David Smart

[2014] FWCA 4876

[2014] FWCA 4876

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.225—Enterprise agreement

David Smart
(AG2014/1116)

POPE NITSCHKE FIRST NATIONAL EMPLOYEE COLLECTIVE AGREEMENT

Real estate industry
COMMISSIONER HAMPTON	ADELAIDE, 8 SEPTEMBER 2014

Application for termination of a preserved Collective Agreement after its nominal expiry date - whether contrary to the public interest - whether appropriate in all of the circumstances - agreement made under earlier legislative scheme - significant elements now subject to direct impact of new minimum standards - enterprise agreement negotiations underway - whether appropriate to alter the basis whilst that process is continuing - existing agreement problematic and basis for bargaining not clear - potential impact of termination upon all parties considered - statutory considerations applied - appropriate to terminate agreement but with some time to deal with the consequences - determination made.

1. The application

[1] This decision concerns an application by Mr David Smart pursuant to Item 16 of Schedule 3 of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (the Transitional Act), and as a consequence, s.225 of the Fair Work Act 2009 (the FW Act). The application seeks to terminate the Pope Nitschke First National Employee Collective Agreement 1(the Collective Agreement).

[2] The Collective Agreement is a collective agreement-based transitional instrument for the purposes of the Transitional Act 2 with a nominal expiry date of 12 February 2013.3

[3] The parties are covered by the terms of the Real Estate Industry Award 2010 (the modern award) although it does not presently apply to them due to the continued operation of the Collective Agreement. 4

[4] The application is opposed by the employer party to the Collective Agreement, Pope Nitschke Pty Ltd (Pope Nitschke).

2. The relevant legislation

[5] Item 16 of Schedule 3 of the Transitional Act provides:

“16 Collective agreement-based transitional instruments: termination by FWC

(1) Subdivision D of Division 7 of Part 2-4 of the FW Act (which deals with termination of enterprise agreements after their nominal expiry date) applies in relation to a collective agreement-based transitional instrument as if a reference to an enterprise agreement included a reference to a collective agreement-based transitional instrument.

(2) For the purpose of the application of Subdivision D to an old IR agreement, the agreement’s nominal expiry date is taken to be the end of the period of the agreement.”

[6] Subdivision D of Division 7 of Part 2-4 of the FW Act provides:

“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

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 it is not contrary to the public interest to do so; and

(b) the FWC considers that it is appropriate to terminate the agreement taking into account all the circumstances including:

(i) the views of the employees, each employer, and each employee organisation (if any), covered by the agreement; and

(ii) the circumstances of those employees, employers and organisations including the likely effect that the termination will have on each of them.

227 When termination comes into operation

If an enterprise agreement is terminated under section 226, the termination operates from the day specified in the decision to terminate the agreement.”

[7] Mr Smart is an employee who is presently covered by the Collective Agreement, which has passed its nominal expiry date. The application is validly before the Commission and I must therefore consider whether the circumstances are such that it would not be contrary to the public interest to terminate the Collective Agreement, and whether it would be appropriate to adopt that course of action.

3. The basis of the application

[8] Mr Smart brings this application with the apparent support of 11 of his colleagues. They were represented in this matter, with permission, by Mr Knox, who is also their bargaining agent.

[9] Mr Smart contends that the Collective Agreement should be terminated given the uncertainties arising from the instrument and what he describes as a number of capricious terms. Amongst other matters, he relies upon the following contentions regarding the Collective Agreement:

● It is misleading in that it contains terms that are modified by the Act and the National Employment Standards (NES) however that is not clear to the employees and no clarification has been given to them by the employer;
● It contains no actual wage rates;
● The employer has not been acting consistently with the terms of the Collective Agreement in that some employees have not been given written letters of appointment and/or agreements for commission-only arrangements when these were required; and
● The Long Service Leave (LSL) provisions are contrary to the State LSL Act that forms part of the NES.

[10] Mr Smart also contends that the employer would not be disadvantaged by the termination of the Collective Agreement and the application of the modern award that would follow in that event. That is, the modern award minimum rates and the NES already in effect apply to the parties. Rather, he suggested, Pope Nitschke was attempting to cling onto an outdated “credit and debit” system for calculating commissions.

[11] The Collective Agreement was said to undermine the policy and scheme of the Act and Mr Smart contends that a move to the modern award as the basis for the future would provide both fairness and certainty for all parties.

[12] He also contends that the termination of the Collective Agreement had the support of a significant number of the employees and that their views should be given considerable weight.

