Essential Energy; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia; Australian Municipal, Administrative, Clerical and Services Union; Association...

[2014] FWC 3065

[2014] FWC 3065

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.240—Bargaining dispute

Essential Energy; Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia; Australian Municipal, Administrative, Clerical and Services Union; Association of Professional Engineers, Scientists and Managers, Australia.
(B2013/1562)

Electrical power industry

SENIOR DEPUTY PRESIDENT HAMBERGER SYDNEY, 9 MAY 2014

Scope of proposed enterprise agreement

[1] Essential Energy, the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia (CEPU), the Australian Municipal, Administrative, Clerical and Services Union (ASU), and the Association of Professional, Engineers, Scientists and Managers, Australia (APESMA) applied on 11 December 2013 for the Fair Work Commission to deal with a bargaining dispute concerning the scope of a new enterprise agreement to replace the Essential Energy Enterprise Agreement 2011 (the 2011 agreement). Other than the issue of scope all the other clauses for a new enterprise agreement (the proposed agreement) have been agreed by the applicants. The applicants agreed that the application be made pursuant to section 240(1) of the Fair Work Act 2009 (the Act). The application was made under the terms of an agreement between the parties. That agreement, in summary, included the following:

● The Commission is to arbitrate by consent the dispute between the applicants as to the scope of the proposed agreement. The Commission shall decide whether the scope should be in the terms proposed by Essential Energy, the same as the 2011 agreement, or some other scope the Commission considers appropriate.

● For the purposes of arbitrating the dispute the parties acknowledge that the Commission will, by reference to relevant jurisprudence, have regard to whether each group of employees to be covered by the proposed agreement are fairly chosen and whether such proposed scope is reasonable in all the circumstances.

● The arbitration shall be determined on its merits, without recourse to jurisdictional, technical or representational rights arguments.

● For the purposes of the arbitration, the CEPU, ASU and APESMA (the unions) will not argue that Essential Energy has not met, or is not meeting, the good faith bargaining requirements.

● The decision of the Commission will be binding on the applicants and will not be the subject of any rights of appeal or review.

[2] Hearings were conducted in Sydney on 16, 17 December 2013, 13, 26 February, 20, 21 March, and 14 April 2014. Extensive written submissions were also provided by both parties, with the final submissions received on 7 May 2014. Essential Energy was represented by Mr J Phillips, SC and Mr Y Shariff. The unions were represented by Mr I Taylor, SC and Ms L Doust. The following gave evidence on behalf of Essential Energy:

● Mr Ross Berry (Area Manager);

● Mr Brendon Neyland (Regional Manager, North Coast);

● Ms Linda Southern (Manager, Internal Audit);

● Mr Peter Bereicua (General Manager, Network Operations);

● Mr Andrew Thrower (Network Operations Coordinator); and

● Mr Peter Smith (Manager, Employee Relations).

[3] The following gave evidence on behalf of the unions:

● Mr Gordon Brock (Director, NSW Branch of APESMA);

● Mr John Morassutti (Senior Industrial Relations Manager);

● Mr Geoffrey Prime (Organiser, CEPU);

● Mr Keven Semple (former Executive General Manager, Workplace Relations);

● Mr Scott McNamara (Manager, Utilities and Private Sector Branch, ASU);

● Mr Bradley Trethewey (Principal Engineer, Network Standards); and

● Mr Peter Tree (Senior Protection Engineer).

[4] The classifications covered by the 2011 agreement that would be outside the scope proposed by Essential Energy are:

● Administration Officers at levels AO24-27 (pay points 41-44);

● Area Managers levels 1-4 (pay points 37-40)

● Technical Officers at levels TO17-20 (pay points 41-44);

● Network Operators at level 8 (pay point 44);

● Workplace Trainer & Assessors at level 8 (pay point 41);

● Managers & Specialists (Band 2) at levels 5-8 (pay points 41-44);

● Professional Engineers at levels 13-14 (pay points 41-43); and

● Engineering Managers at levels 15-17 (pay points 42-44).

[5] The 2011 agreement covers approximately 4,272 employees. 1 117 employees are not covered by the 2011 agreement.2 These employees occupy the top four levels of the organisation (the CEO Networks NSW - Mr V Graham, the Chief Operating Officer - Mr G Humphries, the eight members of the executive and those employees who report directly to executive members and their evaluated equivalents.3 If Essential Energy’s proposed scope were to be adopted, an additional approximately 242 employees covered by the 2011 agreement would not be covered by the proposed agreement.4 These employees are mainly at the fifth and sixth levels of the organisation5. If Essential Energy’s proposed scope were accepted, around 8% of employees would not be covered by the proposed agreement.6

[6] Essential Energy’s proposal is that the cut-off for coverage by the proposed agreement be at pay point 41 -- with two exceptions: Area Managers (who would be excluded but are below that level) and Senior Network Operators (who would be included but are at pay point 42). 7

[7] According to Mr Bereicua:

‘Essential Energy considers that by having the managerial and senior employees (including those with specialist skills) outside the proposed scope of the Proposed Enterprise Agreement this will:

a) assist in aligning these employees to Essential Energy’s organisational objectives to be delivered to achieve productivity benefits so as to assist in the NSW Government reform of the electricity distribution sector;

b) assist these employees to make decisions, implement policies and take responsibility over matters for which they are accountable, without any actual or potential conflict of interest or loyalties. Essential Energy considers that there is a conflict in these employees being covered under the same enterprise agreement as other employees for which these employees are responsible;

c) otherwise assist to recognise that employees in operationally or organisationally distinct technical or specialist roles also have specific responsibilities to achieve organisational objectives in a manner that places them in a different position to the rest of the workforce; and

d) provide better recognition and reward for individual performance.’ 8

[8] At the commencement of proceedings, on 16 December 2013, I outlined certain factors that I considered would be relevant to my decision. These were:

● The history of industrial regulation;

● Potential conflicts of interest;

● The views of the affected employees;

● The arrangements that would exist for employees not covered by the proposed enterprise agreement;

● The arrangements at comparable organisations; and

● award coverage. 9

[9] Other relevant factors identified by the parties were:

● The nature of the duties of the affected employees; 10

● Whether each group of employees has been fairly chosen; 11

● The scope of the 2011 agreement; 12

● Any changes in circumstances since the 2011 agreement. 13

[10] Each of these matters is referred to below. There was a very large quantity of evidence tendered during the hearings, and some witnesses were extensively cross-examined. I have not sought to provide a complete summary of that evidence; however it has all been taken into account in reaching this decision.

