IKAD Engineering Pty Ltd

[2018] FWCA 7365

[2018] FWCA 7365

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.225—Enterprise agreement

IKAD Engineering Pty Ltd
(AG2018/3024)

IKAD ENGINEERING ENTERPRISE AGREEMENT 2014

Manufacturing and associated industries
DEPUTY PRESIDENT BINET	PERTH, 7 DECEMBER 2018

Application for termination of the IKAD Engineering Enterprise Agreement 2014 – application granted.

[1] IKAD Engineering Pty Ltd (IKAD)has applied (Application) to the Fair Work Commission (FWC) for the IKAD Engineering Enterprise Agreement 2014 (Agreement) to be terminated pursuant to section 225 of the Fair Work Act 2009 (Cth) (FW Act).

[2] The Agreement is a single enterprise agreement made pursuant to section 185 of the FW Act with a nominal expiry date of 16 April 2018.

[3] The parties to the Agreement are IKAD and employees employed by IKAD who are engaged in the classifications contained in clause 9 of the Agreement (Employees).

[4] The relevant reference award is the Manufacturing and Associated Industries and Occupations Award 2010 (Award).

[5] There are no employee organisations covered by the Agreement.

[6] The Application was filed by Mr Ben Faulkner (Mr Faulkner) on behalf of IKAD. Mr Faulkner filed a Statutory Declaration in support of the Application (Faulkner Declaration).

[7] Directions were issued on 17 July 2018 which invited IKAD to file submissions in relation to the Application (Directions), outlining why termination of the Agreement would not be contrary to the public interest.

[8] Inter alia, the Directions required IKAD to file evidence as to whether Employees would be better off overall under the Award than the Agreement (including a comparison table setting out all the terms which differ) and which, if any, Employees may not be better off overall.

[9] The Directions also directed IKAD to provide a copy of the Application, the Faulkner Declaration and the Directions to each Employee. The Directions contained an invitation for any employee whose terms of employment are regulated by the Agreement, who wished to be heard with respect to the Application, to contact the FWC by close of business on 9 August 2018.

[10] On 26 July 2018, IKAD filed a statutory declaration which indicated that IKAD had partially complied with the Directions. After correspondence clarifying the requirements set out in the Directions, amended directions (Amended Directions) were issued on 24 August 2018 to ensure that IKAD’s employees were alerted to the opportunity to be heard in relation to the Application and ensure there was sufficient evidence before the FWC to determine the Application.

[11] On 31 August 2018, IKAD filed a statutory declaration confirming that the copy of the Application, the Faulkner Declaration, submissions filed in support of the Application and the Amended Directions had been served on all Employees.

[12] On 10 September 2018 IKAD filed a statutory declaration confirming that evidence of the views of Employees and of IKAD as to the anticipated effect of the termination of the Agreement had been served on all Employees.

[13] A number of Employees subsequently contacted my Chambers to verbally express opposition to the Application. One of these employees agreed to provide the details of the grounds for their opposition to the Application in the form of a statutory declaration. The employee in question sought to have their identifying personal information redacted from the statutory declaration before the statutory declaration was provided to IKAD. This was not opposed by IKAD.

[14] IKAD were invited to file further submissions with respect to the issues raised in the statutory declaration. On 9 November 2018, IKAD filed further submissions and additional evidence.

[15] IKAD declined an opportunity to make oral submissions and the Application was determined on the papers.

Legislative Framework

[16] Section 225 of the FW Act states:

“225 Application for termination of an enterprise agreement after its nominal expiry date

If an enterprise agreement has passed its nominal expiry date, any of the following may apply to the FWC for the termination of the agreement:

(a) one or more of the employers covered by the agreement;

(b) an employee covered by the agreement;

(c) an employee organisation covered by the agreement.”

[17] Section 226 of the FW Act states:

“226 When the FWC must terminate an enterprise agreement

If an application for the termination of an enterprise agreement is made under section 225, the FWC must terminate the agreement if:

(a) the FWC is satisfied that it is not contrary to the public interest to do so; and

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

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

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

[18] Under Rule 26(2) of the Fair Work Commission Rules 2013 (Cth) (FW Rules), an application made pursuant to section 225 of the FW Act must be accompanied by a statutory declaration made by an officer or authorised employee of the applicant, and must set out the basis upon which the FWC can be satisfied that the requirements of section 226 of the FW Act have been met.

Submissions

[19] According to IKAD, at the time the Agreement was negotiated, IKAD’s workforce consisted of approximately 90 permanent staff and it was not reliant on a casual workforce to meet the demands of its clients. However IKAD say there has been a shift in the demographics of its workforce and it is now increasingly reliant on casual labour to meet operational requirements.