[13] Mr Smart seeks that the termination of the Collective Agreement take effect immediately on the basis that certainty is required. He also contends that the immediate termination should be made, given the prospect that the employer would send employees on LSL ahead of any termination taking effect. 5

[14] Mr Smart provided a statutory declaration with the application and gave evidence in the proceedings. He also relied upon the evidence of Ms Sharon Parsons, an employee who is also covered by the Collective Agreement and supportive of the termination application.

4. The position of Pope Nitschke

[15] Pope Nitschke was represented, with permission, by Mr Kidman. It opposes the application on a number of grounds relating to both public interest considerations and whether the termination of the Collective Agreement would be appropriate having regard to the statutory criteria.

[16] In terms of the public interest, Pope Nitschke contends that:

● Bargaining for a replacement agreement is underway and it would not be appropriate to terminate the existing instrument whilst negotiations were being conducted;
● This application was made without notice to the employer and at an early stage of the bargaining process and that action was not consistent with the good faith bargaining provisions 6 of the FW Act;

There is a reasonable prospect that an Enterprise Agreement will be negotiated between the parties; and

● The application has proceeded on a false understanding as to the operation of the Collective Agreement and the modern award in the context of the FW Act.

[17] In relation to the considerations established by s.226(b) of the FW Act, Pope Nitschke contends that whilst the application has the apparent support of Mr Smart and a number of employees, the evidence as to the basis of that position was unsatisfactory and did not provide a basis to conclude that an informed decision had been made.

[18] Further, the employer opposed the application because in its view the termination of the Collective Agreement would lead to considerable and unreasonable uncertainty. That is, the existing remuneration arrangements were agreed in the context of the Collective Agreement and it was not clear how they would be applied under the terms of the modern award. It was contended that these arrangements would need to be renegotiated and that in the absence of a written agreement, the commission-only basis of payment presently operating could not continue.

[19] On that basis, Pope Nitschke contended that it would not be appropriate to terminate the Collective Agreement but rather the Commission should permit the issues between the parties to be resolved through the continuing enterprise agreement negotiations.

[20] In the alternative, Pope Nitschke contended that if the collective agreement was terminated, no less than 6 months should be allowed before such takes effect.

[21] Pope Nitschke relied upon the evidence of the following:

● Mr David Nitschke - Licensed Agent and Principal of Pope Nitschke; and
● Mr Donovan Tepper - Chief Executive Officer of the Real Estate Employers Federation of SA and NT and bargaining agent for Pope Nitschke.

5. The terms of the Collective Agreement

[22] The Collective Agreement was made, and approved by the Workplace Authority, under the terms of the Workplace Relations Act 1996 (the WR Act) as it stood in early 2008.

[23] It provides various forms of remuneration arrangements including the payment of a salary (or pay scale), salary plus commissions, and commission only. In that context, the Collective Agreement refers to the Australian Fair Pay Commission’s Real Estate Agents (Commission Only) Australian Pay and Classification Scale for the basic rate of pay and to the Federal Minimum Wage where appropriate. 7 The Collective Agreement also provides a casual loading of 20 percent.

[24] Mr Smart, Ms Parsons and many of the employees engaged as Sales Agents by Pope Nitschke are remunerated on the basis of commission-only arrangements. The Collective Agreement provides that, amongst other conditions, the employee must have agreed in writing to such an arrangement. 8 The requirement for a written letter of appointment for all employees is also provided in clause 3 of the Collective Agreement. I note that some employees, including Mr Smart and Ms Parsons, have not received letters of appointment or been subject to written confirmation of their commission-only status.

[25] In relation to commission based payments, the Collective Agreement establishes the basis for the calculation of the employer’s net commission based upon the gross commission paid to the business from sales transactions, less conjunction agents fees, GST and other amounts depending upon whether the particular pay arrangement is salary plus commission or commission-only. The Collective Agreement provides as follows in Schedule 2:

“S2.2 Definition of Employer’s Net Commission

(a) For a salesperson that is guaranteed a basic periodic rate of pay for their guaranteed hours then the Employer’s Net Commission means the employer’s gross commission from the sales transaction less:

(i) Any conjunction agents fees; and

(ii) GST; and

(iii) Franchise or similar fee: and

OR

(b) For a salesperson who is guaranteed a basic piece rate of pay (commission only) for their work performed then the Employer’s Net Commission means the employer’s gross commission from the sales transaction less:

(i) Any conjunction agents fees; and

(ii) GST; and

(iii) 10% of the remaining amount after (i) and (ii) have been subtracted (or a lesser amount)

Note: For a commission only salesperson these are the only three items that may be deducted from the employer’s gross commission.” 9

[26] Item S2.4 in Schedule 2 of the Collective Agreement further provides that the employer may deduct from the “employee’s share of the commissions”, a series of payments and allowances that the employer may be obliged to provide to the employee depending upon the nature of their appointment and the circumstances of the sales activities. These items include wages/salaries (however described), allowances, any payment for protected award conditions, personal promotion expenses, certain advertising expenses, training and professional development costs, and professional indemnity excesses or negotiated third party settlements arising from the employee’s actions or omissions. 10

