Chassis Brakes International Castings Pty Ltd v The Australian Workers' Union

[2013] FWC 5615

[2013] FWC 5615

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.240 - Application to deal with a bargaining dispute

Chassis Brakes International Castings Pty Ltd
v
The Australian Workers' Union; "Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union" known as the Australian Manufacturing Workers' Union (AMWU)
(B2013/890)

COMMISSIONER CARGILL SYDNEY, 15 AUGUST 2013

Bargaining dispute - agreed arbitration of wage increase.

[1] This decision arises from an application by Chassis Brakes International Castings Pty Ltd (CBIC) pursuant to section 240 of the Fair Work Act 2009 (the Act). In its application CBIC seeks the assistance of the Fair Work Commission (FWC) to resolve a dispute which has developed in the context of negotiations for a proposed new enterprise agreement (proposed agreement).

[2] CBIC has been negotiating with The Australian Workers’ Union (AWU) and the “Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (AMWU). The negotiations have been continuing for some months.

[3] The parties have now reached agreement on all but one matter, the quantum of the first wage increase to be paid under the proposed agreement. The parties have decided and agreed that this issue is to be arbitrated by FWC. The parties have also agreed on the terms upon which this arbitration is to take place.

[4] Those terms include the parameters of the specific matter which is to be decided, the conduct of the arbitration, specifically the factors which are to be taken into account by FWC and the conduct of the parties during and following the arbitration. It should be noted that the terms are the result of discussions held in the course of a conference in FWC on 21 May 2013 and are somewhat modified from those which were originally proposed by the applicant. In particular, the factors to be taken into account by FWC have been reduced to the following:

“In conducting the arbitration and making a decision, the FWC will take into account the following factors:

a. the merits of the case;

b. the interests of CBIC and its employees who will be covered by the Proposed Agreement.”

[5] The parameters of the issue to be decided are as follows:

“The parties’ last wages proposals were as follows:

a. CBIC - an initial $400, and further pay increases of 3% effective from 13 September 2012, 4% on 1 July 2013 and 4% on 1 July 2014.

b. AWU / AMWU - an initial $400, and further pay increases of 5% effective from 13 September 2012, 4% on 1 July 2013 and 4% on 1 July 2014.

Accordingly, the arbitrator is to determine whether:

the amount of the first wage increase is:

i. 3 per cent;

ii. 5 per cent; or

iii. a figure in between those set out at (i) and (ii) above;

This amount will be payable from 13 September 2012.”

[6] The arbitration was held on 17 July 2013. CBIC was represented by Mr Doyle, solicitor, who appeared with permission, the AWU was represented by Mr Crawford and the AMWU by Mr Walkaden.

[7] Two witnesses gave evidence on behalf of CBIC:

Mr C. Charter Director of Manufacturing for Chassis Brakes International (Australia) Pty Ltd (CBIA) an entity of which CBIC is a wholly owned subsidiary. Mr Charter provided two witness statements, Exhibits Applicant 1 and 2. He also gave oral evidence which is at PN 54-440 of Transcript;

Mr M. Patel Chief Financial Officer of CBIA. He provided two witness statements, Exhibits Applicant 3 and 4 and his oral testimony is at PN 446-633 of Transcript.

[8] The AWU also had two witnesses: Mr S. Barbar, the organiser for the CBIC site at Seven Hills in Sydney and Mr W. Vandine, AWU delegate at the site. Mr Barbar’s witness statement was marked Exhibit AWU1 and Mr Vandine’s statement, Exhibit AWU2. Neither of these witnesses was required for cross-examination. Mr P Tutton gave evidence for the AMWU. He is one of the AMWU delegates at the site. Mr Tutton’s witness statement was marked Exhibit AMWU1. He was not required for cross-examination.

FACTS AND EVIDENCE

[9] CBIA is part of the Chassis Brakes International Group of companies (the Group) and is one of the largest independent manufacturers and suppliers of parts to the Australian automotive industry with a customer base which includes GMH, Ford and Toyota (the vehicle manufacturers). It has manufacturing plants in Victoria and South Australia.

[10] Prior to 12 September 2012 CBIA sourced all but two types of its castings from Autocast & Forge Pty Ltd (A&F). Before April 2012 A&F was known as Broens Automotive Casting & Forging Pty Ltd (Broens) and the enterprise agreement which presently applies at the site at Seven Hills is the Broens Automotive Casting & Forging Pty Ltd - Union Collective Agreement 2011 (present agreement). The present agreement has a nominal expiry date of 30 June 2012 and provides for a 3% pay increase effective from 4 July 2011. That was the last time the employees who will be covered by the proposed agreement received a pay increase. As will be noted from paragraph 5 above, the first wage increase under the proposed agreement is to be backdated to 13 September 2012.

[11] The evidence of the union witnesses is that 2011 was the only time that the employees received an increase less than 4%. The evidence of Mr Vandine is that the employees agreed to this amount only after much debate and in the hope that the then owner could turn the business around. It was not intended to set a precedent of 3% increases and received employee support only on the basis that the next negotiations would seek at least 4% per year.

[12] Mr Charter provides details of wage increases in previous agreements at the Seven Hills site and calculates that these have averaged 3.9% per year. A similar analysis of CBIA’s Victorian and South Australian sites shows averages of 3.5% and 3.6% respectively.

