FAIR WORK COMMISSION - s.319 - Application for an order re instruments covering new employer and non-transferring employees in agreements

[2013] FWC 6310

[2013] FWC 6310

The attached document replaces the document previously issued with the above code on 4 September 2013.

The document is being refilled to correct an error with the reference numbers.

Melissa Nassios

Associate to Commissioner Roe

Dated 18 September 2013

[2013] FWC 6310

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.319 - Application for an order re instruments covering new employer and non-transferring employees in agreements

Fair Work Act 2009
s.217 - Application to vary an agreement to remove an ambiguity or uncertainty

Shop, Distributive and Allied Employees Association
(AG2013/8005 & AG2013/8007)

Restaurants
COMMISSIONER ROE	MELBOURNE, 4 SEPTEMBER 2013

Application for order relating to instruments covering new employer and non-transferring employees in agreements; Pizza Hut SDA National Employee Relations Agreement 2009 and Pizza Hut SDA National Employee Relations Agreement 2010.

[1] The Shop, Distributive and Allied Employees’ Association (SDA or the Applicant) has made two applications under section 319(1)(b) of the Fair Work Act 2009 (the Act). The SDA is seeking orders that the transferable instruments, the Pizza Hut SDA National Employee Relations Agreement 2009 and the Pizza Hut SDA National Employee Relations Agreement 2010 (the Agreements), that cover the new employers (franchisees of Pizza Hut) will also cover the non-transferring employees who perform the transferring work for the new employers. This means that all of the new employers’ employees who perform the transferring work (whether they are transferring employees or non-transferring employees) will be covered by the transferable instruments. Although the terms of the 2009 and 2010 Agreements initially had some different rates, the terms and conditions of employment under both Agreements are not identical. The nominal expiry date of the 2009 and the 2010 Agreements was 31 December 2012.

[2] Draft orders have been provided to this effect. Both the SDA and Pizza Hut, Yum! Restaurants Australia Pty Ltd (Yum) which is the franchisor of the Pizza Hut brand are seeking that I make the orders in the terms sought. There are approximately 87 new employers’ affected. Yum and the SDA seek that the Orders also extend to “any new franchisee and their associated companies operating Pizza Hut outlet(s)”.

[3] Further, as part of the draft order, the SDA and Yum are also seeking a correction, under Section 217 of the Act, to the Pizza Hut SDA National Employee Relations Agreement 2009 to change the name of one of the franchisees from Acale Pty Ltd to Arkk Enterprises Pty Ltd.

1. Transfer of business and of the transferable instrument

[4] The SDA’s application is premised on the basis that the new employers named in the draft order are already covered by the transferable instruments. This in turn relies on the proposition that there has been a transfer of business and that the Agreements have transmitted along with the transferring employees as a result of the operation of the Act.

[5] I will deal firstly with the issue of a transfer of business.

1(a) Transfer of business

[6] The Act provides as follows in relation to a transfer of business:

“311 When does a transfer of business occur

Meanings of transfer of business, old employer, new employer and transferring work

(1) There is a transfer of business from an employer (the old employer) to another employer (the new employer) if the following requirements are satisfied:

(a) the employment of an employee of the old employer has terminated;

(b) within 3 months after the termination, the employee becomes employed by the new employer;

(c) the work (the transferring work) the employee performs for the new employer is the same, or substantially the same, as the work the employee performed for the old employer;

(d) there is a connection between the old employer and the new employer as described in any of subsections (3) to (6).

Meaning of transferring employee

(2) An employee in relation to whom the requirements in paragraphs (1)(a), (b) and (c) are satisfied is a transferring employee in relation to the transfer of business.

Transfer of assets from old employer to new employer

(3) There is a connection between the old employer and the new employer if, in accordance with an arrangement between:

(a) the old employer or an associated entity of the old employer; and

(b) the new employer or an associated entity of the new employer;

the new employer, or the associated entity of the new employer, owns or has the beneficial use of some or all of the assets (whether tangible or intangible):

(c) that the old employer, or the associated entity of the old employer, owned or had the beneficial use of; and

(d) that relate to, or are used in connection with, the transferring work.