[27] The Collective Agreement also contemplates commission payments being made inclusive or exclusive of superannuation and provides, in effect, that the commission-only payments have incorporated a loading for annual leave and paid personal/carer’s leave payments. 11

[28] In relation to commission-only arrangements, the Collective Agreement provides for a minimum of 35% of the “employer’s net commission” to be paid to such employees. 12

[29] In relation to LSL, the Collective Agreement refers to the applicable State legislation but provides that the parties may agree to cash out LSL, including for pro rata leave after seven years. It does so in the following terms:

“17 Long service leave

17.1 You will receive the following entitlement to long service leave:

Whatever is specified in the applicable State legislation with the following modifications:

(a) We may agree in writing (sign and dated) for you to cash out long service leave including for pro rata leave once you have seven complete years of service

(b) If you take or cash out long service leave you will be paid at your basic rate of pay. Long service leave will not be payable on Commissions/incentives/bonuses. Cashing out long service leave means you lose the entitlement to take long service leave and you receive the cash in lieu. A commission only salesperson’s basic rate of pay will be calculated as the same as for annual leave.”

[30] Although I will deal with the impact of any termination of the Collective Agreement as part of my consideration of this matter, I would observe that many of its provisions are now impacted by the minimum standards of the FW Act. That is, although the Collective Agreement was preserved by the Transitional Act, it now operates subject to various minimum conditions including the base rate of the modern award, 13 and the various elements of the NES.14 This means that the provisions of the Collective Agreement dealing with minimum wages, notice and redundancy entitlements, and the payment of annual, personal and carer’s leave15 are of no effect to the extent that they are detrimental to an employee compared to the NES and other minimum standards of the FW Act. This potentially has a significant impact given that the prepayment of leave entitlements as part of a loaded rate has been found to be inconsistent with the NES provisions.16

[31] This also means that although the Collective Agreement can continue to operate, some of its important terms cannot be applied as written and must be considered subject to the over-riding minimum standards of the FW Act.

6. The terms of the modern award

[32] It is not necessary to canvas all of the provisions of the modern award, however certain features of that award are particularly relevant in the present context.

[33] The modern award establishes a series of minimum wages and conditions of employment and relies upon the NES in doing so. In common with the Collective Agreement, it also provides for remuneration arrangements that permit wage only, wage plus commission payments, and commission-only payments.

[34] The commission-only employees are treated as being pieceworkers and certain minimum requirements associated with the nature of the employee, the work performed and the basis of the engagement are established. 17 Certain provisions of the award, including minimum weekly wages, allowances and overtime do not apply to commission-only employees.18

[35] Clause 16.2 of the modern award requires as follows in relation to commission-only employees:

“(a) the employee has agreed in writing with the employer to be remunerated on a commission-only basis and has entered into a written agreement (commission-only agreement) with the employer that sets out the basis upon which the entitlement to commission will be calculated;

...”

[36] There are also further provisions associated with written commission or incentive agreements in clauses 16 and 17 of the modern award.

[37] The modern award provides for minimum commission-only rates in the following terms:

“16.5 Minimum commission-only rate

(a) The minimum commission-only rate is calculated as 35% of the employer’s net commission.

(b) Subject to clauses 16.5(c) and (d), a commission-only employee is always entitled to at least the minimum commission-only rate for each sales or commercial leasing transaction for which the employee was responsible.

(c) In the situation where:

(i) two or more employees are separately responsible for different components of a sales or commercial leasing transaction; and

(ii) the employee portion of the employer’s net commission is to be split amongst the employees according to the component(s) for which the particular employee was responsible,

any commission-only employee responsible for one or more component(s) is entitled to at least the minimum commission-only rate proportionate to the value of each component.

(d) With respect to clause 16.5(c):

(i) component(s) may include, but are not limited to:

● commercial leasing of a property;

● listing a property or business;

● managing the listing of a property or business;

● selling a property or business; and/or

● nurturing a legally-enforceable contract to completion,

(ii) the proportionate value of each component will be as agreed in writing between the employer and the employee.

16.6 Where it is agreed that an employee will also be entitled to a portion of the commission paid to the employer greater than the minimum commission-only rate prescribed in clause 16.5 then any method of calculation, or any formula for calculating what amount of commission will be payable to the employee in excess of the minimum commission-only rate, must be evidenced in a written agreement between the employer and the employee.”

