National Union of Workers v Alto Manufacturing Pty Ltd

[2015] FWC 2730

[2015] FWC 2730

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.739—Dispute resolution

National Union of Workers
v
Alto Manufacturing Pty Ltd
(C2014/1686)

DEPUTY PRESIDENT LAWRENCE SYDNEY, 1 MAY 2015

Alleged dispute about any matters arising under the enterprise agreement and the NES; [s186(6)].

[1] On 12 September 2014 the National Union of Workers (NUW) filed an application to deal with a dispute in accordance with a dispute settlement procedure pursuant to s.739 of the Fair Work Act 2009 (the Act).

[2] The employer respondent was Alto Manufacturing Pty Ltd (Alto) which operates a plastics food packaging manufacturing operation at Bankstown in Western Sydney. At the time of the initial conference there were approximately 150 employees including 30 employee of Labour Power, the labour hire company. At the time of the February hearing, there were 110 employees, including 13 casual employees of the labour hire company.

[3] The relevant agreement is the Alto Manufacturing Pty Ltd Bankstown Enterprise Agreement 2011 [AE888259] (the Agreement).

[4] The NUW claimed that Alto had failed to properly apply clause 16.3.2 of the Agreement to employees engaged through a labour hire company. Two employees had been at the Bankstown plant for over one year but had not been converted from casual to permanent employment. The employees had commenced on 13 October 2009 and 13 May 2013. The issue had been discussed in accordance with the Disputes Settlement Clause. However, Alto had refused to convert the employees, notwithstanding the provision that says that all casuals, whether directly employed or not, shall receive the same conditions.

Relevant Agreement Provisions

[5] The nominal expiry date of the agreement is 1 May 2015.

The relevant clauses are:

“11 AVOIDANCE OF INDUSTRIAL DISPUTES

For the purpose of the following disputes procedure, it is recognised that the involvement of a Union official, delegate or site representative is on the basis of the Employees affected having the right to alternative representation if they choose. In such a case the procedure, where it refers to union representation, will be read as referring to the affected employee(s) and/or their representatives.

(i) Any dispute arising out of employment (under) [sic] the Agreement or in relation to the National Employment Standards (NES) shall be referred by the union representative or an individual Employee to the Employer representative appointed for this purpose.

(ii) Failing settlement at this level between the Employer and the union site representative the site representative shall refer the dispute within twenty-four hours to the union organiser who will take the matter up with the Employer.

All efforts shall be made by the Employer and the union organiser to settle the matter but, failing settlement, the union organiser shall refer the dispute to the union secretary and the Employer shall refer the dispute to its Employer association/higher representative and the union secretary shall take the matter up with that person.

(iii) During the discussions the status quo shall remain and work shall proceed normally. “Status quo” shall mean the situation existing immediately prior to the dispute or the matter giving rise to the dispute.

(iv) At any time either party shall have the right to notify the dispute to Fair Work Australia (“FWA”) for conciliation in the first instance, and, if conciliation fails, for arbitration. The parties agree that FWA shall be able to exercise whatever functions and/or powers it considers necessary to conduct any arbitral process and thereby finalise the dispute in question. This shall include the powers to issue subpoenas, direct witnesses to attend and give evidence.

It is a term of this agreement that the parties agree, subject to any right to appeal to the full bench of FWA, to accept the arbitrated decision of FWA as final and binding on the parties.

16 EMPLOYMENT CATEGORIES

16.3 Casual employment

The parties are committed to maximising the use (of) permanent labour on the site.

16.3.1 A casual Employee is to be one engaged and paid as such. A casual Employee for working ordinary time shall be paid an hourly rate calculated on the basis of one thirty-eighth of the weekly rate of the Agreement for the work being performed plus a casual loading of 25 percent. The loading constitutes part of the casual Employee’s all purpose rate.

In addition to their casual loading casual employees, whether directly engaged by the Employer or not, will be employed on the same terms and conditions as apply to other employees who are covered by the Agreement.

16.3.2 A casual Employee, other than an irregular casual Employee as defined in clause 16.3.15 who has been engaged by the Employer for a sequence of periods of employment under this Agreement during a period of twelve (12) months shall thereafter have the right to elect to have his or her contract of employment converted to full-time employment or part-time employment if the employment is to continue beyond the conversion process.

This excludes casuals who are covering absences of permanent employees for reasons of long term illness, maternity leave, workers compensation/selective duties and seasonal casuals who are engaged at Alto for short periods.

16.3.3 The employer of such an Employee shall give the Employee notice in writing of the provisions of this clause within four weeks of the Employee having attained such period of twelve (12) months. The Employee retains his or her right of election under this clause if the Employer fails to comply with this paragraph.

16.3.4 Any such casual Employee who does not within four weeks of receiving written notice elect to convert his or her ongoing contract of employment to a full-time employment or a part-time employment will be deemed to have elected against any such conversion.

16.3.5 Any casual Employee who has a right to elect under clause 16.3.2 upon receiving notice under clause 16.3.3 or after the expiry of the time for giving such notice, may give four weeks notice in writing to the Employer that he or she seeks to elect to convert his or her ongoing contract of employment to full-time or part-time employment, and within four weeks of receiving such notice, the Employer shall consent to or refuse the election but shall not unreasonably so refuse. Any dispute about a refusal of an election to convert an ongoing contract of employment shall be dealt with as far as practicable with expedition though the dispute settlement procedure.

16.3.6 Once a casual Employee has elected to become and been converted to a full-time Employee or a part-time Employee, the Employee may only revert to casual employment by written agreement with the Employer.