Old employer outsources work to new employer

(4) There is a connection between the old employer and the new employer if the transferring work is performed by one or more transferring employees, as employees of the new employer, because the old employer, or an associated entity of the old employer, has outsourced the transferring work to the new employer or an associated entity of the new employer.

New employer ceases to outsource work to old employer

(5) There is a connection between the old employer and the new employer if:

(a) the transferring work had been performed by one or more transferring employees, as employees of the old employer, because the new employer, or an associated entity of the new employer, had outsourced the transferring work to the old employer or an associated entity of the old employer; and

(b) the transferring work is performed by those transferring employees, as employees of the new employer, because the new employer, or the associated entity of the new employer, has ceased to outsource the work to the old employer or the associated entity of the old employer.

New employer is associated entity of old employer

(6) There is a connection between the old employer and the new employer if the new employer is an associated entity of the old employer when the transferring employee becomes employed by the new employer.”

[7] Ms Nichole Bowles, Head of Human Resources for Yum gave evidence that the transfers of business had occurred between the old employers and the new employers as listed in the applications and the draft Orders. It was stated that, in each of these transfers, at least some of the employees of the old employer are employed by the new employer and continue to work in the same Pizza Hut outlet performing the same or similar work.

[8] Twenty cases involve or involved the building of a new outlet by these franchisees. In these cases, Yum grants the franchisee, for a fee, the beneficial use of its assets - the Yum brand and system. In some of these cases the transfers of business have not yet been completed. Yum argued that there is still a connection between the old employer and the new employer when a new outlet is built as the new employer will have the beneficial use of the Pizza Hut brand and system. In addition, when these outlets commence or commenced, Yum seconds some of its employees to help establish the outlet. These employees act as if they are employees of the franchisee during their secondment and the franchisees reimburse Yum for their wages. In five cases there has been a further transfer of business from the new franchisee to another franchisee.

[9] Yum and the SDA submit that transfers of business are typical in a dynamic franchising model. Therefore, it was said to be likely that there will be numerous transfers of business over the next few years. The draft order contemplates coverage of such future transfers.

[10] It was contended by the SDA and Yum that the provisions of section 311(1)(a), (b), (c) and (d) of the Act are met with respect to all of the new employers listed in the draft order. This was because at least some of the employees of the old employer were employed by the new employer and they continued to work in the same Pizza Hut outlet performing the same or similar work. In addition, there is a connection between the old employer and the new employer as the new employer owns or has the beneficial use of the Pizza Hut outlet previously operated by the old employer or of the Pizza Hut brand and system. In terms of the transfers of business that are proposed but which have not been concluded, and any future transfers, Yum and SDA argued that section 317 of the Act does not require that a transfer of business has to actually have occurred for a transfer of business order to be made. It was stated that the requirement is that it is likely that a transfer of business from an old employer to a new employer will occur. As well, it was submitted that any future transfers of business are predictable as they will involve a transfer of business that is within a common enterprise. Further, Yum contended that the circumstances of these future new employers and employees will be very similar if not the same.

[11] On the basis of the submissions made by the SDA and Yum, I am satisfied that, pursuant to section 311 of the Act, there is, or is likely to be, a transfer of business from an old employer to a new employer, with respect to the new employers, together with the proposed or likely transfers in the future, as set out in the draft Orders. In this respect, I accept the submissions that the Fair Work Commission (FWC) is able to make an order where there is, or is likely to be, a transfer of business from an old employer to a new employer.

1(b) The Agreements

[12] The Agreements are transferable instruments by virtue of section 312(1)(a) of the Act. Section 313 of the Act provides for the transferable instruments to, in effect, transfer to the new employer(s) as identified in the draft Orders, along with the employees who transferred.

[13] Therefore, the new employers set out in the draft Orders and the transferring employees, are covered by the Agreements.

2. Whether the Agreements should also cover the non-transferring employees

[14] With respect to whether the Agreements should also cover the non-transferring employees, section 314 of the Act makes provision for a transferable instrument to cover other employees in certain circumstances.