What would happen to employees excluded from the scope of the proposed agreement?

[11] Essential Energy proposes to offer employees excluded by the enterprise agreement a written contract of employment. Essential Energy, according to Mr Bereicua, proposes to align the employment terms and conditions of managerial and senior employees with other senior leaders in Essential Energy, including through the following:

a) a written contract of employment with a total remuneration package equal to, or better than, the total remuneration package offered under the proposed agreement;

b) participation in the ‘At Risk’ Reward Plan (bonus plan) which provides an additional incentive payment for employees who fulfil their individual KPIs;

c) policies and procedures regarding performance management; and

d) policies and procedures regarding succession and promotion. 14

[12] The contracts would not be for a fixed term. 15 It is agreed by the parties that the employees that would be excluded from the enterprise agreement if Essential Energy’s preferred scope were to be adopted would be covered by the Electrical Power Industry Award 2010.16

[13] A copy of the standard ‘Networks NSW’ contract of employment that would be offered to employees excluded from the enterprise agreement was tendered as evidence. 17 The contract states that the employee may be eligible to receive an ‘At Risk Performance Payment’ in accordance with Essential Energy’s policy as varied from time to time. The agreed maximum payment, as a percentage of the employee’s TRP is set out in a Schedule. (In the example given of Mr Trethewey’s proposed contract the percentage was 20%.18) The contract states that the making of any such payment is at the absolute discretion of the employer. The contract also provides that Essential will review the employee’s total remuneration not less than once each year; however it states that this will not necessarily lead to an increase.

[14] Certain post termination restraints are included in the contract. The contract also provides that the employer may terminate the employee’s employment at any time by providing four weeks’ notice, plus a payment equivalent to six months total remuneration. In the case of redundancy there is to be 10 weeks’ notice, plus six months pay. This potentially contrasts with a provision in the proposed enterprise agreement that binds Essential Energy in relation to employees covered by that agreement to the employer’s existing policies relating to redeployment 19 and salary maintenance20. Those policies, amongst other things, require in practice that any redundancies are voluntary in nature. There is no equivalent provision in the Networks NSW contract. The level of redundancy pay is also higher under the policies than under the contract for some employees with long service.

[15] While Essential Energy emphasised that employees who would be excluded by the proposed enterprise agreement would still be covered by the 2011 agreement, it is clearly the intention that such employees would be employed under the terms of the Networks NSW contract of employment. One could anticipate that the 2001 agreement may be rescinded at some point in the future. Even if this were not to occur, with the passage of time its provisions are likely to become decreasingly relevant - from both the perspective of employees and the employer. In practice therefore employees excluded from the enterprise agreement are unlikely to have a realistic alternative to signing up to the Networks NSW contract. Some provisions of that contract are potentially advantageous to employees (such as access to performance based pay), while others are potentially disadvantageous (such as the provisions on termination of employment).

Views of the affected employees

[16] In United Firefighters’ a Full Bench of Fair Work Australia said that ‘weight should be granted to the views of the employees potentially affected’ in dealing with scope applications. 21

[17] A number of employees covered by the 2011 agreement but who would be excluded from the enterprise agreement under Essential Energy’s proposed scope gave evidence.

[18] Mr Berry’s evidence (Mr Berry is an Area Manager) was that he was very interested in entering into a contractual arrangement, rather than being covered by the proposed agreement, for a number of reasons. These included the opportunity to have his total remuneration package (TRP) annually reviewed and adjusted, and to the ability to participate in Essential Energy’s performance bonus scheme. He considered this would provide him with an incentive to fulfil his duties and responsibilities to the highest standard, and would assist in differentiating him and rewarding him for the greater geographical area and greater number of employees that he was responsible for. 22

[19] Mr Thrower (a Network Operations Coordinator) gave evidence that he was interested in entering a contractual arrangement rather than being covered by the proposed agreement, provided that the TRP closely aligned with his current remuneration. He saw benefits to contractual arrangements which included the bonus scheme, and the annual review of his remuneration. He saw these as incentives to fulfilling his duties and responsibilities to the highest standard. Not being part of the proposed enterprise agreement would also differentiate him from the employees he supervised. 23

[20] By contrast, Mr Trethewey (Principal Engineer Network Standards) indicated that he would prefer to remain under the enterprise agreement. He said that he found the concept of bonus payments for engineers and technical employees such as himself offensive to his professional standing. He was also concerned that having some members of his technical team covered by contracts and not others could lead to disharmony. He said:

‘Essential Energy’s intent to place people on contract in my team will impact myself and my 3 direct reports such that 4 out of the 16 in the team will be on contract. The problem is that this immediately changes the dynamic of the team. Firstly any initiative we instigate will be viewed as an attempt to ensure a bonus is achieved. The team will not operate as a team of peers but will eventually deteriorate into a managerial versus worker relationship. The implications are clear. Instead of technical collaboration the work force will be siloed by an artificial class system being those on contract and those not on contract, which will have a negative impacts on the performance of the team and Essential Energy generally.’ 24

[21] Mr Brock’s evidence was that the issue of scope was one discussed at length with his members. ‘The members expressed in the meetings that I addressed unanimous support for remaining under coverage of the agreement. The strong view was that they believe that their conditions of employment now and in the future would be more secure whilst employed under the enterprise agreement.’ 25 Mr Brock said that there would be 31 engineers affected by Essential’s proposal. He was confident of having at least 80% density amongst those engineers potentially excluded.26

[22] No detailed evidence was provided of any survey or petition results from affected union members (though Mr Brock did refer to a survey of members conducted by APESMA as part of its ‘normal process of engagement with members prior to making claims for agreements. And in that survey we ask questions, including questions about their views with respect to retaining coverage under the agreement.’ 27) Nor did the employer conduct a survey of those employees who would be potentially affected. I do not infer from the failure of the unions to tender any survey evidence that such evidence would be unhelpful to their position.

[23] Overall there is a paucity of evidence about the views of the potentially affected employees. It is clear that there are some employees who would like the opportunity to enter into contractual arrangements with their employer. Equally it is clear that there are others who would prefer to remain under the enterprise agreement.