16.3.7 If a casual Employee has elected to have his or her contract of employment converted to full-time or part-time employment in accordance with clause 16.3.5, the Employer and Employee in accordance with this subparagraph and subject to clause 16.3.5 shall discuss and agree upon:

(i) which form of employment the Employee will convert to, that is, full-time or part-time; and
(ii) if it is agreed that the Employee will become a part-time Employee, the number of hours and the pattern of hours that will be worked, as set out in clause 16.2.

Provided that an Employee who has worked on a full-time basis throughout the period of casual employment has the right to elect to convert his or her contract of employment to full-time employment and an Employee who has worked on a part-time basis during the period of casual employment has the right to elect to convert his or her contract of employment to part-time employment, on the basis of the same number of hours and times of work as previously worked, unless other arrangements are agreed upon between the Employer and Employee.

Following such agreement being reached, the Employee shall convert to full-time or part-time employment.

Where, in accordance with clause 16.3.5, an Employer refuses an election to convert, the reasons for doing so shall be fully stated to and discussed with the Employee concerned and a genuine attempt made to reach agreement.

Any dispute about the arrangements to apply to an Employee converting from casual employment to full-time employment shall be dealt with as far as practicable with expedition through the dispute settlement procedure.

16.3.8 Subject to clause 13, Facilitative Provisions, of the Agreement, by agreement between the Employer and the majority of the Employees in the relevant workplace, or section of it or with the casual Employee concerned, the Employee may apply clause 16.3.2 as if the reference to six months is a reference to 12 months, but only in respect of a currently engaged individual Employee or group of Employees. Any such agreement shall be recorded in the time and wages records. Any such agreement reached with an individual Employee may only be reached within the two months prior to the period of six months referred to in clause 16.3.2.

16.3.9 The Employer when engaging a person for casual employment must inform the Employee then and there that the Employee is to be Employed, as a casual, stating by whom the Employee is Employed, the job to be performed and classification level, the actual or likely number of hours required, and the relevant rate of pay.

16.3.10 The Employer shall give to a casual Employee who has been engaged for one or more periods of employment extending over three or more weeks in any calendar month, and whose employment is or is likely to be ongoing, a note in writing signed by or on behalf of the Employer stating:’

1. The name and address of the Employer;

2. If the Employee has been engaged by the Employer to perform work on hire to another person or Employer or is regularly engaged to perform work on hire to other persons or companies, a statement to that effect;

3. The job to be performed and the classification level on which the Employee has been or is likely to be engaged;

4. As far as practicable, the terms of the current engagement, including the likely number and likely number and likely pattern of hours to be worked, the casual rate or other loading applied and the base rate of pay on which the loading is applied;

5. The contingency on which the engagement expires, or the notice, if any, that will be given to terminate any ongoing employment;

16.3.11 It shall be sufficient compliance with clause 16.3.10 if the Employer gives such a note in writing upon or following the first occasion on which the casual Employee has been so engaged for a period or periods extending over three or more weeks in any calendar month.

16.3.12 On each occasion a casual Employee is required to attend work the Employee is entitled to payment for a minimum of four hours work.

16.3.13 In order to meet his or her personal circumstances a casual Employee may request and the Employer may agree to an engagement for less than the minimum of four hours. Any dispute about a refusal to such a request is to be dealt with as far as practicable with expedition through the dispute settlement procedure.

16.3.14 An Employee must not be engaged and re-engaged to avoid any obligation under this Agreement.

16.3.15 An “irregular casual Employee” is one who has been engaged to perform work on an occasional or non-systematic or irregular basis.

16.3.16 The provisions of sub-clauses 16.3.2 to 16.3.8 inclusive, do not apply to irregular casual Employees.”

Commission Proceedings

[6] The application was dealt with on 23 September 2014 in a conference chaired by me. However, the dispute could not be resolved. Ultimately, with the agreement of the parties, the matter was set down for hearing. Agreed directions provided for the final reply by the NUW just before Christmas 2014. The hearing took place on 9 February 2015.

[7] The NUW was represented by Mr S. Mueller and Alto by Mr D. Marshall of the Australian Industry Group.

[8] The parties relied on the following written submissions filed:

● NUW 21 November 2014

● Alto 12 December 2014

● NUW 23 December 2014

[9] Witness statements and oral evidence for the NUW were provided by:

● Organiser Marisa Bernardi (Exhibit M1)

● Organiser Justin Cody (Exhibit M2)

● Employee Andre Snijders (Exhibit M3)

● Employee Vesna Vucic (Exhibit M4)

[10] Mr Rick Michael from Alto gave oral evidence, at my request, mainly in relation to the nature of Alto’s operation and the workforce.

The Case for the NUW

[11] It is submitted that a casual employee not directly employed by Alto, but rather by a labour hire company, has the right to elect to convert to permanent employment under clause 16.3.2 of the Agreement.

[12] Reliance is placed on clause 16.3.1 which provides casual employees “whether directly engaged by the employer or not” receive the same terms and conditions as “other employees”. This would apply to employees of the labour hire company.

[13] I note that the casual conversion provisions in sub-clauses 16.3.2 to 16.3.8 do not apply to “irregular casual employees” in accordance with clause 16.3.16. Clause 16.3.2 further describes an eligible employee as a casual engaged “for a sequence of periods of employment” during a one year period.

[14] It is submitted that it was agreed in negotiations that the casual conversion provision will apply to labour hire employees. In any event, Alto does not directly employ casuals.