2(a) Section 314 of the Act

[15] Section 314 of the Act provides as follows:

“314 New non-transferring employees of new employer may be covered by transferable instrument

(1) If:

(a) a transferable instrument covers the new employer because of paragraph 313(1)(a); and

(b) after the transferable instrument starts to cover the new employer, the new employer employs a non-transferring employee; and

(c) the non-transferring employee performs the transferring work; and

(d) at the time the non-transferring employee is employed, no other enterprise agreement or modern award covers the new employer and the non-transferring employee in relation to that work;

then the transferable instrument covers the new employer and the non-transferring employee in relation to that work.

(2) A non-transferring employee of a new employer, in relation to a transfer of business, is an employee of the new employer who is not a transferring employee.

(3) This section has effect subject to any FWC order under subsection 319(1).”

[16] The new employers and the non-transferring employees are covered by the Fast Food Industry Award 2010 (the Award) which is a modern award within the meaning of section 314(1)(d) of the Act. Section 314 of the Act has the effect of not permitting the Agreements to apply to non-transferring employees.

[17] However, section 314(3) of the Act provides that this can be altered by an order made by the FWC under section 319(1).

2(b) Section 319 of the Act

[18] Section 319 of the Act provides as follows:

“319 Orders relating to instruments covering new employer and non-transferring employees

Orders that the FWC may make

(1) The FWC may make the following orders:

(a) an order that a transferable instrument that would, or would be likely to, cover the new employer and a non-transferring employee because of subsection 314(1) does not, or will not, cover the non-transferring employee;

(b) an order that a transferable instrument that covers, or is likely to cover, the new employer, because of a provision of this Part, covers, or will cover, a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer;

(c) an order that an enterprise agreement or a modern award that covers the new employer does not, or will not, cover a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer.

Note: Orders may be made under paragraphs (1)(b) and (c) in relation to a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer, whether or not the non-transferring employee became employed by the new employer before or after the transferable instrument referred to in paragraph (1)(b) started to cover the new employer.

Who may apply for an order

(2) The FWC may make the order only on application by any of the following:

(a) the new employer or a person who is likely to be the new employer;

(b) a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer;

(c) if the application relates to an enterprise agreement—an employee organisation that is, or is likely to be, covered by the agreement;

(d) if the application relates to a named employer award—an employee organisation that is entitled to represent the industrial interests of an employee referred to in paragraph (b).

Matters that the FWC must take into account

(3) In deciding whether to make the order, the FWC must take into account the following:

(a) the views of:

(i) the new employer or a person who is likely to be the new employer; and

(ii) the employees who would be affected by the order;

(b) whether any employees would be disadvantaged by the order in relation to their terms and conditions of employment;

(c) if the order relates to an enterprise agreement—the nominal expiry date of the agreement;

(d) whether the transferable instrument would have a negative impact on the productivity of the new employer’s workplace;

(e) whether the new employer would incur significant economic disadvantage as a result of the transferable instrument covering the new employer;

(f) the degree of business synergy between the transferable instrument and any workplace instrument that already covers the new employer;

(g) the public interest.

Restriction on when order may come into operation

(4) The order must not come into operation in relation to a particular non-transferring employee before the later of the following:

(a) the time when the non-transferring employee starts to perform the transferring work for the new employer;

(b) the day on which the order is made.”

[19] I will deal with each of the requirements of section 319 in turn.

2(c) Submissions concerning the considerations in s.319(3)

(i) Section 319(3)(a)(i) and (ii) - the views of the new employer and the employees who would be affected by the order

[20] It was submitted by the SDA and Yum that the new employers listed in the draft Orders supported the Applications.

[21] It was submitted that the SDA as a representative of employees and the organisation which is covered by the Agreements supports the Application. It was also submitted that 90% of employees who participated in the ballot for the Agreements voted for the Agreements.