Duties of the affected employees

[24] As noted previously, Mr Bereicua described the employees whom Essential Energy wishes to exclude from the proposed agreement as ‘Managerial and Senior Employees’. He said that the aim was to align the employment terms and conditions of these employees with other senior leaders in Essential Energy. He described these employees as ‘the managerial link between Essential Energy’s executive and the employees covered under the Enterprise Agreement. They provide strategic and operational input to the executive, and are responsible for ensuring the implementation of Essential Energy’s policies and procedures at the relevant level.’ 28

[25] Mr Bereicua gave evidence about the duties and responsibilities of the positions that would be excluded from the proposed agreement if Essential Energy’s approach was adopted.

[26] Mr Bereicua described three categories of employees whom Essential Energy did not consider should be within the scope of the proposed agreement. The first category included those employees who:

‘are responsible for ensuring that work in their area is carried out in an efficient and productive manner which ensures overall regional targets are met. Such employees are members of Leadership Teams which are comprised only of managerial or very senior

employees. Members of the Leadership Team are responsible for reporting to Essential Energy on the progress and efficiency of their particular area and their direct reports.’ 29

[27] Mr Bereicua gave Area Managers as an example of this first category of employees. They are at pay points 37-40 and receive a TRP of approximately $153,659 to $159,581. Between approximately 32 to 97 employees report to each Area Manager. They have a role in approving requests from employees in relation to entitlements such as overtime, travel allowance and leave. They have a level of responsibility for budgets in the order of $15M to $22M. According to their position descriptions they are required to ‘provide strong management leadership, direction and support to all employees to ensure they have the opportunity to gain the skills and motivation required to achieve business indicators and targets to meet business objectives.’ 30

[28] Mr Berry gave evidence that as an Area Manager he had a range of managerial duties, including supervising and managing 84 employees (including conducting their performance reviews and taking disciplinary action if needed) and managing a budget of between $9.4m and $24.1m. He participated in the regional senior management team, which involved providing high level strategic and operational advice and support to the Regional General Manager. 31 During his cross examination, Mr Berry agreed that the Regional General Manager actually approved planned overtime, albeit on his recommendation. Moreover, unplanned overtime was recorded on timesheets which were approved by Resource Supervisors (who reported to the Area Manager).32

[29] Mr Bereicua described the second category of employees to be excluded from the proposed agreement as employees who are ‘allied to and closely interwoven with work performed by Type I employees [the first category of employees proposed to be excluded] and they are required to implement Essential Energy’s decisions.’ 33

[30] Corporate and Regional HR Managers have a TRP of approximately $132,000 to $157,000. They are responsible for interpreting the terms of applicable industrial instruments and approve requests from employees in relation to entitlements such as overtime, travel allowances and leave. They correspond with unions in relation to a number of issues and are required to resolve disputes concerning matters pertaining to the employment relationship pursuant to the applicable dispute and grievance resolution procedures under the relevant industrial instrument. According to their position descriptions Corporate and Regional HR Managers are required to ‘undertake a strategic position in the research, design, development and implementation of a modern day HR workforce solutions assisting senior managers of identified business units or regions to meet organisational and commercial goals.” 34

[31] An example of the second category of employees to be excluded from the proposed agreement is the Manager, Community Relations. This position is at pay point 42 and receives a TRP of $148,185. It has one employee reporting to it. The position is ‘responsible for the management of the region’s customer and stakeholder relationships and to establish, develop and enhance Essential Energy’s corporate image by promoting a positive profile of the organisation to the community, customers, stakeholders, and employees.’ 35 An analysis of the evidence tendered by Mr Bereicua indicates that most positions in this category have no employees reporting to them.

[32] The third category of employees proposed to be excluded by Essential Energy is, according to Mr Bereicua, operationally distinct by way of specialist skills, as well as organisationally distinct on the basis that they also have senior or managerial roles with significant responsibilities within the organisation. 36

[33] An example of this third category of employees is the position of Manager Design. It is at pay point 43-44 and has a TRP of approximately $164,485 to $170,813. There are three such positions, with between 9 and 15 direct reports. The Manager Design has strategic and operational responsibility for $2.5M of Essential Energy’s engineering services budget. According to the position description the Manager Design take responsibility for managing and leading a team of Design Project Managers and support staff in developing and implementing a prioritised program of works, ensuring all design projects and interdependencies meet customer satisfaction and the strategic commercial goals of the business. 37 An analysis of the evidence tendered by Mr Bereicua indicates that most positions in this third category either have no employees reporting to them, or have between one and three reports.

[34] Mr Thrower is employed as the Network Operations Coordinator. His evidence was that he is responsible for almost 100 employees and manages a budget of approximately $18 million. 38 He is currently covered by the agreement (as an Administrative Officer) but would be excluded if Essential Energy’s proposed scope applied. During cross-examination he agreed that there were five levels of management above him. Despite these he said he considered himself part of the senior management team.39 He did not normally approve leave.40 Decisions not to appoint or to dismiss network operations officers were made at a more senior level.41 He was involved with another manager in providing feedback to staff.42

[35] The unions prepared an analysis of all the positions that Essential Energy is seeking to exclude from the enterprise agreement. They found that of these positions most are not responsible for a budget. 43 Around half of all the employees that Essential Energy is proposing to exclude have no direct or indirect reports. Many of the others have between one and five employees that report to them.44 Most of those who have a significant number of people who report to them are Area Managers.45 The largest group of employees Essential wishes to exclude are at ‘level 6’ within the organisation..46 There are other employees, at levels 5, 6 and 7 who have employees who report to them who would still be included in the enterprise agreement under Essential’s proposal.47

[36] The positions that Essential Energy wishes to exclude from the enterprise agreement are no doubt important, and many of them require a high level of technical or professional expertise. Few if any can however be described as constituting ‘senior management’. ‘Senior managers’, in my view, would normally:

● Have responsibility for making policy and strategic decisions for the organisation as a whole (or at least an important part of it); and
● Have responsibility for managing a significant number of staff, including making decisions about discipline and hiring and firing of those staff.