[38] The terms used to calculate these entitlements are defined in clause 3.1 in the following terms:

“Employer’s gross commission for a commission-only employee means the commission received by the employer from a client for a sales or leasing transaction less GST and conjunctional agent fees;

Employer’s net commission for a commission-only employee means the employer’s gross commission (as defined) less an amount of no greater than 10%.”

[39] In general terms, these operate to provide a minimum commission-only arrangement broadly compatible with that presently operating under the Collective Agreement. However, unlike the Collective Agreement, the modern award does not seek to regulate how commission-only payments beyond the minimum are to operate and there is no reference to a system of deductions that might operate for commission-only payments above the level of 35% of the employer’s net commission. This would not appear to mean that such arrangements cannot operate as they are contemplated by clause 16.6. However, the outcome must ensure that each of the relevant minimum provisions of the modern award are always met. 19

[40] I will return to the implications of this aspect in due course.

7. The enterprise bargaining process

[41] Pope Nitschke initiated bargaining for a proposed enterprise agreement in late January 2014. Mr Tepper and another advisor were appointed as a bargaining representative for the employer and by late February 2014, two employee representatives were appointed as employee bargaining representatives. Ms Parsons was one of those representatives.

[42] A meeting of the various bargaining representatives was held on 26 February 2014 and a proposed enterprise agreement, which had been drafted by Mr Tepper, as well as the bargaining process under the Act, was discussed.

[43] On 12 March 2014, a meeting was conducted involving the bargaining representatives and 20 of the employees to be covered by the proposed agreement. A proposal, which had been circulated prior to the meeting, was discussed and employees raised a series of questions. The employer undertook to provide written responses to the questions and this was subsequently done via email on 29 April 2014.

[44] Some of the questions went to the basis of the commission-only arrangements as they impact upon various leave entitlements contained in both the Collective Agreement and the proposed new enterprise agreement. It is evident that the responses created considerable concerns amongst some of the employees and has led them to question the basis of that instrument and to seek its termination.

[45] In May 2014, 13 of the employees engaged Mr Knox to act as a bargaining agent. A letter advising of that appointment was provided to Pope Nitschke on 15 May 2014. That letter also advised that this application had been lodged with the Commission and took issue with the accuracy of some of the answers provided to the employee’s earlier questions.

[46] In light of this application, the employer did not establish further bargaining meetings and decided to await its outcome. No other bargaining representatives have sought the resumption of bargaining.

[47] The draft enterprise agreement proposed on behalf of Pope Nitschke represents an updated version of the Collective Agreement in that it now refers to the NES and the relevant provisions of the FW Act rather than the WR Act. It also maintains the basic approach to the commission-only payment arrangements contained in the present instrument. It is, of course, only a draft and represents the employer’s preferred approach rather than any proposal that has been significantly shaped by negotiations.

8. Should the Collective Agreement be terminated?

[48] I have earlier set out the relevant terms of the FW Act. A review of the provisions themselves and the approach adopted by the Commission and its predecessors reveals the following broad principles:

● Although the terms of s.226 are mandatory in that the Commission must terminate an agreement in certain circumstances, this operates subject to the two preconditions set out in s.226(a) and (b);
● The public interest involves something distinct from the interests of the parties, although they may be similarly affected; 20

The consideration in s.226(a) is whether the termination would be contrary to the public interest and the purpose of this consideration is to take account of the likely foreseeable consequences rather than speculation; 21

The legislation does not intend that agreements remain in place indefinitely but a party does not have a prima facie right to have the agreement terminated merely because the agreement has passed its nominal expiry date; 22

The consideration of whether the termination is appropriate is a matter of broad discretion taking into account all of the circumstances of the matter including those matters cited in s.226(b)(i) and (ii);

Consideration of the views of the employees does not require that a majority of the employees support any particular view and all interests and positions are to be taken into account; 23 and

● The legislative scheme and objects of the Act are clearly relevant to the exercise of the Commission’s judgement. 24

[49] All of the elements of the object provision 25 of the FW Act are important, and these include the notions of fairness, flexibility for business and the promotion of productivity and economic growth;26 ensuring a guaranteed safety net through the NES and modern awards;27 achieving productivity and fairness through enterprise-level bargaining;28 and acknowledging the special interests of small and medium businesses.29

[50] These considerations have informed many of the decisions referred to above and I have taken them into account in this matter.

[51] In relation to the interaction with bargaining, Lawler VP in Tahmoor Coal Pty Ltd 30 observed as follows:

“[55] It seems to me that under the scheme of the FW Act, generally speaking, it will not be appropriate to terminate an agreement that has passed its nominal expiry date if bargaining for a replacement agreement is ongoing such that there remains a reasonable prospect that bargaining (in conjunction with protected industrial action and or employer response action) will result in a new agreement. This will be so even where the bargaining has become protracted because a party is advancing claims for changes that are particularly unpalatable to the other party. While every case will turn on its own circumstances, the precedence assigned to achieving productivity benefits through bargaining, evident in the objects of the FW Act, suggests that it will generally be inappropriate for FWA to interfere in the bargaining process so as to substantially alter the status quo in relation to the balance of bargaining between the parties so as to deliver to one of the bargaining parties effectively all that it seeks from the bargaining.”