[15] The evidence of Andre Snijders (Exhibit M3) was that labour hire employees were integrated into the Alto operation.

[16] Justin Cody (Exhibit M2) became the NUW organiser in 2013. He raised the issue of conversion of long-standing employees of Labour Power Recruiting Services to direct permanent employment with Alto. In 2014, this was agreed to for Mr Ken Tobin who had been a labour hire employee on the site for six years. However, conversion for Ms Linda Pua and Mr Mohammed Munir, the subjects of the original application, was refused in August 2014. Instead, they were advised by the labour hire company of the casual conversion provision under the Manufacturing and Associated Industries and Occupations Award 2010 [MA000010] (the Award).

[17] Marisa Bernardi (Exhibit M1) was the NUW Organiser responsible for the negotiation of the Agreement. She gave evidence of the 2009 Agreement and Memorandum of Understanding with the previous employer. She gave extensive evidence of the EBA negotiations and attaches the various agreements and negotiation drafts. Ms Bernardi’s evidence was that the casual conversion clause was agreed to apply to both direct employees and labour hire employees. Alto’s requirement was that 12 months service be the required period as opposed to six months which had been in the 2007 Memorandum of Understanding.

[18] Ms Bernardi was adamant that casual conversion had been a major issue in the negotiations, and the conversion of employees of the labour hire company to direct employment by Alto had been specifically addressed. The 2009 Memorandum of Understanding was attached to Exhibit M1 (at MB2). It contained the provision which was transferred to the 2011 Agreement in clause 16.3.1. Her evidence was not challenged by direct evidence from Alto.

[19] The NUW emphasises that the obligations of the casual conversion clause are exclusively on Alto. There is no suggestion that the employees of the labour hire company sought permanent employment with it.

[20] The clause therefore is directly related to the job security of the employees of Alto.

[21] The distinction that has been drawn by the Commission and the High Court, it is submitted, is between clauses prohibiting the use of contractors and those regulating their conditions.

[22] The NUW submits that, consistent with relevant Full Bench authorities, the casual conversion clause is a matter pertaining. Alto employees are concerned about their job security. Labour hire employees are integrated into Alto’s operations and their increased use will be to the detriment of Alto employees’ job security. (See Exhibit M4, Statement of Vesna Vucic).

The Case for Alto

[23] Alto submits that the NUW’s interpretation of the Agreement, in particular clause 16.3, is not consistent with the ordinary meaning of the words. In its submission, there is no ambiguity. Further it would not be a matter pertaining to the employment relationship, as defined by s.172 of the Act. To the extent the clause restricts or qualifies the engagement of third parties, it would be unenforceable.

[24] Alto submits that to the extent clause 16.3.1 operates to prevent undercutting of wages and conditions it is a permitted matter. However, its purported extension to the casual conversion process is not a permitted matter. It would be an unwarranted intrusion into the operation of the labour hire company.

[25] Alto bases its submission on its analysis of the decision of the Full Bench in Australasian Meat Industry Employees Union v Golden Cockerel Pty Limited[2014] FWCFB 7447 (Golden Cockerel).

[26] Even though clause 16.3.1 requires the labour hire casual to be paid no less than direct employees it does not make them employees of Alto.

[27] The reference to “the Employer” it is clear from clause 3(a) relates to Alto, not the labour hire employer.

[28] In any event, Alto submits that the casual conversion provision, which originated in a Memorandum of Agreement of 2009 with a predecessor company, has not operated in the manner suggested by the NUW. The context of previous negotiations does not support the NUW’s position.

[29] Alto submits that its position is consistent with paragraph 672 of the Explanatory Memorandum to the Fair Work Bill.

[30] The NUW’s claim is an attempt to regulate the affairs of the employees of a third party and does not have sufficient connection to the job security of the employees of Alto.

[31] Alto distinguishes the Full Bench decision in Re: Schefenacker Vision Systems (Australia Pty Ltd) AWU, AMWU Certified Agreement 2004 (PR956575) (Schefenacker)because it submits that decision did not specifically relate to casual conversion.

[32] Alto appears to submit that a casual conversion clause, which does not have a sufficient job security purpose, is essentially a prohibition on the use of contractors. It is therefore contrary to the High Court’s long standing principle, established in Ex Parte Cocks (1968) CLR 313, that a prohibition on contracting out is not a permitted matter.

Arbitration of Disputes under Agreements

[33] There was no major issue, in this case, about the Commission’s power to arbitrate to settle this dispute. That power arises from a combination of clause 11 of the Agreement and s.738(b) and s.739(4) of the Act. Following are the relevant sections of the Act:

“738 Application of this Division

This Division applies if:
. . .

(b) an enterprise agreement includes a term that provides a procedure for dealing with disputes, including a term referred to in subsection 186(6);”

“739 Disputes dealt with by the FWC

. . .

(4) If, in accordance with the term, the parties have agreed that the FWC may arbitrate (however described) the dispute, the FWC may do so.”

[34] The Commission can only arbitrate to settle a dispute if the enterprise agreement contains a dispute settlement clause which provides for arbitration by the Commission to settle disputes. Clause 11 of the Agreement is drafted in broad terms and provides, on its face, the Commission with the power to arbitrate to settle disputes between the parties.

[35] Section 595 further relevantly provides:

“595 FWC’s power to deal with disputes

(1) The FWC may deal with a dispute only if the FWC is expresslyauthorised to do so under or in accordance with another provision of this Act.

(2) The FWC may deal with a dispute (other than by arbitration) as it considers appropriate, including in the following ways:

(a) by mediation or conciliation;
(b) by making a recommendation or expressing an opinion.