(ii) Section 319 (3)(b) - whether any employees would be disadvantaged by the order

[22] The SDA contended that no employee would be disadvantaged by the order in relation to their terms and conditions of employment. This was because transferring employees would continue to be paid their current wages and conditions. Secondly, it was stated that non-transferring employees would be paid the same wages and conditions as transferring employees unless they had been paid under the Award. In this case, their wages and conditions would remain the same. Essentially employees will fall into three categories. Those who were employed at the time of transfer who are already covered by the Agreements and who will continue to be paid under the Agreements until they are terminated or replaced by another Agreement. Those who have been employed since the time of the transfer and before the making of the proposed order who are covered by the Award and who will continue to be paid under the Award until there is a new Agreement. Those who are employed after the making of the proposed order who will be paid under the Agreements until they are terminated or replaced by another Agreement. It is only the third category of employees who could be disadvantaged by the proposed order.

[23] Further, both the SDA and Yum stated that the vast majority of Pizza Hut employees are advantaged as they will receive phased-in increases of 9% on top of the Award by 2016 and will also receive phased in increases on top of the provisions of the Agreements. Any transferring or new employees subject to the order were said to also receive these benefits. Both parties also indicated that they were committed to making a new enterprise agreement in 2016 which will reflect these higher rates for all employees.

(iii) Section 319 (3)(c) - expiry date of the enterprise agreement

[24] The Agreements have a nominal expiry date of 31 December 2012.

[25] The SDA and Yum submitted that, while the nominal expiry date has passed, this does not indicate a lack of preparedness by either party to bargain. Rather, it was explained that the enterprise agreement had not yet been replaced due to a short-term difficulty of transitioning from a different underpinning safety net (the Pizza Hut - SDA Employee Relations Award 2000 (the Pizza Hut Award)) to the Fast Food Industry Award 2010 (the Award). The parties stated that agreement had been reached that a 9% increase on the rates contained in the Award will through annual adjustments be phased in by January 2016. This is despite the nominal expiry date having passed.

[26] The Pizza Hut Award was terminated by a Full Bench 1 on 11 Mach 2011. This decision was the subject of judicial review and the Full Federal Court upheld the decision to terminate the Agreement.2

(iv) Section 319(3)(d) - any negative impact on the productivity of the new employer’s workplace

[27] The SDA, with the support of Yum, stated that the Agreements would not have a negative impact on productivity. It was argued that the Agreements are tailored to the specific circumstances of Pizza Hut and its employees and is more flexible for Pizza hut operations than the Award. In addition, it was said that the Agreements have the advantage that they cover other Pizza Hut operations so that employers can leverage off the benefits of being part of the franchised operation and from being in a common enterprise with the other Pizza Hut operations, e.g. for training, human resources and payroll etc. Further, it was stated that there would be productivity issues if employers had to apply different industrial instruments to team members working alongside each other.

(v) Section 319 (3)(e) - any significant economic disadvantage to the new employer

[28] It was stated by the SDA that the new employer would not incur significant economic disadvantage as they would simply be providing the same wages and conditions to those paid in other Pizza Hut operations.

(vi) Section 319(3)(f) - degree of business synergy

[29] The SDA and YUM submitted that there are questions regarding the degree of business synergy between the Agreements and the Award. It was stated that it was for this reason that there is a transitional phase between the order sought and the making of a new enterprise agreement in January 2016. The parties indicated that the effect of seeking the order shortly before or soon after transfers occur is that the number of employees in Pizza Hut, who would be covered by the Award, would be much smaller in number. Therefore, any impact from a lack of business synergy would also be smaller.

(vii) Section 319(3)(g) - the public interest

[30] It was contended by the SDA that the public interest is served by providing a common platform which would facilitate bargaining for a new enterprise agreement. Further, the SDA argued that it would acknowledge the benefits of parties resolving difficult issues together and would promote ongoing constructive approaches to collective bargaining.