[52] I would respectfully agree and note that this consideration involves an assessment of the degree to which the termination of the agreement would impact upon the status quo and the bargaining positions of the parties. Further, the approach outlined is a general statement and each circumstance must be considered on its merits.

[53] Central to many of the considerations touching upon this matter are the likely foreseeable consequences of the termination. This in turn requires an assessment of the nature and terms of the Collective Agreement and the modern award, which would apply in that event.

[54] On many elements, the continued operation of the Collective Agreement is problematic given that it now operates in a very different legislative context. This means that many of the key elements cannot be applied according to its terms and must be read subject to the minimum standards of the FW Act. This has the potential to, and has, created confusion, potential non-compliance and a difference of view as to how it is to be applied.

[55] It is also apparent that the approach within the Collective Agreement to those leave entitlements now covered by the NES is problematic given that it involves, at least conceptually, the pre-payment of these entitlements through a loaded rate. Further, there is no guarantee that the leave will actually be provided and paid at the employee’s base rate of pay for their ordinary hours of work in the period covered by the leave, as is required by the NES. 31

[56] The meaning of the term “base rate of pay” as it might apply to annual and personal leave is not immediately clear given the provisions of the FW Act and the circumstances created by the Collective Agreement. The meaning of the term is established in s.16 of the FW Act. In general terms, unless an employee is a pieceworker, incentive-based payments and bonuses are not included. “Pieceworker” is defined in s.21 of the FW Act and this in turn relies upon the terms of a modern award that applies (which is not presently the case), the terms of a relevant enterprise agreement that defines or describes the employee as a pieceworker, or the regulations which provide for the employee to be a pieceworker where they are award and agreement free.

[57] The employees in this case are not award/agreement free for present purposes 32 and the regulations33 made under the Transitional Act provide a formula for calculating a base rate of pay where pieceworkers are subject to a transitional instrument such as the Collective Agreement. This is, in effect, the same formula that applies to award/agreement free pieceworkers under the FW Act more generally, albeit that it is based upon the rates in the transitional instrument (the Collective Agreement).

[58] This means that incentive payments (commissions) may form part of the base rate of pay for the purposes of the NES under the Collective Agreement, and more evidently, the modern award. However, the level of complexity to ascertain the actual entitlements under the Collective Agreement is significant.

[59] What is clear is the modern award defines the commission-only employees as pieceworkers and this aspect of the application of the NES to those employees at Pope Nitschke would be much clearer with the termination of the Certified Agreement.

[60] Concerns have been raised by the employees in this matter about the import of the LSL provisions of the Collective Agreement. These provisions have been set out earlier in the decision. Fundamentally, the concerns relate to an earlier indication from the employer that the commission-only employees were not entitled to LSL, and a more recent position, that they are entitled to leave but any payments would simply be deducted from the net employer commissions if and when LSL is taken or paid out.

[61] The relevant State LSL scheme referred to in the Collective Agreement is the Long Service Leave Act 1987 (SA). The State LSL Act potentially continues to apply to these parties by virtue of s.27 of the FW Act. That is, the State LSL Act is not excluded by the FW Act and there is no direct NES entitlement given that the employees are not entitled to long service leave under Division 9 of Part 2-2. 34

[62] Section 16 of the State LSL Act provides as follows:

“16—Act not to apply to certain workers

This Act does not apply in relation to workers who have a long service leave

entitlement—

(a) under some other Act; or

(b) under a fair work instrument under the Fair Work Act 2009 of the Commonwealth; or

(c) under an instrument given continuing effect under the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 of the Commonwealth.”

[63] It is likely that the employees subject to this application presently have an entitlement to LSL 35 under the Collective Agreement and that as a result, the State LSL Act does not directly apply. In any event, it is tolerably clear that the provisions of the State LSL are in effect drawn into and apply as part of the Collective Agreement, subject to any inconsistent provisions of the agreement.

[64] In that regard I note that it was contended on behalf of Mr Smart that the State LSL Act was part of the NES itself. 36 However, the actual provision of the FW Act in s.113 does not contain an entitlement to LSL in the case of the employees subject to this application. On that basis, it is unlikely that the no detriment interaction rule applicable to the NES provisions37 has any work to do here.