(3) The FWC may deal with a dispute by arbitration (including by making any orders it considers appropriate) only if the FWC is expresslyauthorised to do so under or in accordance with another provision of this Act.

Example: Parties may consent to the FWC arbitrating a bargaining dispute (see subsection 240(4)).

(4) In dealing with a dispute, the FWC may exercise any powers it has under this Subdivision.
Example: The FWC could direct a person to attend a conference under section 592.

(5) To avoid doubt, the FWC must not exercise the power referred to in subsection (3) in relation to a matter before the FWC except as authorised by this section.
. . .

[36] The FW Act, being based on the legislative foundation of the Corporations Power, continues the restriction of the Commission’s arbitral function to where the parties have agreed to provide for it as a term of their agreement.

[37] In Construction Forestry, Mining and Energy Union v Australian Industrial Relations Commission (2000) 203 CLR 645 the High Court stated:

“Where parties agree to submit their differences the decision by a third party, the
decision maker does not exercise of judicial power, but a power of private arbitration.
Of its nature, judicial power is a power that is exercised independently of the consent
of the person against whom the proceedings are brought and results in the judgement
or order that is binding of its own force. In the case of private arbitration, however, the
arbitrator’s powers depend on the agreement of the parties, usually embodied in a
contract, and the arbitrators award is not binding of its own force. Rather, its effect, if
any, depends on the law which operates with respect to it.”

[38] Section 170WL of the Workplace Relations Act 1996 (the WR Act) provided for the Commission to exercise powers under an agreement “to settle disputes over the application of the agreement”. The Commission has made it clear that it must properly characterise the nature of the dispute in arbitrating. See Maritime Union of Australia v Australian Plant Service Pty Ltd (PR908236). However, the Commission also took the view that the expression should not be narrowly construed. See Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union v Holden Limited (PR944673).

[39] Sections 738, 739 and 595 of the FW Act do not contain the words quoted above. The reference is to “disputes” only. It is true that many, perhaps, most agreements contain words of limitation. Analysis of the terms of the agreement is necessary. See, for example, a recent decision of Lee C in Australian Workers’ Union v Barminco Pty Ltd[2014] FWC 1954.”

[40] The nature of the Commission’s power to determine a dispute by arbitration derives from the terms of the dispute settlement clause. However, in the exercise of that power it has a broad power, pursuant to s.595, to settle the dispute by making orders that it considers appropriate.

[41] The task for the Commission is to make a finding as to how the relevant clauses in the Agreement are to be applied in the future. It is not a declaration about past rights or past compliance with the agreement by the employer. A decision in favour of the union is not an order for back pay. That would be a matter to be considered by a competent court.

[42] The Agreement in this case provides for arbitration about disputes that arise out of employment under the Agreement or the National Employment Standards (NES). There is no doubt that the operation of the casual conversion clause is such an issue.

The Commission’s Approach to the Construction of Agreements

[43] The 2014 Full Bench decision in Golden Cockerel sets out the Commission’s approach to the interpretation of agreements. I set out below the relevant passages which refer to the relevant authorities.

“General Approach

19. The general approach to the construction of instruments of the kind at issue here is set out in the judgment of French J, as he then was, in City of Wanneroo v Australian Municipal, Administrative, Clerical and Services Union (2006) 153 IR 426 (Wanneroo):

“The construction of an award, like that of a statute, begins with a consideration of the ordinary meaning of its words. As with the task of statutory construction regard must be paid to the context and purpose of the provision or expression being construed. Context may appear from the text of the instrument taken as a whole, its arrangement and the place in it of the provision under construction. It is not confined to the words of the relevant Act or instrument surrounding the expression to be construed. It may extend to ‘...the entire document of which it is a part or to other documents with which there is an association’. It may also include ‘... ideas that gave rise to an expression in a document from which it has been taken’ - Short v FW Hercus Pty Ltd (1993) 40 FCR 511 at 518 (Burchett J); Australian Municipal, Clerical and Services union v Treasurer of the Commonwealth of Australia (1998)80 IR 345 (Marshall J). ” (Wanneroo)

20. To this we add the oft-quoted observations of Madgwick J in Kucks v CSR Limited (1996) 66 IR 182 (Kucks) that a narrow pedantic approach to interpretation should be avoided, a search of the evident purpose is permissible and meanings which avoid inconvenience or injustice may reasonably be strained for, but:

“. . . the task remains one of interpreting a document produced by another or others. A court is not free to give effect to some anteriorly derived notion of what would be fair or just, regardless of what has been written into the award. Deciding what an existing award means is a process quite different from deciding, as an arbitral body does, what might fairly be put into an award. So, for example, ordinary or well-understood words are in general to be accorded their ordinary or usual meaning.”    (Kucks)

21. Although their Honours were each dealing with the proper interpretation of an award, the same principles are apt to apply to the interpretation of enterprise agreements. See: Swire Cold Storage Pty Ltd v TWU [2008] AIRCFB 397 at [29] and AMWU v Silcar Pty Ltd[2011] FWAFB 2555 at [11] For example, similar observations were made in Amcor Limited v CFMEU.(2005) 222 CLR 241 (Amcor):

“Clause 55.1.1 must be read in context. It is necessary, therefore, to have regard not only to the text of cl 55.1.1, but also to a number of other matters: first, the other provisions made by cl 55; secondly, the text and operation of the Agreement both as a whole and by reference to other particular provisions made by it; and, thirdly, the legislative background against which the Agreement was made and in which it was to operate.” (Amcor) at 253 per Gummow, Hayne and Heydon JJ