[13] In early 2012 CBIA became concerned about the financial position of Broens/A&F and, as a consequence, seriously considered acquiring the business. The alternative was to source its castings from the Group’s foundry in China which would have involved significant lead times and disrupted supplies to customers. In May 2012 the former owner of the entity which was by then named A&F, informed the employees that the business was in a dire financial state and that he was attempting to sell. The employees agreed to suspend negotiations for a new agreement.

[14] On 31 May 2012 CBIA formally expressed interest in conducting a review of A&F with a view to possibly acquiring the business. During June and July CBIA conducted a limited due diligence process in respect of A&F’s operations. Employees were informed of this in late June. On 8 August CBIC was registered as a corporate entity in order to purchase certain assets of A&F and on 16 August the Group’s ultimate parent company approved the acquisition of those assets.

[15] On 12 September 2012 A&F was placed into voluntary administration. Also on that date CBIC was granted a licence by A&F to continue the operations at the Seven Hills site during the administration. This prevented a shutdown of the Australian automotive industry because of the lead times and other delays which would have resulted from sourcing supplies elsewhere.

[16] On 14 September 2012 the administrator informed around 29 or 30 employees that they were to be made redundant. The evidence of both Mr Charter and Mr Patel is that CBIC had decided and had informed the administrator that the acquisition of the A&F business was on a particular cost basis which included less employees. It was Mr Charter’s evidence that the Seven Hills operation had approximately 40% excess capacity for the amount of business it had at that time.

[17] The evidence of the union witnesses is that there was a great deal of anger, stress and anxiety among employees as a result of the administration and the redundancies. This was made worse when the administrator announced that there were insufficient funds to pay the entitlements of the redundant employees. Ultimately most of the entitlements were paid through the General Employee Entitlements & Redundancy Scheme (GEERS). However, the employees did not receive any payment in respect of their accumulated sick leave as provided for under the present agreement because GEERS does not cover such entitlements.

[18] The evidence of Mr Vandine and Mr Barbar is that the timing of the redundancies saved CBIC a large amount of money and the financial situation of A&F enabled it to purchase the business very cheaply. Mr Charter’s evidence is that there was no way CBIC would have agreed to purchase the Seven Hills operation if it had to cover the cost of the redundancies. Mr Patel gives similar evidence and also notes that the amount paid for A&F’s assets was based on an independent valuation and would not have been accepted by the administrator and the secured creditor, a bank, if the assets had been worth more. Nevertheless, CBIC agreed to make an ex gratia payment of one week to each of the redundant employees. It also provided a loan facility for those employees pending the receipt of their payments from GEERS.

[19] The administrator made significant changes to the shift patterns at the Seven Hills site. Mr Vandine gives evidence about these and other changes which were agreed to by the employees. His evidence is that the flexible and reasonable approach taken by the employees in this regard involved sacrifices which have been forgotten by CBIC. Mr Vandine also points to the cooperation shown by the employees during the transition from Broens, through the period of the administration and to CBIC.

[20] A liquidator was appointed in relation to A&F in mid-October. On 23 November 2012 CBIC acquired most of the assets of A&F and employed all 81 remaining employees. It should be noted that, of these, 65 are production and maintenance employees who will be covered by the proposed agreement. The remainder are engaged in administrative and management roles.

[21] Bargaining for the proposed agreement formally commenced on 30 October 2012 however substantive discussions began on 27 November. The unions served a joint log of claims upon CBIC at that time. CBIC’s response to the log was provided at the second bargaining meeting on 4 December. CBIC’s position on wages has not changed since that date. Mr Charter’s evidence is that the company put its best offer at that point in the hope that it would be accepted and the company could then work on turning the business around. His evidence is that this was also the logic behind CBIC not seeking any productivity improvements through the proposed agreement. It had hoped for a quick resolution.

[22] Further bargaining meetings were held on 12 December 2012, 15 January, 5 February, 1 May and 7 May 2013. Communication between the parties also took place by way of an exchange of emails. Each union applied for protected action ballot orders. Those applications were not opposed and orders were issued on 4 and 18 February respectively.

[23] On 4 February 2013 the AWU filed a section 240 application in relation to the ongoing bargaining, B2013/595. That application was the subject of a conference of the parties in FWC on 12 February.

[24] On 5 March 2013 the union notified CBIC of overtime bans to commence on 9 March. Those bans continued until 21 May when they were withdrawn in accordance with the agreed terms governing this arbitration. Mr Charter’s evidence is that the bans resulted in the Seven Hills site operating at only 75% of its capacity which brought CBIC close to missing its delivery dates to the vehicle manufacturers. Mr Tutton’s evidence is that employees deliberately restricted their action to overtime bans in order to minimise damage to CBIC and the broader automotive industry. He also gives evidence that the majority of the employees were stood down without pay for a day during this period. Mr Charter responds to this in paragraph 15 of his second statement.

[25] Mr Barber’s evidence is that the attitude of the employees to the negotiations both in respect of not escalating their industrial action and by agreeing to the arbitration process demonstrates their efforts to assist the business.

