Metalform Structures Pty Ltd

[2014] FWC 5439

[2014] FWC 5439

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.185—Enterprise agreement

Metalform Structures Pty Ltd
(AG2014/6707)

Manufacturing and associated industries
COMMISSIONER RYAN	MELBOURNE, 11 AUGUST 2014

Application for approval of the Metalform Structures P/L Enterprise Agreement 2014.

[1] An application for approval of the Metalform Structures P/L Enterprise Agreement 2014 (the Agreement) was filed with the Commission on 8 July 2014.

[2] The Commission had concerns with clauses 10, 13 and 22.1 of the Agreement and these concerns were raised with the employer.

[3] Undertakings were offered by the employer in relation to clauses 10 and 13 which addressed the concerns of the Commission.

[4] Clause 22.1 of the Agreement deals generally with the subject of annual leave. The clause opens with the statement: “Annual leave is provided for in the NES. Annual leave does not apply to casual employees.”

[5] The clause then deals with the following aspects of annual leave:

● Payment for period of annual leave
● Annual leave loading
● Excessive accrued annual leave
● Paid leave in advance of accrued entitlement
● Annual close down
● Proportionate leave on termination

[6] The Commission’s concern related only to that part of clause 22.1 which dealt with the subject “Excessive accrued annual leave” which is in the following terms:

“Excessive Accrued Annual Leave

Notwithstanding the NES, if an employer has genuinely tried to reach agreement with an employee as to the timing of taking annual leave, the employer can require the employee to take annual leave by giving not less than four weeks notice of the time when such leave is to be taken if:

(a) at the time the direction is given, the employee has four weeks or more of annual leave accrued; and

(b) the amount of annual leave the employee is directed to take is less than or equal to a quarter of the amount of leave accrued.”

[7] Section 93(3) and (4) of the Act permit awards and enterprise agreements to deal with the taking of annual leave in some circumstances.

“Terms about requirements to take paid annual leave

(3) A modern award or enterprise agreement may include terms requiring an employee, or allowing for an employee to be required, to take paid annual leave in particular circumstances, but only if the requirement is reasonable.

Terms about taking paid annual leave

(4) A modern award or enterprise agreement may include terms otherwise dealing with the taking of paid annual leave.

[8] In the Award Modernisation decision 1, the Full Bench addressed the issue of taking annual leave as part of considering a number of general issues.

“GENERAL ISSUES AND STANDARD CLAUSES

[11] We deal in this section with a large number of issues of general importance for the content of modern awards and, in particular, the content of standard clauses. We shall not deal with the same issues in later sections of the decision unless it is necessary to do so. Many matters not dealt with in this section are discussed in the context of the industry or occupation concerned in the next section of this decision.

...

Annual leave

[95] As we noted in our statement of 12 September 2008, it has not been possible to develop a single model clause for annual leave. While some parties have sought greater uniformity in the area, there is a wide range of differing provisions in the awards and NAPSAs that we are dealing with. In many cases the provisions are more generous to employees than the provisions of the NES. Areas in which this can be observed are the quantum of holiday pay, leave loading and the definition of shift worker. In considering what should be included in the modern award on each of these matters we have attempted to identify or formulate a standard entitlement in the area covered by the modern award rather than preserving a range of differing entitlements. This involves a degree of rationalisation at the award level only and will not result in standard provisions across all awards.

[96] There are also some issues concerning the time of taking leave. The time of taking leave is referred to in para.33 of the consolidated request and s.36(1)(b) of the NES. Section 36(1)(b) reads:

“36 Modern awards may include certain kinds of provisions

(1) A modern award may include provisions of any of the following kinds:

… …

(b) provisions requiring an employee (or allowing for an employee to be required) to take paid annual leave in particular circumstances;

… …”

[97] The provisions in awards and NAPSAs governing annual close-downs vary significantly. It is preferable that we do not alter provisions which have been specifically developed for particular industries. We have adopted the approach of attempting to identify an industry standard in each case. This means there may be some variation in the close-down provisions.

[98] One issue that has arisen repeatedly, and is provided for in the NES, is the right of an employer to require that an employee take arrears of annual leave. We think that an employer should have the ability to reduce annual leave liability by compelling employees to take annual leave provided appropriate notice is given. While there may be different approaches to this question, in each of the awards there will be some provision which will give the employer the ability to take action to reduce arrears.”

[9] Clause 41.6 of the Manufacturing and Associated Industries and Occupations Award 2010 gave effect to this part of the Full Bench decision.

“41.6 Excessive leave

Notwithstanding s.88 of the Act, if an employer has genuinely tried to reach agreement with an employee as to the timing of taking annual leave, the employer can require the employee to take annual leave by giving not less than four weeks notice of the time when such leave is to be taken if:

(a) at the time the direction is given, the employee has eight weeks or more of annual leave accrued; and

(b) the amount of annual leave the employee is directed to take is less than or equal to a quarter of the amount of leave accrued.”

