National Union of Workers

[2015] FWCA 4794

[2015] FWCA 4794

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.185—Enterprise agreement

National Union of Workers
(AG2015/1208)

FLOWLINE & NATIONAL UNION OF WORKERS ENTERPRISE AGREEMENT 2014-2017

Manufacturing and associated industries
COMMISSIONER RYAN	MELBOURNE, 15 JULY 2015

Application for approval of the Flowline & National Union of Workers Enterprise Agreement 2014-2017.

[1] An application has been made for approval of an enterprise agreement known as the Flowline & National Union of Workers Enterprise Agreement 2014-2017 (the Agreement). The application was made pursuant to s.185 of the Fair Work Act 2009 (the Act) and was made by National Union of Workers (NUW). The agreement is a single-enterprise agreement.

[2] On 26 May 2015 my Associate contacted Ms Barrett of the NUW as applicant in this matter in order to identify to her a number of concerns I held in relation to the content of the Agreement. Specifically my concerns went to clauses 6.1.1, 22.2.2 and 29.10.9.

[3] Mr Paul Young of Flowline Industries Pty Lt (the employer) provided undertakings in relation to clauses 6.1.1 and 29.10.9 but not in relation to clause 22.2.2.

[4] Clause 22.2.2 of the Agreement states:

“22.2.2. If an employee fails to give notice the employer shall have the right to withhold moneys due to the employee with a maximum amount equal to the ordinary time rate of pay for the period of notice.”

[5] In identifying my concern with this clause I referred the NUW and the employer to my decision in Hydro-Chem Pty Ltd, [2014] FWCA 5163, wherein I discussed in detail my concern with this type of provision in an enterprise agreement:

"The concern with clause 15.2 is that it permits a deduction from wages in circumstances where such a deduction may not be reasonable.

Section 326(1) of the Act provides as follows:


‘326 Certain terms have no effect

Unreasonable payments and deductions for benefit of employer

(1) A term of a modern award, an enterprise agreement or a contract of employment has no effect to the extent that the term:

(a) permits, or has the effect of permitting, an employer to deduct an amount from an amount that is payable to an employee in relation to the performance of work; or

(b) requires, or has the effect of requiring, an employee to make a payment to an employer or another person;
if either of the following apply:

(c) the deduction or payment is:

(i) directly or indirectly for the benefit of the employer, or a party related to the employer; and
(ii) unreasonable in the circumstances;

(d) if the employee is under 18—the deduction or payment is not agreed to in writing by a parent or guardian of the employee.’

I note that clause 15.2 of the agreement is similar to clause 22.2 of the Manufacturing and Associated Industries and Occupations Award 2010 which provides that:

‘22.2 Notice of termination by an employee

The notice of termination required to be given by an employee is the same as that required of an employer except that there is no requirement on the employee to give additional notice based on the age of the employee concerned. If an employee fails to give the required notice the employer may withhold from any monies due to the employee on termination under this award or the NES, an amount not exceeding the amount the employee would have been paid under this award in respect of the period of notice required by this clause less any period of notice actually given by the employee.’

Clause 22.2 of the Manufacturing and Associated Industries and Occupations Award 2010 has its origin in the 1984 Termination, Change and Redundancy Cases. In the second Termination, Change and Redundancy Case, the Full Bench of the Australian Industrial Relations Commission, in settling the orders to be issued to give effect to the first Termination, Change and Redundancy Case, considered the issue of employee notice of termination as follows:

"Notice of termination by employee
The decision provided that an employee should be required to give the additional notice based on years of service but that it would not be appropriate to require increased notice from the employee based on age.
The primary argument in relation to this part of the decision was concerned with the question whether an employee should be liable for forfeiture only of wages held in hand when an employee fails to give the required notice or whether other moneys in hand might be used. The employers also sought to provide an award right for an employer to recover any moneys due.

Both of these provisions were opposed by the ACTU. In arguing that the amount of possible forfeiture should be limited to wages only it argued that such a restriction would be a balance between the competing considerations of reciprocity of treatment for employers and employees and the need not to impede the mobility of labour.

We are prepared to provide that the employer shall have the right to withhold any moneys with a maximum amount equal to the ordinary time rate for the period of notice but we are not prepared to extend the award by including a provision which would give the employer an award right to recover any moneys.