[37] Most of the employees that Essential Energy wishes to ‘scope out’ have either no or few staff reporting to them. Those that do - primarily Area Managers - are best described as ‘line’ or ‘operational’ managers. Moreover, while some of the relevant staff may be involved in providing advice about policy or strategic matters, and may have responsibility for implementing those matters, there is no evidence that they possess substantial decision making authority about such matters.

Potential for conflicts of interest

[38] Essential Energy submitted that the employees they wish to exclude from coverage of the proposed agreement are responsible for ensuring the implementation of policies and procedures on behalf of Essential Energy’s executive. In circumstances where such policies and procedures affect employees covered by the enterprise agreement, Essential Energy submitted there is a strong potential for a conflict of interest to arise. Mr Bereicua stated that this was not to suggest that employees act unethically. 48 He noted the existence of a Code of Conduct, which provides a mechanism for resolving any actual or potential conflicts of interest. However, he noted that:

a) ‘the availability of a mechanism for resolving actual or potential conflicts of interest or loyalties does not affect the existence of such conflicts, or change the fact that such conflicts are entrenched;

b) given that such conflicts exist, policies and procedures do not remove the perception amongst employees of such conflict. In my view, it is of crucial importance that Managerial and Senior Employees are not perceived to be affected by an actual or potential conflict of interest or loyalty. The very perception of a conflict, in my view, is damaging to Essential Energy’s attempts to implement management initiatives; and

c) the Code of Conduct, and other policies and procedures, are primarily used to deal with employees after they have acted unethically in a position of conflict. In my view, such policies and procedures are more effective if the conflicts themselves are removed. I also note that the Code of Conduct requires employees to self-report and self-manage their conflicts of interest or loyalties to Essential Energy.’ 49

[39] The employees which Essential Energy wish to exclude were described by Mr Bereicua as the

‘...managerial link between Essential Energy’s executive and the employees covered under the enterprise agreement. They provide strategic and operational input to the executive, and are responsible for ensuring the implementation of Essential Energy’s policies and procedures at the relevant level.’

[40] Mr Thrower’s evidence was that he felt his duties and responsibilities gave rise to a number of entrenched conflict of interest ‘owing to the fact that I am covered under the same Enterprise Agreement as employees whom I am responsible for (and identify with).’ For example, he is required to ensure the most efficient allocation of travel allowances amongst the employees he is responsible for, which means his decisions could have adverse consequences for those employees (though he agreed during cross examination that he does not approve travel allowances - rather he makes recommendations on the approval of the travel, which is then approved by another manager 50.) Moreover because he is required to travel as part of his job, he uses the same travel allowances ‘notwithstanding the impact that might have on my KPI to ensure the efficient distribution of travel allowances.’ He also pointed out that he was responsible for ensuring a fair and efficient distribution of overtime amongst his staff. (He conceded during cross examination that he does not have a KPI to ensure the efficient distribution of overtime.51). Finally, when he has had to temporarily fill a group manager role, he has had to attend industrial tribunal hearings and give evidence on behalf of the employer to the detriment of employees for whom he was responsible, even though he was part of the same union and covered under the same agreement.52 However this had only occurred once, and the group manager position he was acting in at the time was not covered by the enterprise agreement.53

[41] Mr Berry gave evidence that as part of his position as Area Manager (which is covered by the 2011 agreement) he had to make recommendations in relation to the progression of employees within the classification bands under the enterprise agreement and was responsible for approving overtime and on-call arrangements. He said that one of his Key Performance indicators (KPIs) was to ensure the efficient distribution of such entitlements. He noted that he was entitled to entitlements under the enterprise agreement, such as overtime, and RDOs; however as he was responsible for the efficient distribution of such entitlements he did not personally claim them for himself. 54 During cross examination, Mr Berry said that he did his job to the best of his ability55. He said that he reviewed his performance against his KPIs every six months with his immediate manager.56

[42] Mr Neyland gave evidence that in his previous position, as Manager Operational Performance (which was covered by the enterprise agreement) he had a “foot in both camps” due to his managerial duties and responsibilities. As an example, he gave the requirement to approve entitlements for his direct and indirect reports, such as overtime, call-out and travel allowances, while having a KPI to ensure the efficient distribution of entitlements under the enterprise agreement. He did not claim certain entitlements, such as overtime and living away from home allowance, to which he was entitled, because of his KPI to ensure the efficient distribution of such entitlements. He also said that in some circumstances it was his view as Manager Operational Performance that Essential Energy should oppose improvements in the terms and conditions under the enterprise agreement, even though this might have been adverse to his own entitlements under the agreement. 57 He said that for these reasons he could not drive ‘real change’ as Manager Operational Performance while being covered under the same enterprise agreement as the employees whom he was responsible for. ‘Because I believed that I would perform my role more effectively if I were not covered by the Enterprise Agreement, I recently accepted a promotion and individual contract of employment.’58 During cross examination Mr Neyland said he had no role as Manager Operational Performance in negotiating the enterprise agreement or in dealing with any claims for improvements under the agreement.59

[43] Ms Southern said in her statement that she was involved in the bargaining process for the proposed agreement. She said that throughout this process she was very conscious of the ‘conflicted position’ in which she found herself in relation to the benefits and entitlements she received under the enterprise agreement as against her managerial duties and responsibilities. For example, she said that she was required to represent Essential Energy’s opposition to the unions’ suggested improvements in terms and conditions of employment under the proposed agreement. Given her coverage under the enterprise agreement at that time, some of the opposition was adverse to her personal interests in the role she was then employed. She also said that, at least to some extent, in the position in which she was then employed (Manager Corporate Programs) she identified with employees who would be covered by the proposed agreement and wished to negotiate in common with them. Despite her identity with such employees, she was nevertheless required to oppose her own coverage under the proposed agreement, as well as ignore any loyalties she may have had with such employees. She considered that this conflict of interest weakened her ability to fulfil her managerial duties and responsibilities objectively with the organisation’s goals in mind. 60 During her cross examination, Ms Southern indicated that while she was involved in providing relevant information she was not involved in deciding how to respond to the unions’ claims in relation to the proposed agreement.61 She also agreed that any conflicts of interest that arose during the negotiation process could be dealt with through the presence of very senior levels of management overseeing the negotiation process.