[26] Mr Charter gives evidence about the decline in the cast iron foundry industry in Australia in the past few years. This has been the result of a shrinking domestic market, the negative impact of the strong local currency on exports and the converse effect of cheaper imports. A move to lighter materials and rising electricity costs have also affected the industry. Mr Charter details 11 foundries which have closed in the last 18 months, including two in the month prior to the hearing.

[27] Mr Charter’s evidence is that 89% of CBIC’s sales are to the automotive industry. He gives evidence about the potential impact of the foreshadowed closure of Ford’s manufacturing facilities in 2016 as well as the present uncertainty concerning GMH. Mr Charter’s evidence is that 20% of CBIC’s sales ultimately flow to Ford. Losing either GMH or Toyota would destroy the business case for CBIC and, by extension CBIA, which would likely result in the redundancy of 81 and 275 employees respectively.

[28] Mr Charter’s evidence is that CBIC has little, if any, ability to pass on increased operating costs to its customers during the life of the existing contracts which it acquired when it bought A&F. He noted that the customers had already agreed to a price increase prior to the novation of those contracts to CBIC and were unlikely to do so again. Mr Charter’s evidence is that any attempt by the company to pass on operating costs would be likely to push its customers towards CBIC’s competitors both in Australia and, more probably, low cost overseas jurisdictions.

[29] The evidence of CBIC’s witnesses is that the Seven Hills site was in a worse condition than the company had been able to ascertain during the due diligence process. Significant investment was required. The evidence is that A&F’s average monthly maintenance spend between January and June 2012 was $37,383 whereas CBIC’s average monthly spend between October 2012 and March 2013 has been $194,807.

[30] Mr Patel gives detailed evidence about the financial position of the business. In particular he states that: in the period September to December 2012 CBIC recorded an actual net loss of $3.08 million against a budgeted net loss of $844,000; in the period 1 January to 30 April 2013 it recorded an actual net loss of $1.73 million against a budgeted net profit of $152,000; in the 2013 calendar year CBIC is forecast to record an actual net loss of $2.69 million as against a budgeted net profit of $643,000; and CBIC’s cumulative losses since taking over the business up to April 2013 were $4.1 million and are forecast to reach $5.1 million at 31 December 2013.

[31] Mr Patel also states that the estimated operating losses for 2014, 2015 and 2016 which were projected to be $174,000, $664,000 and $991,000 respectively are likely to be higher as a result of lower sales and higher costs. Mr Patel’s evidence is that he considers that, if the 2012 financial results had been known to CBIC when it made its wages offer in December 2012, the offer would not have been made. He would have recommended against such an offer.

[32] Mr Patel gives evidence as to the comparative additional total employment costs to the business of a 3%, 4% and 5% wage increase for the period 14 September 2012 to 31 May 2013. These figures are $127,851, $170,468 and $213,085 respectively. The compounding effect over the life of the proposed agreement of a 4% increase compared with a 3% increase is an additional cost of $134,000. The effect of a 5% increase is an additional cost of $268,000.

[33] Mr Patel states that CBIC faces a range of external challenges to its viability which it cannot control. One of these is the pressure of the high Australian dollar. Mr Patel was cross examined about this. His evidence is that the recent decline in the value of the currency has not assisted the business and is not expected to have a positive impact in the short or medium term. Mr Patel says that, historically, the currency would need to drop to around 70 cents US for it to make a difference. Mr Patel’s evidence is that CBIC’s ability to improve its financial position is limited to controlling its costs and generating additional revenue.

[34] Mr Charter’s evidence is that CBIC has taken several steps to improve its financial position and the viability of the business. In addition to the extra investment in maintenance mentioned earlier, these steps include: conducting a risk assessment which will lead to reduced medical and insurance expenses as well as lost time due to injury; negotiating a rent reduction for the Seven Hills site; negotiating price increases with customers as noted earlier; securing new business; and commencing several continuous improvement projects including the introduction of lean manufacturing systems.

[35] Mr Patel’s evidence is that the operating costs of CBIC are financed by loans from CBIA. Decisions regarding those arrangements are made by the Board of the Group’s parent company. He attends the meetings of the Board and describes its attitude to CBIC’s present position and future prospects as “not positive”. Directions have been given to urgently reduce costs. Further, Mr Patel states that the view of the Board is that other stakeholders have shared the burden of CBIC’s financial difficulties and it is now the turn of the employees.

[36] The evidence of Mr Patel and Mr Charter is that a wage increase of greater than 3% could, in part, lead to the Board concluding that CBIC is even less competitive, which in turn could result in the withdrawal of CBIC’s funding. Each agreed that there was no guarantee that the Seven Hills site would continue to be in operation for the life of the proposed agreement regardless of the size of the first wage increase or, indeed, whether there was any increase at all.

[37] Mr Patel’s evidence is that, although the Board could at any time decide to shift the production of castings to the Group’s operation in China, the risk of this occurring is greatest in 2014. This is the time when contract negotiations and certification testing takes place for the 2017 production models for GMH and Toyota.

[38] Mr Vandine’s evidence is that employees are aware of the company’s financial situation and the need to keep the business viable. He states that employees are reluctant to concede another 3% increase and are concerned that the creation of CBIC as a separate entity has been deliberately arranged to avoid the payment of employee entitlements should the Seven Hills operation close. Mr Vandine gives evidence of increased overtime at the site which he says indicates increased orders. Mr Barber gives evidence to similar effect. Mr Charter’s response is that sales are 12% below budget and the increased overtime is the result of the change in shift structure and the need to replenish stock following the overtime bans.