[65] Section 8 of the State LSL Act provides that workers are to be paid at their ordinary weekly rate of pay, which is defined in s.3(2)(a) of that FW Act. Where the worker is employed on commission or on any other system of payment by result, the worker's ordinary weekly rate of pay will be ascertained by averaging the worker's weekly earnings over the 12 months immediately preceding the relevant date. Clause 17 of the Collective Agreement, to the extent that it purports to modify the calculation of commissions/incentives payments for present purposes, must be taken into account.

[66] I note that Clause 17 of the Collective Agreement states that LSL is not payable on Commissions/incentives/bonuses. It is apparent that at least at some earlier stage, Pope Nitschke understood that this meant that commission-only salespersons were not entitled to LSL. However, the better view, and the one now apparently being adopted by the employer, 38 is that such salespersons are entitled to LSL based upon their “basic rate of pay”. On that view, clause 17 in relation to commission-only salespersons refers to the same basis of calculating payments as adopted for annual leave.

[67] This basis for annual leave payments is provided by Schedule 2.8(b) of the Collective Agreement and this in turn refers to the “formula in the regulations for piece workers”. That formula, in effect, is provided by the Workplace Relations Act Regulations 2006 39 and this also apparently requires the consideration of the average earnings over the preceding 12 months.40 In that regard, the definitions within the former regulations are very complex and require consideration of the various partially circular definitions of the terms applicable to piece workers within the WR Act itself.41 I note that the clearer provisions under the Fair Work Regulations 2009,42 that would apply in relation to annual leave and other direct NES entitlements for pieceworkers, would not appear to apply to the LSL calculation given the preserved terms of the Collective Agreement.

[68] The application of the Collective Agreement in the context of the State LSL Act provisions for employees partially rewarded by commission payments has not been the subject of much debate by the parties. This form of employment is permitted under the Collective Agreement and the modern award; albeit it is not the popular form of engagement used by Pope Nitschke. It is sufficient to note that this form of engagement raises further issues of complexity in terms of LSL payments under the Collective Agreement given its interaction with the WR Act and regulations.

[69] For present purposes, I proceed on the basis that both the Collective Agreement and the State LSL Act, without the impact of that agreement, would require LSL to be paid taking into account average commissions, at least for commission-only salespersons.

[70] Section 8(3a) of the State LSL Act provides that workers may be paid in lieu of taking LSL by “agreement with a worker”. Any such agreement must be in writing. 43 This is conceptually consistent with clause 17 of the Collective Agreement.

[71] The relevant question for the Commission is whether the termination of the Collective Agreement would have an impact upon the parties and if so, whether that supports the termination application.

[72] In the circumstances of the parties here, the State LSL Act will apply in full if the Collective Agreement is terminated. That is, the modern award does not provide award-based LSL provisions and the State law will continue to be preserved by virtue of s.27 of the FW Act. The requirement that LSL payments include commissions and incentive payments for commission-only salespersons will also continue; albeit that the basis for the calculation of such payments would be much clearer and there would be less room for dispute about those elements.

[73] The capacity to pay out LSL in lieu of taking leave in certain circumstances will also continue if the Collective Agreement is terminated.

[74] The major issue in dispute about the consequences of terminating the Collective Agreement in relation to LSL arise from the employer’s view that the agreement permits LSL entitlements to be deducted from net employer commissions.

[75] Item S2.4 of Schedule 2 in the Collective Agreement does not make specific reference to the deduction for LSL payments from commissions and these payments do not fall under the scope of protected award conditions. 44 Pope Nitschke contends that LSL payments should be considered to be “wages/salaries (however described)” and fall within the scope of item S2.4(a) That approach would require a very generous application of the concept of wages or salaries so as to include leave entitlements (which are calculated on a different basis and operate as an entitlement in their own right). However, whether the employer’s position is correct is ultimately a matter for a Court of competent jurisdiction. The potential for the Collective Agreement to operate in that manner and the lack of clarity about the issue are factors to be weighed into the decision in this matter more generally.

[76] I note that a form of credit and debit system could potentially operate in that manner under the modern award subject to certain important limitations that I will return to shortly.

[77] On the LSL matter, and more generally, the impact of the potential termination and the need for the parties to be able to deal with the consequences are considerations to be taken into account in this matter.

[78] At a conceptual level, when considered in the context of the legal import of the NES and the other minimum standards, the framework of the Collective Agreement is not significantly different to the modern award. That is, it permits the same various forms of remuneration arrangements and each operates subject to a minimum commission-only provision of 35% of the employer’s net commission. That net commission is differently defined, but not significantly so.