We are prepared to provide that:

5. The notice of termination required to be given by an employee shall be the same as that required of an employer, save and except that there shall be no additional notice based on the age of the employee concerned.
If an employee fails to give notice the employer shall have the right to withhold moneys due to the employee with a maximum amount equal to the ordinary time rate of pay for the period of notice."

I also note that in 1996 the Australian Industrial Relations Commission was required by Item 49 of the Workplace Relations and Other Legislation Amendment Act 1996 to undertake an award simplification exercise. In the Award Simplification Decision, the Australian Industrial Relations Commission made no mention of the issue of employees forfeiting an amount of wages due to a failure to give the appropriate notice of termination. The Award Simplification Decision simply identified that in the draft order issued by the Commission in relation to the Hospitality Award the existing provision relating to notice of termination by an employee was retained in the new simplified award. The provision in the Hospitality Award was in identical terms to that first provided by the second TCR decision.

It is not clear in any circumstance that a deduction from the final pay of an employee pursuant to clause 15.2 of the agreement is a payment which is "directly or indirectly for the benefit of the employer".

It is clear that the deduction from an employee's final pay which is contemplated by clause 15.2 is intended to penalize an employee for not giving the required notice of termination to the employer.

The deduction is premised upon the employee having breached a term of the agreement namely the requirement to give a period of notice to the employer. It is sufficient for the employer to allege that the employee has breached the notice of termination requirement as it is the employer who then calculates the value of the notice not given and it is the employer who then makes the deduction from the employee's final pay. As the Full Bench in the second TCR case stated the withholding is by way of a "forfeiture only of wages held in hand when an employee fails to give the required notice".

There is no independent determination that the employee has breached a term of the agreement and no independent determination of the amount of money to be withheld from the employee.

Given that Chapter 4 of the Act makes specific provisions for alleged breaches of an enterprise agreement to be dealt with through appropriate court action it would appear to be inconsistent with the specific provisions of the Act to permit an employer to impose an effective penalty on an employee in circumstances where that function is the Court's alone.

It would appear that there is a real question as to whether clauses such as clause 15.2 offend against the constitutional doctrine of separation of powers. In Luton v Lessels, Callinan J posed 11 questions for considering whether judicial power was being exercised by the Child Support Registrar under the Child Support (Registration and Collection) Act 1988. One of the questions was: "is the decision enforceable by the maker of it or by the institution of which he or she is a member?" Callinan J at para 199 answered this question as follows:

‘The scheme does make provision for a system of enforcement. But that system is different from the system of enforcement by a court's own officials, bailiffs and sheriffs, acting under specific court orders authorizing various curial processes, of, for example, forfeiture, seizure, arrest, execution and sale.’

As can be seen Callinan J considered that part of judicial power was the system of enforcement by a court's own officials, bailiffs and sheriffs, acting under specific court orders authorizing various curial processes including forfeiture.

The very fact that the second TCR decision identified that the withholding of monies from an employee who had not given the appropriate amount of notice of termination to their employer amounted to a forfeiture of pay suggests strongly that the enforcement mechanism within clause 15.2 of the Agreement is an exercise of a power which is judicial and which can only be exercised by the Courts.

The decisions in both WWF v Alexander and R v Kirby; ex parte Boilermakers Society of Australia, have made clear the need for a separation between the two functions of making industrial instruments such as awards and enterprise agreements and the enforcement of the industrial instruments.”

[citations omitted]

[6] The employer has provided an undertaking in relation to clauses 6.1.1 and 41. Those undertakings have become terms of the Agreement pursuant to s.190(1) of the Act and are appended at Appendix A. The employer did not provide any undertaking in relation to clause 22.2.2.

[7] I am of the view that clause 22.2.2 is a term of no effect because of s.326 of the Act and that it is not a term which should be in an agreement. However, it does not appear that the Act permits me to refuse the approval of an enterprise agreement simply because it contains a term that has no effect. 1 Therefore I approve the Agreement even though it contains a term of no effect.

[8] The National Union of Workers, being a bargaining representative for the Agreement, has given notice under s.183 of the Act that it wants the Agreement to cover it. As required by s.201(2) I note that the Agreement covers the organisation.

[9] I am satisfied that each of the requirements of ss186 and 187 as are relevant to this application for approval have been met.

[10] The Agreement is approved and, in accordance with s.54(1), will operate from 22 July 2015. The nominal expiry date of the Agreement is 26 August 2017.

COMMISSIONER

APPENDIX A

 1   [2015] FWCFB 1833 at para 47.

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