[39] Mr Vandine gives evidence that he has experienced a significant increase in his living expenses in the last two years. This includes a $225 increase in his quarterly electricity bill. He, like most other employees at the Seven Hills site, is supporting children living at home and is struggling to make ends meet. Mr Vandine believes a 3% wage increase will reduce morale and have a negative impact on productivity. Employees will be sceptical about the future of the site. A higher increase is more likely to unite the employees. Mr Charter agreed that the relevant workforce at Seven Hills is predominantly male, over 45 and with lengthy periods of service. He agreed that many would struggle to obtain comparable employment.

[40] Mr Barbar’s evidence is that a 4% wage increase is relatively standard for other sites for which he is the organiser. He refers to an Adelaide foundry where employees have recently been offered annual increases of 4%. Mr Barbar suggests that CBIC’s financial position should be considered in the context that it is part of a multi-national operation. Mr Charter’s evidence in response is that the Group presently has a slim profit margin. In contrast, the Adelaide foundry referred to by Mr Barbar supplies castings to the mining industry and the corporate owner of that foundry has enjoyed a much higher profit margin than CBIC and CBIA.

[41] The parties provided the “DEEWR Trends in Federal Enterprise Bargaining” reports for both the December 2012 and March 2013 quarters (DEEWR reports). They show that the Average Annualised Wage Increase (AAWI) for enterprise agreements approved in the March 2013 quarter was 3.7%, a rise of .3% on the outcome for the December 2012 quarter. The relevant figure for the manufacturing sector is 3.5%, a fall of .1% on the December 2012 quarter.

[42] Mr Charter’s evidence is that CBIC’s wages offer is in line with the prevailing situation in both the manufacturing sector and the broader economy. The union’s position is higher than the AAWI for both.

SUBMISSIONS ON BEHALF OF CBIC

[43] A written outline of submissions on behalf of CBIC was provided prior to the hearing. Mr Doyle also made oral submissions.

[44] CBIC contends that there are five principles to be applied in a section 240 arbitration. First, although no one party bears the onus of proof, the present agreement provides the starting point and the party seeking change, here the unions, must demonstrate that the instrument hasn’t operated satisfactorily or circumstances have changed 1. Secondly, the outcome must be fair, just, harmonious and cooperative2. Thirdly, the Act requires that FWC must take into account equity, good conscience and the merits of the matter3. It must also consider the objects of the Act as a whole and the relevant part thereof4.

[45] The fourth principle is said to be that the outcome of the arbitration must be consistent with that which may have resulted had the bargaining concluded successfully 5. The fifth is that the employer’s position should not be interfered with unless it is unjust or unreasonable6. In reply CBIC submitted that all of these factors, regardless of whether they are considered as separate principles, are relevant to the question of the merits of the respective cases.

[46] CBIC contends that there are several additional factors to be considered in determining the wages outcome in this matter. The first is the substantive merit of the proposals and all of the circumstances including the interests of the parties 7. The employees’ interests include maintaining the real value of their wages as against CPI, the capacity for them to share in the benefits which come from their contribution to the enterprise and ensuring that the business remains profitable and competitive8. CBIC submits that this last consideration, together with the economic environment, is also relevant to its own interests9.

[47] CBIC submits that wage comparisons within the business and across the relevant industry sector are relevant but should be viewed with caution 10. The arbitration is not an exercise in comparative wage justice and the overall circumstances and the whole of the package including the scope and length of the proposed agreement as well as the other components must be considered11. In this regard the length of time since the last wage rise is offset by the agreed $400 up front payment to each employee as well as the backdating of the first wage increase. Further, the company has been without the stability of an in-term agreement for a period of time12.

[48] CBIC accepts that the consequences of industrial action during bargaining are of scant relevance in these types of matters. Furthermore, the negotiating position of the parties is only relevant if it contributes objectively to an evaluation of the merits of the respective cases. In this matter it does not do so 13.

[49] CBIC submits that the only meritorious outcome of this arbitration is a 3% first year wage increase. In the particular circumstances of this case it is clear that the company would never have agreed to a higher increase. It had consistently maintained that position from the start of bargaining despite the overtime ban and the harm that caused to the business. CBIC had sought arbitration of the claim either by the present method or, in the absence of agreement, by means of a workplace determination. Indeed, it had signalled its intention to withdraw the wages offer because of the decline in the position of the business since the offer was made.

[50] CBIC’s view was that the state of the business is such that the short term cost of the industrial action would have less impact on its viability than an additional 2% wage increase. Furthermore, an increase greater than 3% would have a negative flow-on effect as it would set the floor for negotiations at the CBIA Victorian and South Australian sites.

[51] CBIC contends that the unions are unable to make out a case for any change to the 3% increase in the present agreement. The company concedes that the circumstances of the business have changed since that agreement was negotiated however notes that the position has significantly worsened. CBIC submits that its stance on the wage increase is neither unjust nor unreasonable, rather, it is in the interests of both the employees and itself.

[52] The company submits that there are several issues which are relevant to the question of the merits of the parties’ comparative positions: the package as a whole; the real value of the proposed increase; the economic environment; the profitability of the business and the capacity of employees to share in that; and wage comparisons within the business and across the industry sector.