[31] In addition, YUM made submissions as to the manner in which the public interest would be served if the amended order sought was granted. Firstly, it was explained that YUM is a combination of franchise and company ownership. YUM operates as a common enterprise with its franchisees with Pizza Hut outlets operating in a virtually identical way which enables them to obtain maximum benefit from the Pizza Hut brand and system. This was said to be particularly so with respect to employment issues e.g. recruitment, training, pay etc. YUM stated that, having pay and conditions negotiated through an enterprise agreement ensures that a franchisee is fully able to participate in the Pizza Hut brand and system and leverage the maximum benefit from it. This in turn adds to the value and attractiveness of Pizza Hut franchises. As a common enterprise, the effect of non-transferral of the Agreements upon a transfer of business can also undermine the effectiveness of that agreement for existing franchisees as it creates differences in terms and conditions of employment.

[32] Secondly, it was contended that certainty regarding employment terms and conditions should assist to encourage further investment in franchises and the purchase of new franchises. It was stated that increased investment in Pizza Hut creates employment opportunities and that the industrial arrangements between Yum and the SDA have provided a solid platform for growth and employment.

[33] Thirdly, Yum submitted that the public interest would be served because, making the order sought would deliver productivity and efficiency benefits through such enterprise specific provisions as flat rates of pay and more flexible part-time provisions. These provisions were said to have developed over the long-term and had enabled Yum to focus on such matters as providing superior training programs and the development of future leaders. This was rather than concentrating on micro managing labour around set hours and restrictive labour provisions.

[34] Finally, it was argued that the making of the order sought would facilitate bargaining for a new enterprise agreement. This was because, if there is a splintering of terms and conditions of employment, the absence of a common platform of wages and conditions would make the negotiation of future enterprise agreements across the brand practically impossible.

3. Conclusions

[35] I accept the submissions of the parties except those in respect of disadvantage to employees, nominal expiry date of the Agreements and public interest.

[36] In respect to disadvantage to employees I am satisfied that employees are disadvantaged on the Agreement compared to on the Award. The material presented when the Pizza Hut enterprise award was cancelled 3 outlined the key issues of difference between the Award and the enterprise award. There are similar differences between the Award and the Agreements. Penalty rates for weekend and evening work which are provided for in the Award are not adequately compensated for in the Agreements. There are other significant issues which would lead to a conclusion that employees are significantly better off overall under the Award than the Agreements including matters relating to variations in part time employee hours. I consider that Section 319(3)(b): “whether any employees would be disadvantaged by the order in relation to their terms and conditions of employment” requires consideration of the situation of the employee if the order was made when compared to the situation of the employee if the order was not made. In these circumstances this requires a comparison of the Award and the Agreements. I consider that this is a significant consideration standing against the granting of the applications.

[37] The fact that an Agreement has passed its nominal expiry date would generally stand as a factor against granting an application for non-transferring employees to be covered by the Agreement. Rejection of an application in those circumstances would often be consistent with the object of the legislation to encourage collective bargaining. However, in the circumstances of this case Yum and SDA have reached an agreement that they will enter into a new enterprise agreement and that enterprise agreement will contain rates at least 9% above the rates in the Award at the time the agreement is reached. The applications before me are a part of that agreement between Yum and SDA. The SDA and Yum therefore argue that it is consistent with the object of facilitating collective bargaining to grant the application as it is consistent with an agreement between Yum and SDA which will lead to a new agreement being reached. The key elements of the agreement reached between SDA and Pizza Hut are set out in the statement of Ms Nichole Bowles, Head of Human Resources for Pizza Hut, Yum! Restaurants, which is the franchisor of the Pizza Hut brand. 4 The key features are a 9% increase in wages phased in by January 2016, the inclusion of any new franchisees and their employees in the Agreements, a new enterprise agreement to take effect in January 2016 which will incorporate the 9% increase over the Award and an increase in the casual loading from 23% to 25%.

[38] Generally I consider that it would be in the public interest for employees to be receiving wages and conditions in line with what is now the Award safety net. This would be in keeping with the objects of the Act and the Modern Award objectives. Conversely, given the objects of the Act and those which specifically relate to bargaining, it would generally be contrary to the public interest to move employees onto an instrument which provides for wages and conditions where a class of employees would not be Better Off Overall when compared to the Award safety net. I note that Commissioner Simpson recently reached a similar conclusion in different circumstances. 5

[39] I asked the parties to address some of these concerns.