22. The fact that the instrument being construed is an enterprise agreement is itself an important contextual consideration. As French J observed in Wanneroo:

“It is of course necessary, in the construction of an award, to remember, as a contextual consideration, that it is an award under consideration. Its words must not be interpreted in a vacuum divorced from industrial realities - City of Wanneroo v Holmes (1989) 30 IR 362 at 378-379 and cases there cited. There is a long tradition of generous construction over a strictly literal approach where industrial awards are concerned - see eg GeorgeA Bond and Co Ltd (in liq) v McKenzie [1929] AR (NSW) 498 at 503-504 (Street J). It may be that this means no more than that courts and tribunals will not make too much of infelicitous expression in the drafting of an award nor be astute to discern absurdity or illogicality or apparent inconsistencies. But while fractured and illogical prose may be met by a generous and liberal approach to construction, I repeat what I said in City of Wanneroo v Holmes (at 380):

“Awards, whether made by consent or otherwise, should make sense according to the basic conventions of the English language. They bind the parties on pain of pecuniary penalties.” (2006) 153 IR 426 at 440

Use of extrinsic material as an aide to interpretation

23. As is often the case in disputes that involve the construction of an enterprise agreement, parties will seek to place reliance of a variety of extrinsic material as an aide to interpreting the provisions of an agreement in issue. The use to which extrinsic material of the surrounding circumstances may be put to assist in the interpretation of an instrument is set out in the judgement of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337(Codelfa). In Codelfa his Honour said:

“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed.

It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.

Consequently when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.” (Codelfa) at 352

[44] The Full Bench then dealt in some detail with subsequent cases which took varying approaches to the determination of an ambiguity. It went on to conclude as follows:

“30. Regard may therefore be had to evidence of the surrounding circumstances before the existence of ambiguity in an agreement is identified as an aide to interpreting the agreement for the purposes of determining whether an ambiguity exists. If thereafter ambiguity is not identified extrinsic material cannot be used to contradict the language of the instrument. If ambiguity is identified the material may be used as contextual material to aide in the interpretation of the instrument. In this context we would make the observation that the law in relation to the interpretation of commercial contracts (Codelfa; Metcash and Stratton) has now aligned with the approach to the construction of awards and enterprise agreements as espoused by Burchett J in Short v FW Hercus Pty Ltd (1993) 40 FCR 511 at 518 and confirmed by French J, as he then was, in Wanneroo.

Application of the Acts Interpretation Act 1901 to enterprise agreements approved under the Act

31. Both at first instance and before us the Appellant maintained that the Agreement must be interpreted in accordance with the Acts Interpretation Act 1901 (AI Act). (AB268-AB271 and Transcript PN271-PN280) That proposition is made on the basis that an enterprise agreement is an agreement that is made by the Commission pursuant to a power conferred by the Act to make the agreement. (See Section 46 of the AI Act) To make good the proposition the Appellant at first instance relied on the following passage from the judgement of French J in Wanneroo:

“The interpretation of legislative instruments is dealt with in the Legislative Instruments Act 2003 (Cth). Awards and agreements made under the Act are declared, by s 7(1) of the Legislative Instruments Act, not to be legislative instruments – see Item 18 in the table set out in s 7(1). This leaves such awards and agreements within s 46 of the Acts Interpretation Act 1901 (Cth) which provides, inter alia:

‘(1) If a provision confers on an authority the power to make an instrument that is neither a legislative instrument within the meaning of the Legislative Instruments Act 2003 nor a rule of court, then, unless the contrary intention appears:

(a) this Act applies to any instrument so made as if it were an Act and as if each provision of the instrument were a section of an Act; and

(b) expressions used in any instrument so made have the same meaning as in the enabling legislation; and

(c) any instrument so made is to be read and construed subject to the enabling legislation, and so as not to exceed the power of the authority.

An award is an instrument made by an authority, in this case the Australian Industrial Relations Commission, and so attracts the application of the Acts Interpretation Act for the purposes of its interpretation.” (2006) 153 IR 426 at 438 [52]

32. The decision in Wanneroo does not support the proposition contended by the Appellant. In Wanneroo Justice French was concerned with the construction of an award under the Workplace Relations Act 1996 (WR Act) and not an enterprise agreement made under the Act. Relevantly, the award in question was an instrument that was not a legislative instrument but was an instrument made by the Australian Industrial Relations Commission pursuant to a power under the WR Act to make the instrument. Consequently French J concluded that the award was “an instrument made by an authority, in this case the Australian Industrial Relations Commission, and so attracts the application of the Acts Interpretation Act (AI Act) for the purposes of its interpretation.”

[45] The Full Bench, having dealt with s.172 of the Act, which contains the requirement for an agreement to be made about permitted matters (pertaining to the relationship between the employer and the employer’s employees) summarised its conclusions as follows:

“Summary

41. From the foregoing, the following principles may be distilled:

1. The AI Act does not apply to the construction of an enterprise agreement made under the Act.

2. In construing an enterprise agreement it is first necessary to determine whether an agreement has a plain meaning or contains an ambiguity.

3. Regard may be had to evidence of surrounding circumstances to assist in determining whether an ambiguity exists.

4. If the agreement has a plain meaning, evidence of the surrounding circumstances will not be admitted to contradict the plain language of the agreement.

5. If the language of the agreement is ambiguous or susceptible to more than one meaning then evidence of the surrounding circumstance will be admissible to aide the interpretation of the agreement.