[53] CBIC submits that its wages offer as a whole is extremely generous and notes that it sought no concessions in return. It observes that CPI rose 2.5% through the year to the March quarter 2013 and that the forecast CPI for Sydney for 2013-2014 is 2.5%. Consequently, the company’s offer will result in a real wage increase for employees.

[54] FWC may take judicial notice  14 of the difficulties facing the manufacturing sector, especially the automotive industry: the high Australian dollar and shrinking domestic market; the 2016 closure of Ford’s Australian manufacturing operations and redundancies at GMH; the steady decline in the number of employees covered by enterprise agreements in the manufacturing sector and the closure of several foundries; the comments in the Annual Wage Review 2012-13 decision about the state of the manufacturing sector15; and the recognition of the decline in the sector by the AWU and AMWU.

[55] CBIC submits that it is in the interests of both the employees and itself that its business is profitable. It refers to the evidence of both Mr Charter and Mr Patel as establishing that the business is presently operating at a significant loss and in fact has no profits to share. In this situation the position of the unions is irresponsible.

SUBMISSIONS OF THE AWU

[56] A written outline of submissions was provided prior to the hearing and Mr Crawford also made oral submissions.

[57] The AWU notes that the parties agreed to terms under which the arbitration was to be conducted. It submits that those terms identify the relevant factors to be considered and rejects CBIC’s contention that additional matters should also be taken into account. In particular it objects to the inclusion of the following: that the outcome of the arbitration must be consistent with what the parties may have agreed to if bargaining had concluded successfully: that the employer’s position should not be interfered with unless it is unjust or unreasonable; and, that the whole package be considered.

[58] The AWU notes that these additional factors are justified by CBIC on the basis of other bargaining dispute arbitrations and workplace determinations. The union submits that these are not relevant in the present case. It further submits that the matters to be considered should be restricted to those agreed by the parties and the relevant statutory provisions in sections 577 and 578 of the Act 16.

[59] The AWU accepts that the objects of Part 2-4 of the Act may be a relevant consideration and submits that the only one with any application in this case is the delivery of productivity benefits referred to in section 171(a).

[60] The AWU submits that there are four factors which are relevant to the merits of the case. The first is the average enterprise bargaining wage increases. The union notes that the period for the relevant wage increase is September 2012 to July 2013. The average private sector wage increase as recorded in the DEEWR reports are 4% for the first quarter of that period, 3.8% for the second quarter and 3.8% for the third quarter. Consequently, an increase of only 3% would be significantly below the average.

[61] The second factor relied on by the AWU is wage increases in comparative businesses. The union points to two agreements covering foundries in Adelaide. The first provides increases of 4%, 3.8% and 3.8% over three years. The second provides for an increase of 8% over two years. The AWU submits that an increase of only 3% at CBIC would be below the amounts presently being agreed to in the industry.

[62] The AWU contends that the third factor of relevance to the merits is the average wage increases which have applied at the Seven Hills site. The union submits that the average between 2000 and 2011 is 4.09% rather than 3.9% as suggested in Mr Charter’s evidence referred to in paragraph 12 above. The union submits that, regardless of which of these figures is accepted, an increase of 3% would be significantly lower than the average at the site over the past 12 years.

[63] The fourth factor is the fall in the value of the Australian dollar against the US dollar in recent times. The union submits that, between May and 1 July 2013, the Australian currency has fallen by 14%. The decreasing value of the local currency reduces the competitiveness of imported vehicles and components and assists local manufacturers such as CBIC. The AWU notes the Australian Performance of Manufacturing Index (PMI) rose 5.8 points to 49.6 in June, its highest level for two years. The union also notes that, despite recent negative announcements in the automotive industry, CBIC’s largest customer is Toyota which has committed to local manufacturing beyond 2016 and has made large investments in its Victorian site.

[64] The AWU submits that the interests of the employees warrant a wage increase of greater than 3%. It refers to the evidence as to the very difficult times which have been endured by the employees since their last increase in July 2011. The employees agreed to a 3% increase at that time to assist the then owner. Since then they have experienced confusion and uncertainty and have seen 29 or 30 of their former colleagues being left to rely upon GEERS to pay their entitlements which caused them to miss out on their accrued sick leave.

[65] The AWU notes that, despite the uncertainty, the employees continued to perform work and even agreed to shift changes. Further, the employees adopted a restrained approach to their protected industrial action so as to minimise harm and disruption to the business. The union also notes the evidence that the employees have experienced significantly higher cost of living expenses in the last 18 months.

[66] The AWU submits that factors which are relevant to CBIC’s interests include morale at the Seven Hills site and the savings to the company in not having to pay the entitlements of the employees made redundant during the period of the administration. It submits that the difference between a 3% and 5% increase of $85,234 is small when compared to that saving but it might contribute to improved morale. The union also notes that the evidence shows that the viability of the site will not be determined by the difference in the wages bill.

[67] The AWU submits that, despite the loss of around 50 employees since 2011, the business has been able to maintain high production levels. This demonstrates that the productivity of employees has significantly improved during that time. The employees deserve to be rewarded for that improvement by being awarded an increase of 4%-5% for the first year of the proposed agreement. An increase of only 3% could have a negative impact on morale and, in turn, productivity.