[20] According to IKAD, they currently employ approximately 54 employees, including both apprentices and casual employees.

[21] IKAD submit that the Agreement contains generous base rates and overtime allowances for both casual and permanent employees. According to IKAD, the casual loading when applied to the base rates of pay greatly impacts IKAD’s overtime costs, ‘leaving little room for increasing the base rates of our permanent, loyal and long serving permanent staff members.’ 1

[22] IKAD submit that with increasing competition in its major market, the Defence sector, coupled with its wish to increase the number of employees who are employed on a permanent basis, the existing overtime rates contained in the Agreement prevent IKAD from competitively tendering for work. IKAD say it is at risk of being unsuccessful in tendering for various work packages, which threatens its future sustainability. 2

[23] In order to address its concerns with respect to business sustainability, IKAD commenced negotiations for a replacement agreement in May 2018. A proposed agreement put to the workforce did not receive majority support. According to the Faulkner Declaration, IKAD is committed to developing a new set of employment terms and conditions which are appropriate for the prevailing circumstances in 2018 but that the terms of the current Agreement are not sustainable in the interim.

Consideration

[24] As the Agreement has passed its nominal expiry date and that IKAD is an employer covered by the Agreement, I find IKAD has standing to make the Application pursuant to section 225(a) of the FW Act and that the appropriate statutory declaration accompanied the Application.

[25] Section 226(a) requires the FWC to be satisfied that it is not contrary to the public interest to terminate the Agreement. This requires the FWC to consider how the termination of the agreement might foreseeably affect the public as a whole, such as the impact on the achievement or otherwise of the various objects of the Act, employment levels, inflation and the maintenance of proper industrial standards.³

[26] The public interest is distinct in nature from the interests of those covered by the Agreement. The views of those covered by an agreement may be relevant to the exercise of the discretion if they shed light on the effect of the termination on public interest, but those views should not be given any independent weight.⁴

[27] The object of the FW Act is set out in section 3 of the FW Act as follows:

“3. Object of this Act

The object of this Act is to provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians by:

…

(b) ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards, modern awards and national minimum wage orders;

…

(f) achieving productivity and fairness through an emphasis on enterprise-level collective bargaining underpinned by simple good faith bargaining obligations and clear rules governing industrial action;

…”

[28] The specific objects in section 171 of the FW Act inform how the general object in section 3 of the FW Act is to be satisfied in the context of matters dealt with in Part 2-4 of the FW Act:

“171. Objects of this Part

The objects of this Part are:

(a) to provide a simple, flexible and fair framework that enables collective bargaining in good faith, particularly at the enterprise level, for enterprise agreements that deliver productivity benefits; and

(b) to enable the FWC to facilitate good faith bargaining and the making of enterprise agreements, including through:

(i) making bargaining orders; and

(ii) dealing with disputes where the bargaining representatives request assistance; and

(iii) ensuring that applications to the FWC for approval of enterprise agreements are dealt with without delay.”

[29] The objects in sections 3(f) and 171(a) of the FW Act are the facilitation of good faith bargaining and the making of enterprise agreements that deliver productivity benefits. Agreements which continue well beyond their nominal expiry date often fail to remain relevant from a labour or business perspective. The termination of an agreement can provide significant impetus for parties to negotiate replacement enterprise agreements that are consistent with market conditions and do not fall below minimum community standards as set out in the relevant modern award.

[30] The Agreement was approved in April 2014. The rates of pay and conditions in the reference Award have since improved. The classifications in the Agreement do not clearly align with the classifications contained in the Award, therefore a direct comparison between the instruments is complex. However, the modelling filed on behalf of IKAD acknowledges that the base rate of pay for Grade One Trades Assistants is lower than the Award. Modelling conducted internally by the FWC indicates that some unapprenticed junior rates and some apprentice rates in the Agreement may now also fall below the equivalent Award rates. Furthermore, depending on the nature and timing of the work which they perform, some Employees whose base rates of pay are higher under the Agreement may be better off overall under the Award, when the relevant Award allowances and penalty rates are applied.

[31] While the Agreement provides for more favourable overtime rates and a more favourable Saturday penalty rate than the Award, the Agreement offers less favourable entitlements than the Award in a number of other respects. This includes the absence of a number of allowances provided for by the Award and the absence of an entitlement to overtime rates for part-time Employees who work beyond their agreed hours. Analysis conducted by the FWC internally identifies other potential deficits in the Agreement in relation to shift allowances and leave loading not noted by IKAD in its submissions.

[32] In determining whether it is appropriate to terminate an enterprise agreement, section 225 of the FW Act requires consideration be given to the views and circumstances of the employer, employees and any employee organisation covered by the agreement. The views and circumstances of IKAD about the Application are summarised earlier in this decision. There are no employee organisations covered by the Agreement. IKAD were directed in the Directions issued on 17 July 2018 to provide evidence of the circumstances of Employees and their views in relation to the Application.