[44] I have considered the evidence and submissions presented by the parties on the issue of conflict of interest. It is important to stress that all employees - from the most senior to the most junior - have obligations to their employer. All employees receive remuneration from their employer and in return the employer has a right to expect that employees will obey the employer’s lawful and reasonable directions, perform their work with due care and skill and, in general terms, serve their employer faithfully. At the same time, employees have certain rights and interests distinct from those of their employer - for example to enjoy fair rewards for their contribution to the organisation and to be treated fairly and reasonably. These basic propositions apply whether an employee is covered by an enterprise agreement or not.

[45] Mr Bereicua asserted that senior employees who are responsible for ensuring the implementation of policies and procedures on behalf of Essential Energy’s executive that affect employees covered by the enterprise agreement face a conflict of interest if they are covered by the same agreement. I am not convinced. For example, it is quite reasonable for Essential to insist that work is organised in the most efficient and cost effective manner. This may act to limit the amount of overtime available. Essential Energy can quite reasonably expect that all employees - whether they are covered by the enterprise agreement or not - or indeed whether they personally receive overtime or not - will act consistently with such a requirement. The same logic is applicable to other entitlements such as ‘on-call’, and travel allowances. Mr Bereicua stated that the creation of the 2011 agreement ‘quickly became problematic with the realisation that those employees within the organisation who were in positions of influence and who performed managerial, senior or specialist functions within the organisation needed to be distinct from other employees to ensure the new and streamlined objectives of the organisation could be met without these employees potentially favouring their own interests.’ 62 However, no substantive evidence was given during the proceedings of senior employees covered by the 2011 agreement acting against their employer’s interests because they stood to receive benefits under the agreement.

[46] Much of the evidence about ‘conflict’ revolved around the stress managers could potentially be put under when required to implement a policy which might have adverse consequences for the people they are managing (by, for example, limiting access to overtime). 63 However that form of stress is inherent in the role of any employee with managerial or supervisory responsibilities. Sometimes one has to implement policies that other people do not like. However, removing these managers from the scope of the agreement would have no effect on this ‘conflict’.

[47] There may be a real difficulty if employees who have responsibility for determining the organisation’s overall policy and direction are covered by the enterprise agreement. This would most obviously be the case for those employees who have to decide on the organisation’s approach to negotiating the enterprise agreement. There would be an obvious conflict of interest if one had the opportunity to decide on one’s own pay rise for example. However no substantive evidence was given that this applied to any of the employees covered by the 2011 agreement. It is clear that the negotiating position in relation to enterprise bargaining was decided by members of the executive and other very senior employees who report directly to the executive. Other employees (such as Ms Southern) may have played a role - but this was in a supportive rather than a decision making capacity.

[48] The circumstances of this case need to be contrasted with those dealt with by a Full Bench in United Firefighters 64. In that case, the Full Bench preferred the scope preferred by the employer, the Metropolitan Fire and Emergency Services Board (MFESB), over that proposed by the United Firefighters’ Union of Australia (UFUA). The UFUA and the MFESB disagree on whether the proposed enterprise agreement should include two classifications of employee, namely: Commander and Assistant Chief Fire Officer (ACFO). The UFUA contended that the proposed enterprise agreement should cover all operational employees including Commanders and ACFOs. The MFESB contended that any enterprise agreement covering operational employees generally should not cover Commanders or ACFOs. It proposed that, in addition to the enterprise agreement covering operational employees, there should be two additional enterprise agreements covering Commanders and ACFOs respectively. The Full Bench stated:

‘The MFESB relied in particular on what it alleged to be a conflict of interest between management employees and those whom they manage. Speaking generally there can be no doubt that such a conflict exists. To some extent the workplace relations system is based on the potential for conflict between employers and employees. In a world of corporations the employee manager stands in the shoes of the employer for many purposes including dispute prevention and resolution and the negotiation of terms and conditions of employment. We accept the potential for an entrenched conflict of interest to arise based on managerial responsibility if agreement coverage of operational employees extends into the senior management ranks. We recognise the potential for such conflict to arise even at the lower levels of management but we have in mind conflicts of interest of a more substantial character arising at senior management levels....’ 65

[49] The employees that the Full Bench considered should be excluded from the agreement covering operational employees were ‘senior management’ at levels equivalent to those already excluded from the 2011 Essential Energy agreement. They occupied levels 3 and 4 in the organisational structure. ACFOs were part of the Executive Management, and Commanders reported to them directly. As already noted, the employees that Essential Energy wishes to exclude from the proposed agreement cannot properly be characterised as ‘senior managers’.

[50] My conclusion is that there is no need to alter the scope of the enterprise agreement to deal with any real or potential conflict of interest.

The history of industrial regulation

[51] In July 2001 Country Energy was created, by amalgamating three organisations: Great Southern Energy, Advance Energy, and Northpower. Each of these organisations had its own industrial instrument which covered the employment of the employees. These were: the Great Southern Energy Enterprise Award 2000, the Advance Energy Enterprise Award 1999, and the Northpower Rates of Pay and Conditions Award. 66

[52] A single award was established to cover employees of the new entity: the Country Energy Enterprise Award 2001. The classifications in the new award broadly reflected the classifications which were contained in the Northpower Rates of Pay and Conditions Award. The classifications of Professional Engineer Grades 4, 5 and 6 which had previously been contained in the Advance Energy Enterprise Award were not initially incorporated into the classification structure of the new award. However classification salary points equivalent to pay points 42 to 44 were included in the subsequent Country Energy Employees Award 2004. Pay points 42, 43 and 44 reflected rates of pay that had applied to Professional Engineer Grades 4, 5 and 6 contained in the former Advance Energy Enterprise Award. The coverage clause of the 2004 award allows employees at levels above pay point 44 who were not on individual agreements to remain covered by the award. The subsequent Country Energy Enterprise Award 2005 included a coverage clause which provided as follows:

‘(ii) Existing employees employed in Professional capacity whose rate of pay exceeds the base rate of pay of a Professional Engineer Grade 8 (as varied under this Award) who are not employed under an employment agreement or a contract shall continue to have their terms and conditions of employment prescribed by this Award.’