SUBMISSIONS OF THE AMWU

[68] A written outline of submissions was provided prior to the hearing. Mr Walkaden also made oral submissions.

[69] The AMWU notes that section 240 provides no guidance as to the factors which must be taken into account in determining this matter. This is in contrast to a workplace determination where specific factors are set out in section 275. The union submits that, in the absence of any reference to section 275 in section 240, FWC should not resort to the factors listed in section 275.

[70] The AMWU submits that CBIC has erred by conflating a workplace determination and a section 240 arbitration and, in so doing, has referred to cases which concern workplace determinations as establishing certain principles which the company says also apply to this arbitration. The AMWU submits this approach is wrong and should be rejected.

[71] In particular the AMWU submits that the following factors are not relevant in a section 240 arbitration which concerns a wage increase as in this case: that the party seeking change must establish that the previous terms have not operated satisfactorily or that circumstances have changed; that the employer’s position should not be interfered with unless it is found to be unjust or unreasonable; and that the outcome must be consistent with what may have been agreed between the parties if bargaining had been successful.

[72] The AMWU accepts that the second of these factors was considered in a previous section 240 decision but notes that the particular matter concerned drug and alcohol testing where issues of managerial prerogative may be of relevance 17. The union submits that arbitration of a wage increase is very different.

[73] The AMWU submits that the Full Bench in the TWU decision made clear that the question as to the likely outcome of bargaining can only be answered by reference to “the statutory factors”. The union again notes that, unlike a workplace determination, section 240 does not provide any such factors for guidance. Consequently, attempting to predict what would have been the outcome of bargaining is of no assistance in this matter.

[74] The union submits that this is a merits based arbitration in which I should be guided by the agreed terms under which the parties entered into the process as well as the objects of the Act as a whole, and the relevant part thereof and sections 577 and 578.

[75] The AMWU notes that section 3(a) and (f) as well as section 171(a) confirm that the promotion of productivity is a critical object of the legislation. The union submits that, regardless of the outcome of this arbitration, there will be no change to the productivity of the Seven Hills site. The determination will have an impact on CBIC’s bottom line but that should not be mistaken for the promotion, or otherwise, of productivity 18.

[76] The AMWU notes that another important object of the Act is the promotion of the public interest which includes the promotion of national economic prosperity and social inclusion. The union submits that self interest should not be mistaken for public interest and in this regard refers to the AIPA decision 19. It submits that CBIC’s case does not raise any public interest consideration.

[77] The AMWU submits that the public interest will not be offended by a determination in this case in favour of the unions. It will not reduce employment and, indeed, it is clear from the evidence that CBIC’s wages bill is not one of its main challenges such as the value of the Australian dollar and electricity costs. The union characterises the matter as being a dispute between the parties devoid of any public interest consideration.

[78] The AMWU notes the emphasis in section 3(f) upon enterprise-level collective bargaining underpinned by good faith bargaining. It does not contend that CBIC has failed in its bargaining obligations. Rather, the parties reached a deadlock. The AMWU submits that the evidence shows that the unions moderated their claims during bargaining and adopted a very responsible approach to the protected industrial action. Further, there can be no criticism of the employees for taking such action 20.

[79] The AMWU submits that, in order to determine the merits of the competing claims, I should have regard to the need to maintain the real value of wages of the relevant employees as well as the wage outcome for the same class of workers in the same industry. The union concedes that, assuming CPI remains at or below the rate for the March 2013 quarter, CBIC’s proposal will deliver a real wage increase. The AMWU refers to the data in the DEEWR reports referred to in paragraph 41 and submits that a wage increase of only 3% will result in CBIC’s employees being significantly worse off than other comparable employees. It follows that the unions’ claim has greater merit.

[80] The AMWU notes that CBIC’s interests align with the lowest possible wage increase. It submits that this needs to be balanced against the interests of the employees. Those employees have endured difficult times. They and their families should not have to continue to bear the brunt of the challenges facing the business. Granting the claim of the unions would ensure that the wages of the employees would keep up with those of their peers.

[81] The AMWU submits that a wage increase of greater than 3% will not cause the demise of CBIC or the Australian automotive industry. The challenges facing the company are much greater than its wages bill. The claim on behalf of the employees has considerably greater merit than that of CBIC and should be granted.

CONCLUSIONS

[82] As mentioned earlier, this decision involves an arbitration under section 240 of the Act. Although the application was made by CBIC, the arbitration proceeds by way of agreement between the parties. Consequently no one party bears the onus of proof.

[83] Section 240(4) of the Act provides that, if the bargaining representatives for a proposed enterprise agreement have agreed that FWC may arbitrate a dispute, FWC may do so. In this matter the bargaining representatives have agreed and consequently there is jurisdiction for me to arbitrate the matter in dispute. The parameters of the dispute and the arbitration are set out in paragraph 5 above.

[84] There is no dispute that the provisions of sections 577 and 578 are relevant to my consideration in this matter. The terms of section 578 also require that I take into account the objects of the Act and the objects of the relevant part of the Act, in this case, those which are set out in section 171.

[85] Section 240 does not contain or refer to any specific statutory factors which must be taken into account in conducting an arbitration under it. This in contrast to a workplace determination pursuant to Part 2-5 of the Act where section 275 sets out eight such factors.