[33] At 4:02pm on 4 September 2018, IKAD sent an email to Employees seeking their views with respect to the Application by no later than close of business the following day. Not surprisingly, given the short notice, only five of the Employees provided responses. None of these responses were in the form of a statutory declaration. Only three were signed and only three were dated. Only one was both signed and dated. All five responses indicated that the Employee in question did not oppose the Application. The Employees expressed the view that IKAD was a fair employer, that job security was important to them and that they were confident that IKAD would offer them better conditions than other employers even if the Agreement were to be terminated.

[34] Given the short time frame provided to Employees to respond, this evidence would have otherwise been insufficient to establish the views of the Employees. However, given that the Amended Directions issued to the Employees on 30 August 2018 gave Employees a period of six days to contact Chambers if they wished to be heard in relation to the Application, I am satisfied that Employees have been given an adequate opportunity to express their views with respect to the Application and to explain their circumstances.

[35] The Employees who expressed their views directly to the FWC all opposed the Application. One of those Employees provided details of their opposition in the form of a statutory declaration (Employee Statutory Declaration). The other Employees did not agree to have their submissions disclosed to IKAD on the grounds that they believed to do so would have adverse consequences for their employment. The views and concerns expressed by these Employees were consistent with those contained in the Employee Statutory Declaration. The Employee Statutory Declaration was provided to IKAD in a redacted form and IKAD was given the opportunity to respond to the views contained in it.

[36] The Employees who contacted Chambers directly expressed significant concern about the reduction in the rate of overtime pay if the Award applied to their employment in lieu of the Agreement. They say that during the negotiations for the Agreement, the Employees agreed to increase their ordinary hours of work and to forego wage increases. They say that as a consequence they have been without wage increases for up to five years and have become dependent on the higher rate of overtime to meet their living expenses. These Employees allege that they have been told that if the Agreement is terminated, they will be offered individual contracts which they expect to be on less satisfactory terms than a collectively negotiated agreement.

[37] In their response to the issues raised in the Employee Statutory Declaration, IKAD noted that the opportunity to receive overtime rates of pay is dependent on discretionary business decisions to perform work outside of ordinary hours of work. IKAD assert that where a bundle of work necessarily involves an amount of work to be conducted in overtime hours, the requirement to continue to pay the higher overtime rate contained in the Agreement is likely to make acceptance of such a bundle of work commercially infeasible.

[38] IKAD also assert that notwithstanding the Agreement did not provide for pay increases, they have offered employees other benefits outside of the Agreement which include discretionary pay rises, bonuses and other non-financial benefits.

[39] IKAD submit that the removal of the obligation to pay double time on all hours worked through the mechanism of the Application is in the public interest as it will allow an Australian owned and operated family business to remain commercially viable and potentially to expand, offering more permanent employment to Western Australians. 5

[40] To address Employee concerns, IKAD have undertaken to ensure there is no decrease in the base rate of pay for any Employee and to honour all other entitlements contained in the Agreement for a period of six months after the Agreement is terminated or until a new agreement is concluded, whichever is the sooner, with the only exception of applying time and a half rates on the first three hours of overtime worked on Monday through to Friday, rather than double time rates, which is in line with the Award. 6

Conclusions

[41] Termination of the Agreement will provide the Employees with access to minimum entitlements contained in the Award to which they are not currently entitled. It will provide IKAD with the opportunity to remain competitive and hopefully offer more opportunities for permanent employment. I am therefore satisfied that it is not contrary to the public interest to terminate the Agreement.

[42] IKAD’s undertaking to ensure that current Employee entitlements with the exception of overtime rates of pay are not reduced for a period of six months from the date the Agreement is terminated or until a new agreement is negotiated, addresses Employee concerns with respect to a sudden loss of entitlements.

[43] A prospective agreement termination date will allow Employees to adjust to amended rates of pay for overtime and for IKAD to ensure its payroll systems are adjusted to ensure compliance with the Award.

[44] Taking into account all the circumstances, including the views and circumstances of IKAD and the Employees, I am satisfied that it is appropriate to terminate the Agreement.

[45] The termination will come into effect from the first payroll period on or after 1 January 2019.

DEPUTY PRESIDENT

 1   IKAD’s Outline of Submissions, filed 26 July 2018.

 2   Ibid.

3 Re Kellogg Brown and Root, Bass Strait (Esso) Onshore/Offshore Facilities Certified Agreement 2000 (2005) 139 IR 34 at 40–41.

4 Ibid.

 5   IKAD’s Final Submissions, filed 9 November 2018.

 6   Ibid.

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