[53] According to Mr Brock’s statement pay points 42, 43 and 44 in the 2005 award corresponded with the classifications of Professional Engineer, Grades 6, 7 and 8. 67

[54] Around the same time, an agreement was reached (the Country Energy, Managers and Specialists Enterprise Agreement 2005) which applied to employees in entry-level management and specialist roles covered by the Country Energy Award 2005. According to Mr Brock, this agreement provided coverage under a registered collective agreement to this group of employees whilst at the same time enabling those employees in entry-level manager and specialist roles transferring from individual contracts to continue working a 10 day fortnight pattern. Employees covered by the agreement were also required to enter into a performance agreement based on the achievement of key performance indicators. 68 Once the agreement was finalised a transitional process was put in place that allowed the affected employees to have a choice of transferring to the new managers and specialists enterprise agreement or remaining on their existing contracts on a ‘Present Occupant Only’ basis.69

[55] The managers and specialists agreement included a range of other provisions including one headed Individual Variations. This included the following:

‘Whilst based upon a collectively bargained Agreement, the Parties to this Agreement recognise that each of the positions covered by it are and will increasingly become, individually specialised and that employees have or may have a desire to tailor their individual employment conditions within the context of this Agreement and the collective bargaining between the Parties.

As part of this Agreement individuals will have the option to vary their remuneration and conditions of employment by agreement with the employer once during the term of this Agreement, provided the employee is not disadvantaged when his or her remuneration and conditions are viewed as a whole against the unvaried remuneration and conditions. This shall specifically include that not be limited to variation of hours of work and entitlements above statutory minimums. (Where it is agreed that the hours of work will be varied, that variation will not change the requirement that the varied hours are worked across a 10 day fortnight, Monday to Friday)....’ 70

[56] In his statement, Mr Brock stated that, notwithstanding the terms of the managers and specialists enterprise agreement, at a local level some Essential Energy managers continued to engage employees on contracts in terms inconsistent with that agreement. For example, some contracts were fixed term, some contracts purported to remove fully the entitlement to recognition of additional hours of work, and some contracts excluded access to other award entitlements such as allowances, salary progression and annual salary increases. This led to a dispute being notified by the United Services Union to the New South Wales Industrial Relations Commission. According to Mr Brock, during the course of that dispute, the parties agreed to conduct an audit of positions that were covered by the enterprise agreement as well as those placed on individual contracts. In order to resolve the dispute departures made a second agreement to cover managers and specialists, the Country Energy Managers and Specialists Agreement 2009. 71

[57] According to Mr Brock, that agreement included an expanded two band pay structure with progression within each band determined by the achievement of agreed key result areas/targets and progression between band 1 and band 2 being by appointment, except in the case of Professional Engineers for whom progression from band 1 to band 2 was deemed to be part of the progression of an experienced engineer. The inclusion of the two band structure had the effect of extending the classification structures for Administrative Officers (AOs) and Technical Officers (TOs) to salary point 44 of the then Country Energy Award 2007. Previously, those classifications had not had access to salary points greater than 41. The agreement also established that the threshold point for employment under a contract would be determined as third tier report level or evaluated equivalent. 72

[58] In 2009, the Country Energy Enterprise Agreement 2009 was approved by the New South Wales Industrial Relations Commission. To accompany the new agreement a manual titled Country Energy Agreement: Progression Guidelines setting the rates of pay and rules for progression for each of the classifications covered by the enterprise agreement was developed. 73

[59] In March 2011 the retail arm of the organisation was transferred to Origin Energy and Country Energy was renamed Essential Energy. The 2011 agreement was approved by Fair Work Australia in October 2011. The 2011 agreement consolidated a number of separate enterprise agreements covering different types and divisions of employees, including the Country Energy Managers and Specialists Enterprise Agreement 2009. The 2011 agreement covered all employees (up to pay point 44) regardless of their function or classification and standardised employment conditions amongst the employees. According to Mr Bereicua, this was done to achieve administrative efficiency. 74

[60] I conclude that the group of employees sought to be excluded by Essential Energy has for many years been covered by collective industrial instruments.

Arrangements at Comparable Organisations

[61] There is quite a degree of diversity in the coverage provisions of the various enterprise agreements belonging to electricity distributors across Australia.

[62] For Essential Energy, approximately 4% of employees are not covered by the 2011 Agreement and are currently employed under individual contracts. The current agreement applies to employees up to pay point 44 which is $2455.37 per week or $127,679 per annum before including allowances and other additional payments or is up to about 163,609.40 per annum on a total remuneration package (TRP) basis. The scope proposed by Essential Energy would have the proposed agreement only apply to pay point 40 (other than for Network Operators, where the pay point would extend to pay point 42). Pay point 40 is $2137.56 per week or $111,580 per annum before including allowances and other additional payments, or is up to about $147,511 on a TRP basis. 75 The coverage provisions of the Essential Energy Far West (Electricity) Enterprise Agreement 2013 is identical to the coverage provisions of the proposed agreement sought by Essential Energy.76

[63] At TransGrid (the operator of the high voltage transmission grid in NSW) employees who are appointed to positions evaluated with a minimum salary point of 35 may be employed pursuant to an individual employment agreement. Only a limited range of conditions in the enterprise agreement apply to those employees who have entered into such an agreement. Salary Point 35 was $2535.89 per week, or $132,221.42 per annum (before including allowances and other additional payments) as at the first pay period after 1 December 2012. The agreement has a nominal expiry date of 1 December 2013 and its replacement is currently under negotiation. 77 The salary (before allowances etc.) for pay point 35 at TransGrid is currently therefore around 3% higher than for pay point 44 and around 18% higher than for pay point 40 at Essential Energy.

[64] At Ausgrid (the operator of the electricity distribution network in Sydney, Central Coast, Hunter and Newcastle areas of New South Wales) the enterprise agreement covers employees in the classifications set out in Appendix 1 of the agreement. These include employees with an annual salary of up to $168,161.52 (and a total remuneration of up to $205,000). 78 This salary is over 30% above the annual salary for pay point 44 at Essential Energy. The agreement does not apply to an employee employed under a ‘Fair Work Act compliant contract as a senior manager.’ The term ‘senior manager’ is not defined in the agreement. Approximately 7% of Ausgrid employees are not covered under the enterprise agreement and are currently engaged on individual contracts.79

[65] At Endeavour Energy (the operator of the electricity distribution network in Western Sydney and the Illawarra) the enterprise agreement applies to all employees other than ‘above Agreement classification positions that are Fair Work Act 2009 compliant contract positions.’ The appendix to the agreement includes common pay points with annual salary rates over $200,000.