[86] There may be situations where parties have not agreed upon or have not turned their minds to the factors which are to be taken into account in a particular section 240 arbitration. In such cases the list in section 275 might provide guidance. However in this matter, the parties consciously moved away from such a list which had been initially proposed by CBIC and instead agreed that only two factors were to be taken into account: the merits of the case; and the interests of CBIC and the employees. I consider that in such circumstances it would not be appropriate to take the section 275 factors into account except insofar as they might arise in relation to the agreed factors.

[87] I consider that there are six points which are relevant to the merits of the parties’ respective claims. First, the financial situation of the business. The evidence is clear that CBIC is presently operating at a significant loss and it is estimated that it will continue to record increasing losses over the next few years. It is under internal pressure to reduce those losses and a failure to do so could precipitate the closure of the business.

[88] I note that the survival of CBIC will not turn on the size of the wage increase which I have to determine, nevertheless, I consider that it would be irresponsible to ignore the impact of the increase upon the viability of the business.

[89] The second point of relevance is the economic environment both in relation to the manufacturing sector generally and the automotive sector specifically as it impacts upon component parts manufacturers such as CBIC. Although there was an improvement in the outlook for the manufacturing sector in June, the recently released PMI figures for July show a drop of 7.6 points to 42 which brought the index back into line with the average over the past year. In addition, profits and employment in the sector have been in decline for some time. Most would agree that the local automotive industry is in a fragile state at present and it is particularly noteworthy that 89% of CBIC’s sales are to the automotive industry.

[90] Allied to this point is the impact of the falling Australian dollar. I accept the AWU submission that the value of the local currency as measured against the US dollar fell by 14% between May and the start of July. However I note the evidence of Mr Patel that this decline is not likely to have a positive impact on the business in the short or medium term.

[91] The third point I consider to be relevant to the merits is the desirability of maintaining the real value of the wages of the employees who will be affected by this determination. The most recent CPI figures, which were released after the date of the hearing, show that the “All Groups CPI” rose 2.4% through the year to the June quarter 2013 compared with a rise of 2.5% through the year to the March quarter 2013. Clearly any increase which I am able to determine within the agreed parameters of this arbitration will deliver a real wage increase to employees.

[92] The fourth point of relevance is the size of the wage increase proposed in this matter compared with outcomes elsewhere. The parties have advanced various figures to support their respective contentions. I consider that the most relevant data is that contained in the DEEWR report for the March 2013 quarter. This demonstrates that the AAWI for all collective agreements in the private sector for that quarter was 3.7%, for all such agreements in the manufacturing industry it was 3.5% and for all such agreements in metals-manufacturing it was 3.9%.

[93] I note the evidence as to the wage increases which have been agreed to by employers and employees at two foundries in Adelaide. However, those increases need to be viewed with some caution as there is limited material before me as to the financial position, bargaining history or other possibly relevant factors at those businesses. I also note that one of the businesses apparently mainly supplies the mining industry which may increase the likelihood that higher operating costs could be passed on to its customers.

[94] It also needs to be remembered that this matter is being determined in the context of bargaining for a single-enterprise agreement. It is not industry or industry sector bargaining and should not be seen as simply an exercise in comparative wage justice.

[95] The fifth point I consider to be relevant to the merits is the history of wage increases at the Seven Hills site. I note that there is some difference between the parties as to whether the average increase since 2000 is 4.09% or 3.9%. Regardless of the precise figure, it is also relevant to note that there is usually no guarantee that past increases will continue at the same level into future agreements. Circumstances might change, as they have at this workplace, and bargaining needs to adjust.

[96] Whilst on this point it should be noted that I do not accept CBIC’s submission that the party seeking to change the rate of wage increase from that which was most recently agreed must make out a case for the change. As indicated in the previous paragraph, bargaining is an evolving process and no particular party has any greater onus in establishing its case than another.

[97] The sixth point of relevance is the wages package as a whole. As noted earlier, the unions oppose this as a relevant consideration. However, in my view, it would be artificial to ignore the other components of the package, the initial $400 payment, backdating of the first increase and agreed 4% increases in the second and third years of the proposed agreement. I note CBIC’s submission that its offer is particularly generous as it has received no concessions in return. However the evidence is that the company made a strategic decision not to seek any concessions from the bargaining and made its wages offer as part of that strategy.

[98] Before turning to consider the factors relating to the interests of CBIC and the employees I wish to note that I do not accept the company’s submission that its position should not be interfered with unless it is found to be unjust or unreasonable. Clearly such a concept may be of relevance when the issue in dispute concerns things such as the manner in which a workplace should be managed or the method of testing for drugs and alcohol. However, in my view, it would not be appropriate to give priority to the employer’s position over that of the employees because of the notion of managerial prerogative when the issue in dispute is the level of a wage increase.

[99] It is in the interests of both CBIC and the employees that the business continues to operate and hopefully improves its profitability, viability and employment opportunities. From a crude economic stand point CBIC’s interests are best served by the lowest wage increase and the employees’ interests are best aligned with the highest increase.