6. Admissible evidence of the surrounding circumstances is evidence of the objective framework of fact and will include:

(a) evidence of prior negotiations to the extent that the negotiations tend to establish objective background facts known to all parties and the subject matter of the agreement;
(b) notorious facts of which knowledge is to be presumed;
(c) evidence of matters in common contemplation and constituting a common assumption.

7. The resolution of a disputed construction of an agreement will turn on the language of the Agreement understood having regard to its context and purpose.

8. Context might appear from:

(a) the text of the agreement viewed as a whole;
(b) the disputed provision’s place and arrangement in the agreement;
(c) the legislative context under which the agreement was made and in which it operates.

9. Where the common intention of the parties is sought to be identified, regard is not to be had to the subjective intentions or expectations of the parties. A common intention is identified objectively, that is by reference to that which a reasonable person would understand by the language the parties have used to express their agreement.

10. The task of interpreting an agreement does not involve rewriting the agreement to achieve what might be regarded as a fair or just outcome. The task is always one of interpreting the agreement produced by parties.”

[46] I have applied the principles summarised above in this decision.

Conclusion

[47] Alto accepts that a clause such as 16.3.1 is a permitted matter in so far as it regulates wages and conditions for a third party. The casual conversion clause, however, does not have sufficient connection to the job security of the employees of Alto. There is not sufficient connection to the relationship of Alto and its employees, it is submitted.

[48] I cannot accept this argument. Applying the Golden Cockerel principles, it appears to me that there is an ambiguity in clause 16.3. The ambiguity particularly arises from the use of the term “employer” throughout the clause.

[49] As I have already noted, “employer” is defined in clause 3(a) as referring to Alto. This must be the case. It is conceded by the NUW and Alto, that the casual conversion clause can only bind Alto if it is valid. However, the references in clauses 16.3.2, 16.3.9, 16.3.10, 16.3.11 and 16.3.13, in a practical sense, could only relate to the labour hire company. I say this because it is only the labour hire company, as the employer of the casual that could take the steps specified at the relevant times.

[50] However the central issue in this case is whether clause 16.3.1 is sufficiently broad to include the casual conversion process. I find that it is.

[51] The requirement on Alto is to give notice in writing to an employee of the labour hire company who has qualified under 16.3.2, 16.3.15 and 16.3.16, of the provisions of the clause. This means that the process of casual conversion is a possibility. The casual may then elect to participate in the casual conversion process. Permanent status is not automatic but Alto cannot unreasonably refuse consent. Disputes are to be dealt with in accordance with clause 11 and ultimately perhaps, by the Commission.

[52] There is no need to read clause 16.3.1 in a restrictive manner, particularly when the casual conversion clause follows immediately.

[53] The evidence is clear that the casual conversion clause was the subject of specific debate in the negotiations. The evidence of Mr Cody and Ms Bernardi was not contradicted. The 2009 Memorandum of Understanding provision was incorporated into the Agreement, with a change to a 12 months qualifying period. Alto does not directly employ casuals. Notwithstanding its poor drafting, the casual conversion clause could only apply to the labour hire employees.

[54] Longstanding High Court authority has established that the engagement of contractors/labour hire companies cannot be prohibited. See: Ex Parte Cocks;R v Moore ex parte Federated Miscellaneous Workers’ Union of Australia (1978) 140 CLR 470. This is reflected in the definition of permitted matters in s.172 of the Act.

[55] However, that is not what the casual conversion clause attempts to do. It is poorly drafted but, contrary to the submission of Alto, it is a clear attempt to protect the job security of Alto employees. In my experience, there is no more contentious issue in industrial relations than the regulation of labour hire companies and their relationship with the job security of direct employees.

[56] The clause requires Alto to follow a specified procedure. It does not require Alto to engage certain employees.

[57] Utilisation of the clause would be consistent with the decision of the Full Bench in Schefenacker. It can be seen from the following passage that the Full Bench did uphold a provision which included a form of casual conversion on the basis that it directly concerned the job security of employees covered by the Agreement.

“Employees of Labour Hire Agencies

[71] This question arose in Schefenacker only. The relevant provision is:

‘17.0 EMPLOYEES OF LABOUR HIRE AGENCIES

17.1 The employer and unions confirm commitment to permanent direct employment, but also recognise that labour flexibility is an ongoing requirement to achieve job security and productivity requirements. The parties agree to the following criteria regarding the engagement of employees of labour hire agencies.

17.2 The agreed maximum level of employees of labour hire agencies will be 20% of total weekly paid employees. The company agrees to consult with shop stewards when the percentage is in excess of 20% as to the reasons the additional labour hire agency employees are required.

17.3 There will be a formal quarterly review of labour hire agency employees through the consultative committee. This meeting will review both the total number of labour hire agency employees and their length of service.

17.4 Employees of labour hire agencies will not be considered for permanent employment until the total percentage of labour hire agency employees exceeds 20% of total weekly paid employees. When the 20% threshold is exceeded, employees of labour hire agencies will be offered permanent employment based on specific positions and shifts identified as being needed by the company.

17.5 Employees of labour hire agencies who are offered permanent employment will be required to serve a maximum of 3 months probationary period before permanency is confirmed. Offers of employment will be prioritised based on length of service.

17.6 The company will instruct the labour hire agencies to increase the wage rate of their employees working at Schefenacker Vision Systems Australia by the same percentage that is listed in this Agreement.’