[66] At Powercor and CitiPower (two privately owned Victorian electricity distributors) the pay rate for the top pay point in the enterprise agreement was $130,474 from 1 July and 1 September 2012 respectively before including allowances and other additional payments - around 2% above pay point 44 at Essential Energy, and about 17% above pay point 40. Both agreements allow employees to elect to work pursuant to the terms of an Employment Agreement. Such agreements shall contain no diminution in wages, conditions or benefits that would otherwise accrue under the relevant enterprise agreement, and the employee covered by the agreement is entitled to revert to an agreed classification under the enterprise agreement. 80

[67] SP Ausnet is a privately owned corporation responsible for electricity distribution in eastern Victoria. The enterprise agreement applies to employees employed in positions at salary levels up to $135,200 before including allowances and other additional payments. This is around 6% above pay point 44 at Essential Energy, and about 20% above pay point 40. The enterprise agreement allows for written arrangements between the employer and employee covered by the enterprise agreement for Fixed Annual Remuneration in compensation for all hours of work. Most employees are covered by such arrangements.

[68] The enterprise agreement at Energex (the electricity distributor for south east Queensland) applies to employees employed in positions at salary levels at $160,000 before including allowances and other additional payments (about 25% above pay point 44 at Essential Energy). Employees at Energex may be appointed under the provisions of an individual alternative employment arrangement. Such appointment shall be by mutual consent, and prospective employees may not be required to make known whether they choose to be covered by the enterprise agreement or an alternative employment arrangement until they have been formally offered a position in writing. Employees may withdraw from the arrangement by giving one month’s notice. Certain provisions of the enterprise agreement do not apply to employees covered by an individual alternative employment arrangement.

[69] The enterprise agreement at Ergon Energy (the electricity distributer for the rest of Queensland) applies to employees employed in positions at salary levels up to $143,000 before including allowances and other additional payments.  81  This is more than 20% above pay point 44 at Essential Energy. The enterprise agreement provides that an Individual Employment Arrangement (IEA) may be offered to an employee who is paid a salary at or above salary 11.0 (a salary of around $84,000). Such an IEA is subject to a no-disadvantage test, and employees may revert to the general provisions of the enterprise agreement by giving one month’s notice.

[70] Western Power is a state own corporation responsible for electricity distribution and the south-west of Western Australia. The enterprise agreement applies to employees employed in positions at salary levels up to $147,532 before including allowances and other additional payments. The enterprise agreement contains a clause that enables the employer and an employee to agree to vary the application of certain terms of the agreement through flexibility agreement. Such a flexibility agreement must result in an employee receiving terms and conditions of employment that are better off overall than those provided in the agreement. An employee may terminate the flexibility agreement by giving four weeks notice in writing. Approximately 70% of employees covered under the Western Power enterprise agreement are engaged on some type of flexibility agreement or in one or more conditions. 82

[71] The enterprise agreement at Aurora Energy (an electricity distributor and retailer in Tasmania) applies to employees employed in positions at salary levels up to $130,000 before including allowances and other additional payments. It does not cover employees in Classification Bands Middle Management MM1 and MM2 who elect in writing not to be covered by the agreement and enter into a common law contract. These employees potentially receive a salary under the agreement of between $86,000 and $130,000 (that is from about 42% below pay point 44 at Essential Energy to slightly above).

[72] The enterprise agreement at ActewAGL (the part privately owned electricity distributor in the ACT) applies to employees employed in positions at salary levels up to $162,774 before including allowances and additional payments. 83 It allows a Management Service Agreement to be offered to employees employed in certain senior positions. The acceptance by an employee of an offer is voluntary. Such employees are excluded from the enterprise agreement.

[73] While there is certainly no uniformity, most enterprise agreements at comparable organisations (whether public or private sector) apply to employees equivalent to those that Essential Energy is seeking to ‘scope out’ from its enterprise agreement. There is certainly nothing ‘anomalous’ about such employees being covered by an enterprise agreement - quite the reverse.

[74] However at most of these organisations the enterprise agreement contains a facilitative clause that permits individual arrangements between the employer and senior employees (including those types of employees that Essential Energy is seeking to exclude from coverage). These arrangements typically vary the effect of many of the provisions of the enterprise agreement. In a minority of cases they are expressed as removing the coverage of the agreement altogether. The employee is typically given a free choice whether to accept the individual arrangement or remain under the provisions of the enterprise agreement. I note that, while offered in negotiations, Essential Energy has not to date sought to include individual flexibility arrangements of this kind in its enterprise agreement.

Award coverage

[75] As previously noted, it is accepted by both parties that the employees whom Essential wishes to exclude from coverage of the enterprise agreement would be covered by the Electrical Power Industry Award 2010. 84 Under the Fair Work Act 2009, employees who earn above the high income threshold (currently $129,300) can effectively ‘opt out’ of modern award coverage - but only by agreement.

Changes in circumstances since the 2011 agreement

[76] Since the 2011 agreement was made, Essential Energy has undergone a number of changes in the context of the introduction of Networks NSW. These include a new Chief Executive Officer, a new management operating model, and greater scrutiny of efficiency and productivity by Essential Energy’s shareholder. There have also been increased expectations on the part of customers to contain or reduce electricity bill increases, and increased scrutiny by advisory bodies such as the Productivity Commission 85. Essential Energy argues that its proposed change in the scope of the enterprise agreement will allow it to deliver efficiency and productivity savings by aligning more closely the interests of its managers and senior leaders with the interests and business objectives of the company. However, despite this assertion, there was no persuasive evidence given to the Commission during these proceedings that altering the coverage of the enterprise agreement in the way proposed by Essential Energy would assist the goals of improved productivity and efficiency.

Whether each group of employees has been fairly chosen

[77] For any enterprise agreement to be approved, the Commission must be satisfied that the group of employees to be covered by the agreement was fairly chosen, taking into account whether the group is geographically, operationally or organisationally distinct. I consider that both the scope proposed by the unions and that proposed by Essential Energy could be regarded as ‘fairly chosen’ in the sense intended by the Act.

Conclusions

[78] I do not consider there are sufficient grounds to disturb the existing coverage arrangements for the enterprise agreement at Essential Energy. Accordingly I determine that the scope of the proposed agreement should be that proposed by the unions.