[79] From an overall perspective, the major difference is that the Collective Agreement prescribes the detail of a credit and debit system that purports to permit the deduction of expenses and employee entitlements from the net commission received from sales by the employer. The modern award does not directly contemplate these arrangements. However, given that the commission-only minimum is broadly similar, and the award operates as a minimum, there would not appear to be a reason in principle why such a system could not operate. This would, of course, be subject at all times to the minimum requirements of each element of the modern award (including the minimum commission-only payments), the NES and the Act. As stated earlier, any such arrangements would also require a written commission-only agreement for each employee. Subject to these conditions, a system of credit and debit above the minimum commission-only level would appear to be consistent with the provisions of clause 16.6 of the modern award as set out earlier in this decision.

[80] This means that the parties could transition to the more robust and clearer modern award without significant disruption to the existing arrangements. This would however require a review of the existing commission-only agreements, or the making of written commission-only agreements in relation to some employees. I will return to the implications of this shortly.

[81] In terms of the impact of the potential termination upon the bargaining arrangements, this consideration militates against the application, at least at this point in time. The bargaining process is at its early stages and a change in the status quo is a significant consideration for reasons outlined earlier. The need for caution when a party seeks to terminate an agreement during the course of the bargaining process to tactically alter the process is self evident. I add that the application in this case is based upon broader concerns. In addition, although the employees supporting this application are opposed to the underpinning concepts of the proposed new enterprise agreement, at least conceptually, some of the issues being pursued by them would be capable of being considered as part of a bargaining process and that process had not run its course when this application was made.

[82] Similarly, the timing of this application is a factor to be weighed against the termination given the public interest considerations and the obligations upon bargaining parties. 45

[83] However, in this case, there are some unique circumstances. The proper operation of the status quo is not clear and is very much in dispute. This applies to such an extent that the basis for the negotiations is problematic. Further, with one significant exception, the terms of the modern award that would apply in the event of a termination are generally capable of supporting the arrangements already in place, albeit on a clearer basis. The bargaining process to be undertaken will also require that any agreement that is intended to be approved by the Commission will need to meet the various statutory requirements including meeting the Better Off Overall Test of s.193 of the FW Act and not undermine the NES. In that regard, I note that the Collective Agreement was made and approved in a very different context.

[84] The exception referred to above is the express operation of the “credit and debit” system operating for commission purposes and discussed earlier in this decision. I will also return to this aspect shortly.

[85] In terms of the views of the employees, I accept that some of the views of Mr Smart and his colleagues have been formed without a full understanding of the operation of the FW Act and the fact the Collective Agreement is buttressed and modified to a significant extent. This is certainly understandable in the circumstances and the desire for greater clarity and certainty about the minimum conditions of their employment is a legitimate objective.

[86] There are some 11 employees out of a total of approximately 24 46 employees supporting the application. There are two employees who have withdrawn their support and indicated47 to the Commission, and the employer, that they now support the retention of the Collective Agreement. The fact that a significant group of employees support the application but others, whose interests are also directly impacted by the potential termination, are either against or “agnostic” on the issue, is an important consideration.

[87] The employer opposes the application. This is based upon a desire to maintain the current arrangements whilst a new agreement is negotiated. Further, Pope Nitschke has organised its business and employment circumstances in the context of the existing Collective Agreement. This is also an important consideration and I have taken that position, and the other concerns of the employer, into account.

[88] There is no Organisation (registered union) that is covered by the Collective Agreement.

[89] I have dealt with most of the likely consequences of the termination above, however one aspect requires further discussion. The potential move from the Collective Agreement to the modern award would involve the transition to an environment where written commission-only agreements are required. There are, for some employees, existing written agreements however these were negotiated in the context of the Collective Agreement and its particular very broad approach to the credit and debit system. There are also some commission-only employees without a written agreement.

[90] As set out earlier, the evidence reveals that many of the salespersons are engaged on a commission-only basis. The commission rates are significantly higher than the minimum commission-only rates payable under the Collective Agreement, or the modern award. However, these rates are based on a very broad approach to the debiting of employment costs being applied by Pope Nitschke under the current instrument.

[91] The need for Pope Nitschke and the employees to consider their circumstances, potentially take advice and renegotiate their arrangements in a somewhat different context with clearer parameters, is a significant matter to be taken into account in relation to whether the application should be granted and if so, with what lead time.

9. Conclusions and orders

[92] On balance, I am satisfied that the termination of the Collective Agreement in the particular circumstances evident here would not be contrary to the public interest. I am also satisfied that the termination is appropriate having regard to the likely effect of that action and the circumstances of the employees and the employer.