[72] The Senior Deputy President analysed the clause as follows:

‘[29] Clause 17 has three principal components. Sub-clauses 17.1, 17.2 and 17.3 deal with the circumstances under which labour hire employees may be utilised. I accept that the use of labour hire employees has the potential to be a matter of interest to Schefenacker employees and hence the circumstances under which labour hire employees will be engaged may be a matter which pertains to the employment relationship. In the circumstances of this agreement, I am satisfied that these three subclauses do pertain in that they described the work situation under which Schefenacker employees will be supplemented by other persons. They do not usurp management functions and fundamentally are about issues associated with direct employment opportunities. I have taken the obligation in clause 17.2 as simply an obligation to consult because to take it further may raise issues associated with the Freedom of association provisions in the Act.

[30] Subclauses 17.4 and 17.5 deal with the employment by Schefenacker of employees of labour hire companies. These provisions define when employment will be considered by Schefenacker and upon what basis.

[31] Subsection 17.6 requires Schefenacker to instruct the labour hire companies to increase the wage rate for their employees working at Schefenacker by the same percentage increases set out in the agreement. The agreement does not establish the basis upon which Schefenacker are entitled to issue such instruction, but I have presumed that the labour hire companies provide labour to Schefenacker under some form of contractual arrangement. Further there is no information before me that goes to the current employment benefits for employees of labour hire companies working for Schefenacker.

[32] The plain words of this subclause establish an obligation on Schefenacker relative to its labour hire contracting companies. In practical terms, the clause establishes that for a labour hire contractor to provide its employees to Schefenacker, these employees must receive wage increases consistent with the agreement. The clause does not establish that the wages or conditions of employment of employees of these labour hire contracting companies are consistent with those set out in the agreement.’

[73] It can be seen that the Senior Deputy President took the view that while the first five sub-clauses pertained to the requisite relationship the last was in a different category. He went on to discuss relevant authority and concluded that the sub-clause was not about the relationship of the company and its employees because its effect on the employees was indirect and in fact the sub-clause went to a contractual relationship between the company and its contractors which was outside the scope of s.170LI. In the course of his reasons he said:

‘[48] Notwithstanding its plain words, to the extent that clause 17.6 is to be read as establishing an obligation on Schefenacker to ensure that labour hire contracting companies pay equivalent rates of pay, I am unable to conclude that such a provision is about the relationship of Schefenacker and its employees.

[49] To the extent that the clause requires Schefenacker to instruct its labour hire contracting companies to grant wage increases consistent with the agreement, I am unable to conclude that this is other than a contractual matter. Given the structure of clause 17 and the remainder of the agreement, I can draw no conclusions over the extent to which there is uniformity of wage rates and conditions.’

[74] He found in addition that the sub-clause was not ancillary to the first five sub-clauses. On the hearing of the appeal the Senior Deputy President’s conclusions on all six sub-clauses were in issue.

[75] In characterising these provisions it is necessary to have regard to two High Court decisions. The first is R v The Judges of the Commonwealth Industrial Court and Others; Ex parte Cocks and Others (Cocks). The second is R v Moore and Others; Ex parte Federated Miscellaneous Workers’ Union of Australia (Moore). In Cocks the Court considered whether the Commonwealth Conciliation and Arbitration Commission had power to make an award prohibiting employers from having work done by independent contractors outside their factory or workshop. The Court answered that question in the negative. It did so on the basis that a dispute about such a matter was not an industrial dispute as defined in the Conciliation and Arbitration Act 1904. In Moore the Court considered whether a claim that no employer should permit any of the relevant work to be done by a contractor except in accordance with the terms of the award, and that no employer should enter into the contract for the doing of any work unless the contract contained a clause binding the contractor to observe the award, gave rise to an industrial dispute. Two members of the court, Gibbs and Jacobs JJ, took the view that the claim was capable of giving rise to a dispute. Gibbs J said:

‘The evidence has failed to show that in the circumstances prevailing in the industry in question such a clause could not be capable of being regarded as merely incidental to the settlement of the dispute as to the conditions of employment of workers in or in connexion with metaliferous mining. I agree with Jacobs J. that this question should not be finally determined until the facts are fully explored.’

[76] Jacobs J, with whom Stephen J agreed, said:

‘But it cannot be assumed that under no circumstances could the insertion of such a clause in an award settle a dispute as to an industrial matter. Here the evidence shows that the construction works will be large and extensive. It cannot be assumed that the respondent companies − both the mining and the project companies − will not be exercising continued supervision and co-ordination. It may well be that if the Commission considered it proper in order to achieve a settlement of existing or threatened disputes between the companies and their employees that the same award conditions should apply throughout the work of constructing the mines and their associated installations, it would be open to it to achieve that result by the insertion in the award of a clause along the lines of cl 5. If the Commission could not do so, it would mean that the respondent companies could largely avoid the effective imposition on what will be in substance their activities of award conditions considered appropriate to construction work in or in connexion with the uranium mining and processing industry. The question should not be determined until the facts are fully explored and the basis of the Commission's decision (if it should be its decision) is known.’   

[77] The provision in question evidences a detailed agreement with the company requiring consultation about the usage of labour hire employees, a specific limitation on the proportion of total weekly paid employees made up by labour hire employees, a requirement that labour hire employees be offered permanent employment in certain circumstances, subject to a probationary period, and a requirement that the company instruct labour hire agencies to pass the increases in the agreement on to their own employees.

