement, including evidence associated with the mistaken classifications of some employees. As a result, we are cautious about accepting the evidence from Mr Brookes going to the current financial situation in the absence of supporting documentation.
The key question is to determine whether the Agreement’s continued operation and losses of, approximately $110,000 per annum poses a significant threat to the Applicant’s viability.
On the Applicant’s corrected figures, the Applicant would still have lost $640,000 in FY2023/24 if the Agreement did not operate. Assuming this financial situation persisted into the current financial year, the termination of the Agreement would reduce the operating deficit of the Applicant, but we are not satisfied that the continued operation of the Agreement, of itself, poses a significant threat to the viability of the organisation. On the Applicant’s figures, the approximate $110,000 saving that might be attributed to the termination of the Agreement represents only approximately 2.5% of the Applicant’s total revenue in FY2023/24.[18]
As to s.226(c)(ii) of the Act, the Applicant submitted that termination of the Agreement would reduce the potential for job losses. Given the financial losses the Applicant is currently experiencing, we accept terminations of employment of employees covered by the Agreement might eventuate if there was no improvement in its financial performance. However, while the termination of the Agreement may delay such an outcome in the short term, we are not satisfied it is likely to reduce the potential of terminations of employment when the broader financial circumstances of the Applicant are considered.
We otherwise observe, for the purposes of s.226(1)(c)(iii) of the Act, that the Agreement sets out termination entitlements at clause 14 and severance pay in clause 56 and that the Applicant has provided an undertaking in accordance with s.226A that these provisions will continue to be provided to existing employees who are covered by the Agreement as at the date of termination of the Agreement. We note the unions agree that the undertaking given complies with s. 226A.[19] Accordingly, we are satisfied that the Applicant has given guarantee of termination entitlements contemplated by s.226 of the Act.
Section 226(5) of the Act provides that in deciding whether to terminate an agreement, the Commission may also have regard to any relevant matter. The Unions submit that these include preliminary bargaining discussions, the willingness of the Unions to bargain, the Applicant’s reluctance to bargain and the impact that terminating the Agreement is likely to have on potential bargaining. In this respect, the Unions submit that the Act promotes enterprise bargaining through its statutory objects and that recent amendments to s.226(4) of the Act are directed at reinforcing the primacy of bargaining.
We note that in reference to what is now s.226(4) of the Act, the Explanatory Memorandum to the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 (Cth) stated:
“This would require the FWC to consider the effect that terminating an enterprise agreement may have on the affected employees’ bargaining position during negotiations for a new enterprise agreement. It is intended to prevent an enterprise agreement being terminated as a bargaining tactic, which would be unfair for the employees covered by the agreement (particularly in terms of their bargaining position).”[20]
The Form F24C and other evidence before us indicates that neither the process for making a proposed new enterprise agreement nor bargaining has commenced. Section 226(4) of the Act also specifically enquires as to whether there has been a ‘notification time’ but in this case, there can be no ‘notification time’ that complies with s.173(2)(aa) of the Act because the conditions in s.173(2A) of the Act cannot be satisfied. Nor, as things currently stand, can any other provision within s.173(2) be complied with. As such, the parties cannot presently undertake bargaining within the scope of s.226(4) of the Act. Therefore, the considerations in s.226(4) do not fall for determination on the facts of this case.
However, we consider that Parliament’s intention to prevent agreements being terminated “as a bargaining tactic” has some relevance to the question of whether it would be appropriate to terminate the Agreement and further, that the bargaining scenario in this case is a relevant matter. Despite the absence of substantive bargaining to date, we have noted the Unions continue to express a willingness to engage in bargaining with the Applicant, have committed to not pursue claims that are unaffordable,[21] and have suggested they are considering a majority support determination to compel the Applicant to bargain.[22] The Applicant has, however, been equivocal about participating in bargaining and to date, it has been the Applicant’s conscious decision to assign priority to the pursuit of the Application at the expense of bargaining. While this is the Applicant’s prerogative, we consider it is open to conclude that in circumstances where the employees hold firm views in relation to their leave entitlements and their employer has decided to seek to have these entitlements ‘terminated’ without them ever having been the subject of bargaining, a “bargaining tactic” is being pursued through the Application that would seem to run counter to Parliament’s intention. Accordingly, even though the circumstances that s.226(4) of the Act contemplates have not, strictly speaking, arisen in this case, we consider the particular bargaining scenario in this case (i.e. its total absence to date) is a relevant matter to be considered under s.226(5), and we consider it is a factor that weighs against a finding that the termination of the Agreement is appropriate.
Section 226(1A) of the Act provides that the Commission must terminate the enterprise agreement under subsection 226(1) only if the Commission is satisfied that it is appropriate in all the circumstances to do so. Having regard to our findings in respect of s.226(1)(c) and the other relevant elements of s.226 of the Act, we are not satisfied it is appropriate in all the circumstances to terminate the Agreement.
Conclusion
Having regard to the requirements of s.226 of the Act and the material before the Commission, we are not satisfied that the continued operation of the Agreement poses a threat to the viability of the business. We are also not satisfied, having regard to the overall financial status of the Applicant, that termination of the Agreement would be likely to reduce the potential of terminations of employment. As we are not satisfied of those matters, there is no statutory compulsion to terminate the Agreement under s.226(1) and, in any event, having had regard to the strong opposition to the Agreement’s termination that has been expressed by the relevant unions and a number of employees and the absence, to date, of bargaining, we are not satisfied that it is appropriate in all the circumstances to terminate the Agreement.
Accordingly, the Application to terminate the Agreement is dismissed.
An order[23] to this effect has been issued concurrently with this decision.
DEPUTY PRESIDENT
Appearances:
A Duc of counsel for the Applicant.
A Mackenzie of counsel for the Australian Education Union.
P Stephenson for the Health and Community Services Union
Hearing details:
Melbourne
2024
18 September.
[1] [2011] FWAA 7551.
[2] Transcript 18 September 2024 at PN136.
[3] Ibid at PN179.
[4] Digital Court Book at page 18.
[5] Transcript 9 July 2024 at PN40.
[6] Digital Court Book at page 139.
[7] Transcript 18 September 2024 at PN437.
[8] Digital Court Book at pages 363-374.
[9] Transcript 18 September 2024 at PN82-97.
[10] Ibid at PN103.
[11] Digital Court Book at page 13.
[12] Transcript 18 September 2024 at PN154.
[13] Ibid at PN192.
[14] Ibid at PN200-201.
[15] Ibid at PN218.
[16] Ibid at PN228.
[17] AE889228 at Clause 1.
[18] Assuming the revenue number of $4.6 million is correct at Digital Court Book page 13.
[19] Transcript 18 September 2024 at PN38-45.
[20] Explanatory Memorandum to the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 (Cth) at clause 645.
[21] Transcript 18 September 2024 at PN437.
[22] Ibid at PN31.
[23] PR780448.
Printed by authority of the Commonwealth Government Printer
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