[100] The employees have experienced difficult and uncertain times over the past few years during the period of the administration and before. Despite cost of living pressures they have not received a pay rise since July 2011. I note that this will be offset by the $400 payment and backdating of the first increase, nevertheless the employees have not had the benefit of an increase for more than two years. The employees have seen around 30 of their colleagues made redundant and having to resort to GEERS which led to those workers missing out on their accumulated sick leave entitlements. There continues to be a threat of future redundancies through closure of the business. The employees adopted a flexible and cooperative approach to all of the changes which have occurred and I accept that their protected industrial action was designed to minimise harm to the business.

[101] It could be said that it is in the interests of CBIC, or more precisely CBIA, that the wage increase at Seven Hills is as low as possible so as to minimise bargaining expectations at CBIA’s Victorian and South Australian sites. However I wish to emphasise that, in determining this matter I have considered the circumstances of these parties and this proposed agreement only.

[102] Whilst I appreciate that it is unlikely that CBIC would have agreed to a first year increase of greater than 3%, I consider it equally unlikely that the employees would have agreed to accept such an amount. I was involved in two sets of conferences with the parties. Consequently, even if it could be said that attempting to predict the outcome of successful bargaining was indeed relevant in this matter, I do not consider that it would assist in the determination.

[103] I note that productivity is an important statutory consideration. I have taken account of the AWU’s submission that a 3% rise could have a negative impact upon morale which in turn could lead to reduced productivity. However, in the absence of any detailed information about productivity at the site and noting that CBIC did not seek any productivity improvements from the bargaining, I am unable to draw any conclusions on this point.

[104] I do not believe that there are any particular public interest considerations in this matter.

DETERMINATION

[105] After considering the merits of the case, the interests of CBIC and the employees and the relevant statutory considerations as well as the points I have referred to earlier and all of the circumstances of the case, I have decided on balance that the first year wage increase in the proposed agreement should be 3.5%.

[106] Consistent with the agreement between the parties, this outcome will now be incorporated into the terms of the proposed agreement which will then be put to a vote of the employees in accordance with the provisions of the Act.

COMMISSIONER

Appearances:

R. Doyle, solicitor, with A. Pollock for Chassis Brakes International Castings Pty Ltd.

S. Crawford for The Australian Workers’ Union

A. Walkaden for the “Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (AMWU)

Hearing details:

Sydney

2013.

July 17.

 1   BlueScope Steel (AIS) Pty Ltd and Anor v The Australian Workers’ Union and others[2013] FWC 1557 @ 105 (Bluescope); Transport Workers’ Union of Australia v Qantas Airways Limited[2012] FWAFB 6612 @ 34 (TWU); and Australian and International Pilots Association v Qantas Airways Limited [2013] FWCFB 317 @ 67 (AIPA).

 2   Caltex Australia Limited v The Australian Institute of Marine and Power Engineers and Anor[2009] FWA 424 @ 85 (Caltex); and BlueScope @ 110.

 3   Caltex @ 86; Bluescope @ 111; and The Australian Licensed Aircraft Engineers Association v Cobham Aviation Services Engineering Pty Ltd[2012] FWA 9444 @ 92 (Cobham).

 4   Caltex @ 86-87; Cobham @ 92 and 97-98; TWU @ 30, 34 and 44; and Bluescope @ 106 and 110-111.

 5   Construction, Forestry, Mining and Energy Union v Coal & Allied Operations Pty Ltd [Print R9735] @ 24 (Coal & Allied); TWU @ 29; Bluescope @ 113; and Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union and Others v Curragh Queensland Mining Limited [Print Q4464] @ 21-23.

 6   Caltex @ 83 and TWU @ 36.

 7   Cobham @ 92-94 and Schweppes Australia Pty Ltd v United Voice - Victoria Branch[2012] FWAFB 7858 @ 130 (Schweppes No 1.).

 8   Cobham @ 92 and 104-105; Schweppes Australia Pty Ltd v United Voice - Victoria Branch [2012] FWAFB 8599 @ 114, 117-118 and 130 (Schweppes No 2.); Parks Victoria v The Australian Workers’ Union and others[2013] FWCFB 950 @ 177-178 and 181-182 (Parks Victoria); and TWU @ 30 and 40-41.

 9   Parks Victoria @ 183 and 230; TWU @30 and 40-41; and Cobham @ 92.

 10   Cobham @ 92; TWU @ 35; Schweppes No 2. @ 114; and Parks Victoria @ 177.

 11   Cobham @ 92 and 114 and Parks Victoria @ 178.

 12   Schweppes No 1. @ 248; Schweppes No 2. @ 131and 138;and Parks Victoria @ 161-163.

 13   Schweppes No 1. @ 253; Schweppes No 2. @ 113; and, TWU @ 30.

 14   Foster v Glen Fulton Motors Pty Ltd [PR947020] @ 6.

 15   Annual Wage Review 2012-13 [2013] FWCFB 4000 @ 149, 180 and 232

 16   Bluescope @ 110-111.

 17   The Australian Federated Union of Locomotive Enginemen v State Rail Authority of New South Wales (1984) 295 CAR 188.

 18   Schweppes Australia Pty Ltd v United Voice-Victoria Branch [2012] FWAFB 8837 @ 42-46 (Schweppes No 3.) and AIPA @ 74.

 19   AIPA @ 73.

 20   JJ Richards & Sons Pty Ltd v Transport Workers’ Union of Australia[2010] FWAFB 9963 @ 68.

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