[79] In particular, I found no convincing evidence that being covered by the enterprise agreement exposed those employees whom Essential Energy wishes to exclude to any significant conflict of interest. While I am sure they all perform important roles, none of these employees can properly be described as senior managers. They are mainly a mix of middle managers and technical and professional specialists. The evidence is that similar employees in the rest of the electricity distribution industry are generally covered by their organisation’s enterprise agreement.

[80] A number of other organisations in the electricity industry have enterprise agreements that allow, whether by way of an individual flexibility arrangement (IFA) or as a stand-alone clause, certain employees to reach individual agreements that allow for salary packaging, performance pay or other arrangements of a like nature.

[81] Indeed, all enterprise agreements approved under the Fair Work Act 2009 must contain a provision for individual flexibility arrangements (IFAs), enabling the employer and individual employees to vary the effect of the terms of the enterprise agreement in order to meet the genuine needs of the employer and employee. Such arrangements have effect as a term of the enterprise agreement. Arrangements can only be about ‘permitted matters’ and cannot include unlawful terms. They must be genuinely agreed to by the employer and the employee and must leave the employee better off overall than the employee would have been in the absence of the individual flexibility arrangement. Depending on the specific provision contained in the enterprise agreement, such IFAs could include many of the key features of the common law contracts that Essential Energy wishes to use in relation to those employees it is seeking to exclude from coverage - including conditions such as performance-based pay, and annual salary reviews.

[82] Unfortunately the proposed agreement has been drafted in such a way as to restrict the capacity to make much use of IFAs. However I would strongly urge the parties - when negotiating their next enterprise agreement - to give very serious consideration to introducing the capacity for the employer and senior agreement-covered employees to make their own individual flexibility arrangements. Such individual arrangements could include many of the key features that Essential Energy proposed to include in the written contracts they wished to offer to employees excluded from the enterprise agreement.

[83] In its closing submissions, Essential Energy referred to its managerial prerogative to manage the organisation as it sees fit. However issues of coverage are not a question of managerial prerogative but of negotiation and agreement. A key difference between Essential Energy’s proposal simply to exclude senior staff from the enterprise agreement and creating the scope for IFAs as I have suggested is that IFAs could only be entered into if genuinely agreed to by both the employer and the relevant employee. The employee would always have the option of sticking with the collectively bargained agreement. Because such arrangements would be voluntary, the ‘fear factor’ would be reduced, and it is more likely that Essential Energy could achieve the very ‘alignment’ it is seeking.

Decision

[84] I determine that the scope of the proposed enterprise agreement should be the same as the Essential Energy Enterprise Agreement 2011.

SENIOR DEPUTY PRESIDENT

Appearances:

J Phillips SC and Y Sharif for Essential Energy

I Taylor SC and I Doust for the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia; Australian Municipal, Administrative, Clerical and Services Union; Association of Professional Engineers, Scientists and Managers, Australia

Hearing details:

2013

Sydney

16, 17 December

2014

Sydney

13, 26 February

20, 21 March

14 April

Final written submissions

2014

7 May

 1   Exhibit E7, paragraph 37

 2   PN1414

 3   Exhibit U3, PN1415

 4   Exhibit E7, paragraph 42

 5   Exhibit U21 and Exhibit E8

 6   117+242/4,389

 7   PN1516-1521

 8   Exhibit E8, paragraph 10

 9   PN10-14

 10   PN23

 11   PN28

 12   PN31

 13   PN32

 14   Exhibit E7, paragraph 43

 15   PN1552

 16   Statement of Agreed Facts, paragraph 62

 17   Exhibit E7, annexure 3

 18   Exhibit U16

 19   Exhibit U22

 20   Exhibit E16

 21   [2010] FWAFB 3009 at [53]

 22   Exhibit E1, paragraph 14

 23   Exhibit E10, paragraphs 13-15

 24   Exhibit U15, paragraph 44

 25   PN3261

 26   PN3272

 27   PN3283

 28   Exhibit E7, paragraph 46

 29   Exhibit E8, paragraph 28

 30   Exhibit E7, paragraph 47

 31   Exhibit E1, paragraphs 4-5

 32   PN170-178

 33   Exhibit E8, paragraph 28

 34   Exhibit E7, paragraph 49-50

 35   Exhibit E7, annexure PB2

 36   Exhibit E7, paragraph 28

 37   Exhibit E7, paragraph 53

 38   Exhibit E10, paragraph 3

 39   PN2922-5

 40   PN2930

 41   PN2931

 42   PN2935

 43   PN6435

 44   PN6436

 45   PN6811

 46   PN4637

 47   PN6834

 48   Exhibit E9, paragraph 4

 49   Exhibit E9, paragraph 5

 50   PN2980

 51   PN2995

 52   Exhibit E10, paragraph 9

 53   PN3000-30001

 54   Exhibit E1, paragraphs 10-11

 55   PN211

 56   PN216-7

 57   Exhibit E3, paragraphs 6-7

 58   Exhibit 3, paragraph 8

 59   PN551-564

 60   Exhibit E5 paragraphs 7-9

 61   PN931-945

 62   Exhibit E8, paragraph 25

 63   For example, Mr Neyland’s evidence PN506-PN530

 64   [2010] FWAFB 3009

 65   At [67]

 66   Exhibit U12, paragraphs 5-6

 67   Exhibit U12, paragraph 16

 68   Exhibit U12, paragraph 21

 69   Exhibit U12, paragraph 22

 70   Exhibit U12, attachment GB8

 71   Exhibit U12, paragraphs 24-28

 72   Exhibit U12, paragraphs 29-30

 73   Exhibit U12, paragraph 32

 74   Exhibit E8, paragraph 20

 75   Agreed Facts, paragraph 25

 76   Agreed facts, paragraph 26

 77   Agreed Facts, paragraph 40

 78   Agreed Facts, paragraph 43

 79   Agreed facts, paragraph 41-45

 80   Agreed facts, paragraph 50

 81   Agreed facts, paragraph 55

 82   Agreed facts, paragraphs 29-34

 83   Agreed facts, paragraph 59

 84   Statement of Agreed Facts, paragraph 62

 85   Agreed Facts, paragraph 10

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