[40] The object of this part of the Act is found in Section 309:

“The object of this Part is to provide a balance between:

(a) the protection of employees’ terms and conditions of employment under enterprise agreements, certain modern awards and certain other instruments; and

(b) the interests of employers in running their enterprises efficiently;

if there is a transfer of business from one employer to another.”

[41] It is obvious that in the circumstances of this case the benefit to employers in granting the applications is significant but equally the lack of protection of the terms and conditions available to some employees under the Award if the application is granted is significant.

[42] I consider that it is appropriate to take into account matters which will reduce the disadvantage which would otherwise apply to the employees affected by the applications. The agreement reached between Yum and SDA to increase the rates applicable to transferring and non-transferring employees in stages between now and the finalisation of a new agreement in 2016 will significantly reduce the disadvantage which would otherwise apply to the employees affected by the applications. Yum and SDA argue that any disadvantage will be eliminated by 2016 as they will put forward a new agreement which must pass the BOOT.

[43] I also take into consideration the submission of Mr De Bruyn, National Secretary of the SDA, that should Yum not implement the agreement reached between the parties, and the SDA emphasise that they have no reason to believe that will happen, the SDA would make an application to terminate the Agreements which have passed their nominal expiry date. An examination of the provisions in the Act which apply to such a situation would suggest that if such circumstances were to arise such an application would have good prospects of success. The availability of this course of action provides some protection to both transferring and non-transferring employees.

[44] During the proceedings the SDA and Yum agreed that they would sign a Memorandum of Understanding which reflects the agreement reached to pay rates above the Agreements to employees and to reach a new collective agreement in 2016. This MOU will be provided to FWC and placed on the file. Following the hearing the parties provided me with a copy of the proposed MOU. This increases my confidence that the agreement will be implemented and that it is appropriate for me to rely upon it in making my decision.

[45] I consider that it is generally contrary to the public interest to move employees onto an instrument which provides for wages and conditions where a class of employees would not be Better Off Overall when compared to the Award safety net. However, in the particular circumstances of transfer of business the Act requires me to balance these considerations against the interests of employers in running their enterprises efficiently. There is no similar requirement when it comes to the approval of Agreements or their variation or termination. I would dismiss the application if it were not for the following considerations:

● I have confidence that any disadvantage to employees when compared to the Award is only a transitional matter; and
● I have confidence that the amount of disadvantage will be systematically reduced and eliminated within a defined period; and
● I am satisfied that approving the application is consistent with the objective of encouraging collective bargaining; and
● There is strong support from the union on behalf of affected employees.

[46] Taking into account each of the matters set out in section 319(3) of the Act, I am satisfied on balance that the orders sought should be made.

[47] Orders in the terms provided will be issued to provide that the Agreements will also cover the non-transferring employees of the new employers, listed in the proposed draft orders, who perform similar or the same work as the transferring employees.

[48] In accordance with section 319(4) of the Act, the order takes effect in respect of each of the non-transferring employees on and from the date of this order, or the date from which the employment commences, whichever is the later.

4. Request to correct error pursuant to s 217 of the Act

[49] SDA also seek to vary Schedule 5: Pizza Hut Franchisees, of the Pizza Hut - SDA National Employee Relations Agreement 2009 to change the name of “Acale Pty Limited” to “Arkk Enterprises Pty Limited”. I am satisfied that the SDA is able to make the application and that there is uncertainty created by the change of name of Acale Pty Limited and that it is appropriate to make the variation to correct that uncertainty.

[50] This will be included in the order and it will operate from the date of the order.

COMMISSIONER

Appearances:

Mr M Galbraith and Mr J deBruyn appeared for the SDA.

Mr T McDonald and Ms N Bowles appeared for Yum Restaurants.

Hearing details:

2013

Melbourne

August 20

 1   [2011] FWAFB 1077.

 2 [2012] FCAFC 114.

 3   [2011] FWAFB 1077.

 4   Exhibit SDA1, at paras 14 and 15.

 5   [2013] FWCA 4490, at para 101.

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