[10] The Commission, in making the modern awards, considered that it was not unreasonable to provide an entitlement for an employer to require an employee to take a period of annual leave where the employee has 8 or more weeks of accrued annual leave. I note that while the language of clause 36(1)(b) of the NES, as it was in 2008, did not include reference to reasonableness of the requirement to take leave, the Consolidated Award Modernisation Request issued by the Minister did require that an award term could only require an employee to take a period of annual leave where it was reasonable.”

[11] The plain language of clause 41.6 identifies that it is to operate notwithstanding s.88 of the Act which is as follows:

“88 Taking paid annual leave.

(1) Paid annual leave may be taken for a period agreed between an employee and his or her employer.

(2) The employer must not unreasonably refuse to agree to a request by the employee to take paid annual leave.”

[12] The relationship between s.88 and s.93 is clear when the terms of clause 41.6 of the award are considered.

[13] The general proposition that annual leave should be able to be taken at a time suitable to the employee is recognised within s.88. The entitlement to take annual leave is not provided as an absolute right to be exercised by the employee at the employee’s sole discretion. Rather the entitlement to take a period of annual leave is qualified by the requirement that there be agreement between the employee and the employer as to when annual leave is taken. Importantly, the employer’s ability to refuse a request from an employee to take a period of annual leave is itself highly constrained.

[14] The Explanatory Memorandum to the Act explained the purpose of s.93(3) as follows:

“381. Subclause 93(3) permits terms to be included in an award or agreement that require an employee, or that enable an employer to require or direct an employee, to take paid annual leave in particular circumstances, but only if the requirement is reasonable. This may include the employer requiring an employee to take a period of annual leave to reduce the employee’s excessive level of accrual or if the employer decides to shut down the workplace over the Christmas/New Year period.

382. In assessing the reasonableness of a requirement or direction under this subclause it is envisaged that the following are all relevant considerations:

the needs of both the employee and the employer’s business;

any agreed arrangement with the employee;

the custom and practice in the business;

the timing of the requirement or direction to take leave; and

the reasonableness of the period of notice given to the employee to take leave.”

[15] Clause 22.1 of the enterprise agreement does not contain any suggestion that the employer’s direction to an employee to take a period of annual leave need be reasonable. Nor that the employer need to have considered any request from an employee to take a period of annual leave. Rather the plain language of clause 22.1 provides the employer with an absolute right to direct an employee to take a period of annual leave whenever the employee has accrued 4 weeks’ leave.

[16] One of the examples referred to in the Explanatory Memorandum as being a reasonable requirement to take a period of annual leave is for an annual close down. In both the modern award and the enterprise agreement this is dealt with separately from the requirement to take a period of annual leave where the employee has accrued an excessive amount of annual leave.

[17] The real effect of clause 22.1 of the Agreement is that it permits the employer to direct an employee to take a period of annual leave in circumstances where, if the modern award applied, the employer would have to try to reach agreement with the employee about any request made by the employee to take leave. This is because clause 41.6 of the award does not override the operation of s.88 of the Act until an employee has accrued at least 8 weeks of annual leave.

[18] Clause 22.1 of the Agreement operates to exclude the operation of s.88 of the Act as soon as an employee has accrued 4 weeks of annual leave.

[19] Whilst the Commission has a concern in relation to clause 22.1 an issue arises as to whether that concern can or needs to be addressed by an undertaking.

[20] In relation to the concern raised by the Commission as to clause 22.1 of the Agreement the employer advised the Commission that:

“In relation to Clause 22.1 (Excessive Annual Leave), the Company wishes to state that this clause remains unchanged from the previous Enterprise Agreement (Metalform Structure P/L Enterprise Agreement 2011) preceding the current Agreement that has been submitted for approval. The previous Agreement was approved by the Fair Work Commission with the existing wording regarding “excessive annual leave” which remains unchanged in the Metalform Structures P/L Enterprise Agreement 2014. No undertaking was required for this clause at that time. The Metalform Structures P/L Enterprise Agreement 2014 is a stand-alone comprehensive agreement negotiated with the employees. We therefore are of the view that an undertaking to change the “Excessive Annual Leave” provision should not be required as the Agreement in totality complies with the BOOT requirements.”

[21] Section 93 of the Act clearly permits enterprise agreements to contain terms which deal with aspects of annual leave, particularly cashing out of annual leave, requiring an employee to take leave and more generally, “terms otherwise dealing with the taking of paid annual leave”.

[22] In Armacell Australia Pty Ltd and others (Armacell) 2,a Full Bench of the Commission considered the operation of s.93 in the context of the approval of enterprise agreements which contained terms permitting the cashing out of annual leave:

“[9] The Commissioner decided, in each case, that the cashing out of leave provision was an obstacle to the approval of the agreement. The process of reasoning was in substance that although the provisions were consistent with s.93, their operation was a matter to be considered when applying the BOOT. On a proper application of that test, according to the Commissioner, the cashing out of annual leave was such a significant disadvantage that the agreement did not meet the requirement in s.186(2)(d).