[78] We admit to some difficulty in characterising this provision, comprised as it is of a series of sub-clauses with a number of legal effects. On the one hand, it may be accepted that Schefenacker’s employees have a legitimate interest in the engagement of labour hire employees because of the effect of such engagement on their own employment. For that reason it may be that the engagement of labour hire employees is a matter pertaining to the relationship between Schefenacker and its own employees. On the other hand, the extent to which the agreement can regulate the contractual relationship between Schefenacker and labour hire agencies, yet still pertain to the relevant relationship, is obviously a question of degree.

[79] We agree with the Senior Deputy President, for the reasons he gave, that the first four sub-clauses pertain to the relationship between Schefenacker and its employees. The number of labour hire employees engaged, it is to be inferred, is likely to have a direct effect upon the amount of work available to Schefenacker’s employees and, ultimately, upon the number of employees Schefenacker engages directly. While it is true that cl.17.2 and cl.17.4 may be construed as a partial prohibition on the use of labour hire employees, they are also designed to increase permanent employment by placing obligations upon the employer to engage more permanent employees in the circumstances specified.

[80] Clause 17.5 imposes obligations on Schefenacker in relation to its own employees and clearly pertains to the relevant relationship.

[81] This leaves for consideration cl.17.6. The effect of the clause is to oblige the employer to instruct the labour hire agencies with whom it contracts to increase the wages they pay to their employees working at Schefenacker by the same percentage listed in the agreement.

[82] In Re National Transport Operations Pty Ltd Certified Agreement 2002 a Full Bench decided that a term in an agreement expressing the agreement to be binding on “all contract carriers engaged by the company whose engagement is subject to this agreement at any time during the period of operation” did not pertain to the relevant relationship. The following passage explains the Full Bench’s reasons:

‘We are not persuaded by Mr Murdoch’s submission that the contract carrier provisions are justified by the interest employees of National Transport have about job security and accordingly an interest in the terms upon which contractors are engaged. There is nothing in the contract carrier provisions that suggest any linkage with the provisions regulating the wages or conditions of employment of the employees of National Transport. The contract carrier provisions are entirely discrete. The wages appendix for employees is expressed by reference to six grades and a weekly or cents per kilometre scale. The rates for contract carriers, provided for in a separate appendix, are referable to pay loads and are expressed as daily rates. Each appendix is entirely separate to the other; they are not interrelated. The methodology in calculating wages to be paid to contract carriers on the one hand and employees on the other is not similar. Each is independent of the other. Nowhere in the Agreement (or in any evidence or submissions) is there any suggestion payments to contract carriers or their conditions of engagement were struck having regard to employees’ pay rates, conditions of employment or job security or vice-a-versa.’

[83] It can be seen from this passage that the situation before the Full Bench was very different to that here. The intent of cl.17.6 is that employees of labour hire agencies working at Schefenacker should receive the same increase as the Schefenacker employees will receive under the agreement. This is sought to be achieved by obliging Schenefacker to give that directive to the agencies. Whether that means will be effective or not, the intent is that the relationship between the cost of labour supplied by the agencies and the cost of the labour of Schefenacker’s employees will be relevantly the same after the agreement as it was before. For that reason we think that the sub-clause pertains to the relationship between Schefenacker and its employees. It directly concerns the security of employment of the employees covered by the agreement.”

[58] The same approach was taken by the majority of the Full Bench in Re: Transport Workers’ Union of Australia and Australian Air Express (2005) 142 IR 409.

[59] Similarly Re: National Union of Workers; Re Agreement with Exel (Australia) Logistics Pty Ltd (2005) 146 IR 334 applied the Schefenacker decision. Relevantly the Full Bench observed:

“In the modern industrial landscape outsourcing and contracting-out are well established. Employers not infrequently seek to engage the services of contractors in pursuit of cost reductions and improved efficiency. Where the services are already provided by employees of the employer, the potential for the contracting out to affect the wages, conditions and employment of those employees is obvious. There may be a range of situations in which the engagement of contractors could have such effects. Submissions advanced by the NUW and some of the employers reinforced the significance of the issue in the area of industry, warehousing, within which these agreements apply. In our view agreed measures to protect the wages, conditions and employment of employees, by attempting to ensure parity of wages and conditions for the employees of contractors, pertain to the relationship between employers and employees in a direct way. Generally speaking the clauses in the agreements before us are measures of that kind.”

Summary

[60] I find that the casual conversion aspect is included within the requirement in clause 16.3.1 for casual employees, including employees of a labour hire company on the Alto site, to be employed on the same terms and conditions as Alto employees. In accordance with the approach taken by the Commission summarised above, it is a permitted matter under the Act. I have determined the meaning of the clause in accordance with principles summarised in Golden Cockerel.

[61] It is appropriate that an order be made requiring Alto to comply with clause 16.3.3 and 16.3.5. The order is contained below.

[62] I also urge the NUW and Alto to address this issue in the re-negotiation of the Agreement, consistent with this decision, so that the drafting deficiencies of the clause are addressed.

Order

A. That Alto Manufacturing Pty Ltd give notice pursuant to clauses 16.3.3 and 16.3.5 of the Alto Manufacturing Pty Ltd Bankstown Enterprise Agreement 2011 [AE888259] (the Agreement) to Ms Linda Pua and Mr Mohammed Munir and any other casual employee of the labour hire company on the Alto Bankstown site. The provisions of clauses 16.3.2 to 16.3.16 of the Agreement shall apply, subsequent to the notice being given.

B. This Order will operate from 1 May 2015.

DEPUTY PRESIDENT

Appearances:

S. Mueller for the NUW;

D. Marshall for Alto.

Hearing details:

2015

Sydney:

February 9.

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