[93] There are however factors arising from the circumstances of the parties that impact upon the discretion as to when the termination will take effect. That is, whilst not leading to a view that the termination would be contrary to the public interest or inappropriate, the need for the parties to deal with the consequences of the termination is such that a reasonably lengthy lead time for the termination would be appropriate. These considerations include most importantly, the requirement to renegotiate and/or confirm written commission-only remuneration arrangements that would operate under the terms of the modern award. This is not necessarily a straight forward exercise given the strongly held and divergent views about the operation of commission arrangements beyond the minimum commission-only payments required by the modern award. Further, some delay would permit the opportunity to negotiate a new enterprise agreement should that course of action ultimately be supported by the majority of employees.

[94] I accept the continuation of the Collective Agreement for a period extends the uncertainty. In terms of the impact of the delay upon the LSL arrangements, there is a dispute about the capacity to debit such payments from commissions. Whatever the Collective Agreement means on that count, and it is not clear, that matter can be determined and it is not unreasonable per se to permit the approved and preserved Collective Agreement terms to operate for a period given the consequences for all parties arising from its termination. Importantly, any continuing uncertainty needs to be balanced against the requirements for appropriate transitional arrangements for all parties subject to the Collective Agreement.

[95] In all of the circumstances, I have determined that the Pope Nitschke First National Employee Collective Agreement is to be terminated and the termination will take effect on and from 7 December 2014.

Appearances:

A Knox, Registered Agent for Mr Smart and 11 named employees.

T Kidman, of Crawford Legal, with permission for Pope Nitschke Pty Ltd.

Hearing details:

2014

Adelaide:

July 21, 22, 31

September 3.

Written submissions:

2014

August 26 and 29.

 1   The agreement was originally approved pursuant to the Workplace Relations Act 1996 in February 2008.

 2 Item 2(5)(c)(i) of Schedule 3.

 3   Clause 3 of the Agreement states the nominal expiry date will be the fifth anniversary of the date on which the agreement was lodged. This date is taken from the Form F24B Application Form.

 4 S.47 and s.48 of the FW Act.

 5   This is also subject to a separate dispute notification (DR2014/162).

 6 S.228 of the Act.

 7   Schedule 1.

 8   S1.1.

 9   Schedule 2.

 10   S2.4.

 11   S2.8.

 12   S2.3 and S2.7.

 13 Item 13 of Schedule 9 of the Transitional Act.

 14 Item 23 of Schedule 3 of the Transitional Act.

 15   Under the NES these entitlements must be paid at the “at the employee’s base rate of pay for the employee’s ordinary hours of work in the period” - Divisions 6 and 7 of Part 2-2 of the Act.

 16   See Canavan Building Pty Ltd [2014] FWCFB 3202.

 17   Clause 16.2 of the modern award.

 18   Clause 16.4 of the modern award.

 19   See Clarke v Playford Real Estate Pty Ltd [2012] SAIRC 49 for a discussion as to how “deductions” from the employer’s commission may be made under the modern award, provided the minimum entitlements are met.

 20   Tahmoor Coal Pty Ltd [2010] FWA 6468 at [30].

 21   Ibid at [29] including the discussion of earlier authority.

 22   Energy Resources Australia Ltd v Liquor, Hospitality and Miscellaneous Union[2010] FWA 2434.

 23   AWX Pty Ltd trading as AWX [2013] FWCFB 8726.

 24   Ibid at [46] and Energy Resources Australia Ltd v Liquor, Hospitality and Miscellaneous Union[2010] FWA 2434.

 25 S.3 of the FW Act.

 26 S.3(a) of the FW Act.

 27 S.3(b) of the FW Act.

 28 S.3(f) of the FW Act.

 29 S.3(g) of the FW Act.

 30   Tahmoor Coal Pty Ltd [2010] FWA 6468.

 31   See Canavan Building Pty Ltd [2014] FWCFB 3202.

 32 Item 32 of Schedule 3 of the Transitional Act.

 33   Fair Work (TPCA) Regulations 2009 at reg 3.01.

 34 There are no relevant award-derived LSL entitlements as contemplated by s.113 of the FW Act.

 35   See Maughan Thiem Auto Sales Pty Ltd v Cooper [2014] FCAFB 94 at par 43 and 44 in relation to the related concept of when a LSL entitlement arises under an instrument.

 36   See the Explanatory Memorandum to the Fair Work Bill 2008.

 37 Item 23 of Schedule 3 of the Transitional Act.

 38   The evidence of Mr Nitschke during proceedings.

 39   As a result of the definition set out in clause 2 of the Collective Agreement.

 40 Part 7 of the regulations to the WR Act.

 41 See the definitions touching upon the calculation of the employee’s basic periodic rate of pay in s.178 of the WR Act.

 42   Regulation 1.09.

 43   S.5(1a) definitions of the State LSL Act.

 44 S.354 of the WR Act.

 45 S.228 of the FW Act.

 46   Transcript PN1477.

 47   Via emails during the later stages of the hearing.

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