...

[12] The most important question to be resolved is how ss.186(2)(c) and (d) are to be interpreted in relation to each other. Put simply, if a term in an enterprise agreement providing for cashing out of annual leave complies with s.186(2)(c) because it does not contravene s.55, could that term nevertheless cause the agreement to fail the BOOT under s.186(2)(d)? If the Commissioner’s view is correct, this question is capable of arising whenever a term of an enterprise agreement deals with a matter prescribed in the NES in a way which complies with s.55

[13] The first point to note is the terms of the cashing out provision in s.93. While an enterprise agreement may include terms providing for the cashing out of paid annual leave, the matters in s.93(2) are in the nature of protections for employees and could be described as safeguards. Annual leave cannot be cashed out if the leave balance would be less than four weeks, each cashing out must be the subject of written agreement and there must be no discounting of the payment. It seems clear, as a matter of interpretation, that the legislature considered the question of safeguards and that it intended the ones specified in s.93(2) to be sufficient. It would be inconsistent with that intention to hold that the safeguards are inadequate and that more or other safeguards should be applied.

[14] The Commissioner was concerned that although the relevant term complied with s.93(2), situations could occur in which employees might not take annual leave and the purpose of annual leave might be frustrated. This was an error. Whether the Commissioner’s concern is a valid one is beside the point. The legislation makes it plain that an enterprise agreement may include a term for cashing out providing it complies with s.93.

...

[18] The second matter concerns the application of s.55. Section 186(2)(c) requires satisfaction that the terms of the agreement do not contravene s.55. We have set s.55 out earlier. The test established by s.186(2)(c) is to be applied independently of the BOOT. It may be that an agreement which provides for cashing out of annual leave meets the requirements of s.93(2) but nevertheless contravenes s.55. This might occur if, for example, the terms of the agreement resulted in a reduction in the amount of annual leave the NES provides for. It was not suggested that any of the annual leave terms in these agreements contravenes s.55.”

[23] It is clear from the decision in Armacell that the BOOT has no relevance to a term of an enterprise agreement that is permitted by s.93 of the Act. However, as the Full Bench makes clear in Armacell the relationship between s.55 and s.93 and a term of the Agreement permitted by s.93 still needs to be considered as part of consideration of an agreement under s.186.

[24] Relevantly s.55 provides as follows:

“National Employment Standards must not be excluded

(1) A modern award or enterprise agreement must not exclude the National Employment Standards or any provision of the National Employment Standards.

Terms expressly permitted by Part 2-2 or regulations may be included

(2) A modern award or enterprise agreement may include any terms that the award or agreement is expressly permitted to include:

(a) by a provision of Part 2-2 (which deals with the National Employment Standards); or

(b) by regulations made for the purposes of section 127.

Note: In determining what is permitted to be included in a modern award or enterprise agreement by a provision referred to in paragraph (a), any regulations made for the purpose of section 127 that expressly prohibit certain terms must be taken into account.

(3) The National Employment Standards have effect subject to terms included in a modern award or enterprise agreement as referred to in subsection (2).

Note: See also the note to section 63 (which deals with the effect of averaging arrangements).”

[25] Relevantly s186 provides as follows:

“Basic rule

(1) If an application for the approval of an enterprise agreement is made under section 185, the FWC must approve the agreement under this section if the requirements set out in this section and section 187 are met.

Note: The FWC may approve an enterprise agreement under this section with undertakings (see section 190).

Requirements relating to the safety net etc.

(2) The FWC must be satisfied that:

..

(c) the terms of the agreement do not contravene section 55 (which deals with the interaction between the National Employment Standards and enterprise agreements etc.); “

[26] Section 186(2)(c) requires that the Commission be satisfied that the terms of the agreement do not contravene section 55 before the Commission can approve an enterprise agreement.

[27] Section 55(2) makes it very clear that an enterprise agreement can contain a clause permitted by s.93(3).

[28] If a clause in an enterprise agreement does not meet the requirements of s.93(3) then it will not be permitted by s.55(2)(a) of the Act. A clause which purports to meet the requirements of s.93(3) but which does not would have the effect of excluding the NES or part of it as such a clause operates to oust the operation of s.88 of the Act. Such a clause in an enterprise agreement would therefore contravene s.55(1).

[29] Having regard to the Award Modernisation decision 3, I consider that a term in an enterprise agreement, such as clause 22.1,which permits the employer to require an employee take annual leave once the employee has accrued 4 weeks of annual leave is not a reasonable requirement.

[30] Clause 22.1 of the Agreement contains a term which does not meet the requirements of s.93(3) and therefore contravenes s.55(2). As the Commission cannot be satisfied that the Agreement does not contravene s.55, I must dismiss the application in this matter.

COMMISSIONER

 1   [2008] AIRCFB 1000.

 2   [2010] FWAFB 9985.

 3   [2008] AIRCFB 1000.

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