National Union of Workers v Venture DMG Pty Ltd

[2014] FWC 1131

[2014] FWC 1131

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.739—Dispute resolution

National Union of Workers
v
Venture DMG Pty Ltd
(C2013/7415)

COMMISSIONER RYAN MELBOURNE, 20 FEBRUARY 2014

Alleged dispute concerning redundancies and reclassifications.

[1] This decision concerns an application pursuant to s.739 of the Fair Work Act 2009 (the FW Act) by the National Union of Workers (NUW) to deal with a dispute arising under the dispute settlement procedure in the Venture DMG Pty Ltd and National Union of Workers Enterprise Agreement 2012-2015 (the 2012 Agreement).

[2] Venture DMG is an automotive parts supplier with existing contracts with Toyota and with the possibility on new contracts with Toyota for new models produced by Toyota at its Melbourne operations. As with the rest of the automotive industry in Australia Venture DMG is under pressure from Toyota to reduce its costs if Venture DMG is to be a continuing supplier to Toyota.

[3] The dispute in the present matter concerns the decision by Venture DMG to reduce the wages of a number of employees who Venture DMG says are incorrectly classified and who are currently receiving rates of pay in excess of the correct classification level. Venture DMG contended that it is entitled to reduce the rates of pay of employees pursuant to the provisions of clause 23.2 of the 2012 Agreement which applies to the employees.

[4] The NUW on behalf of the affected employees contended that the employees are entitled to retain the rates of pay pursuant to a savings provision contained in clause 22.12 of the 2012 Agreement and the NUW further contended that clause 23.2 of the 2012 Agreement does not empower Venture DMG to reduce the saved wage rates of employees.

Background

[5] Venture acquired the business of DMG Industries in 2006 and as part of the acquisition process former employees of DMG Industries who were employed by Venture DMG were given undertakings that their existing wage rates would be maintained.

[6] DMG Industries had a novel way of setting the wage rates for employees. Individual employees would be given increases above the minimum rate (as set by the relevant award or collective agreement) at the discretion of the owner. Employees performing the same work could be on very different rates of pay. Employees who received wage increases for working above their normal classification could keep their higher wage rate even when they reverted to their normal function.

[7] By 2006 DMG Industries was effectively trading insolvent and Toyota approached Venture to buy out DMG Industries who were a key supplier to Toyota. Venture was not able to undertake a comprehensive due diligence process on DMG Industries but undertook sufficient due diligence to enable Venture to decide to buy the business of DMG Industries. One aspect of DMG Industries which was not examined was the actual wage rates paid by DMG Industries to its employees.

[8] What Venture acquired from DMG Industries was both the business of manufacturing and supplying parts to Toyota as well as significant debts including an unpaid PAYG tax bill of $M5 - $M6, 1 unpaid employer superannuation contributions of $M2, unpaid payroll deductions of union contributions owed to the NUW of several hundred thousand dollars and actual rates of pay for employees which bore no relationship to the rates of pay and the classification structure in the certified agreement which transmitted to Venture DMG from DMG Industries.2

[9] In 2007 when Venture DMG and the NUW were negotiating a new certified agreement it became apparent to both Venture DMG and the NUW that employees had not been correctly paid either by DMG Industries or by Venture DMG for some shift work under the existing certified agreement. Venture DMG agreed to pay the underpayment (including the underpayment by DMG Industries) which amounted to about $M1. (PN988)

[10] The certified agreement negotiated between the NUW and Venture DMG in 2007, Venture DMG Pty Ltd and National Union of Workers Collective Agreement 2007-2010 (2007 Agreement) rolled over most of the pre-existing certified agreement and provided wage increases of 5% per year over 3 years. The issue of preserving the rates of pay that employees had been receiving when employed at DMG Industries was specifically considered and the following two provisions were inserted into the 2007 Agreement:

“22.12 This Agreement will not operate to reduce the above employees’ current rates of pay (or increased rates over the life of this Agreement). Any employee receiving rates higher than the above rates will retain that rate (as well as receiving percentage increases above).

22.13 The parties undertake to review the current classification structure. This review is to be completed by 30 June 2008.”

[11] Not only were employees to keep being paid the higher personal rates that they had previously enjoyed at DMG Industries but those rates were to be increased by 5% per year in each of the 3 years of the agreement.

[12] Whilst it was clear that a classification structure review was to be undertaken that never occurred. Venture DMG decided against undertaking the classification structure review because of opposition from employees.

[13] The 2007 Agreement also contained a Mixed Functions clause which was in the following terms:

“23. MIXED FUNCTIONS

23.1 Any employee engaged in any one day or shift during ordinary working hours for more than two hours at work in a higher class than he/she is employed to perform shall be paid for the full day or shift at the highest rate payable for any such work under this agreement; but if he/she is so engaged for two hours or less he/she shall only be paid at the rates fixed by this agreement for the work actually performed.

23.2 Any employee who is transferred to a lower grade of work than that upon which he/she is usually employed shall be paid at the higher wage for the remainder of the day or shift on which such transfer takes place and from the commencement of the next working day or shift he/she shall be paid at the appropriate wage for the class of work performed.”

[14] This clause was present in earlier agreements made between the NUW and DMG Industries since 2001.

[15] The agreement negotiated in 2010, Venture DMG Pty Ltd and National Union of Workers Collective Agreement 2010-2012 (the 2010 Agreement), resulted in changes being made to clauses 22. The provision of clause 22.13 requiring a review of the classification structure was deleted from the 2010 Agreement but at the same time clause 22.12 was amended to make clause 22.12 subject to clause 23.2.

[16] In the 2010 Agreement clause 22.12 and 23 read as follows:

“22.12 This Agreement will not operate to reduce the above employees’ current rates of pay (or increased rates over the life of this Agreement). Any employee receiving rates higher than the above rates will retain that rate (as well as receiving percentage increases above) except when clause 23 applies.

23 MIXED FUNCTIONS

23.1 Any employee engaged in any one day or shift during ordinary working hours for more than two hours at work in a higher class than he/she is employed to perform shall be paid for the full day or shift at the highest rate payable for any such work under this agreement; but if he/she is so engaged for two hours or less he/she shall only be paid at the rates fixed by this agreement for the work actually performed.

23.2 Any employee who is transferred to a lower grade of work than that upon which he/she is usually employed shall be paid at the higher wage for the remainder of the day or shift on which such transfer takes place and from the commencement of the next working day/s or shift/s he/she shall be paid at the appropriate wage for the class of work performed.”

[17] The same clauses appear in the 2012 Agreement.

Relevant Case Law

[18] One Full Bench decision which has considered the approach to be adopted to the interpretation of enterprise agreements is ASU and CPSU v ATO in which the Full Bench said:

“Principles of Interpretation

[23]The parties are not in dispute as to the principles to be applied in interpreting the Agreement. These have been stated in various cases. The leading High Court case is Amcor Ltd v Construction, Forestry, Mining and Energy Union; Minister for Employment and Workplace Relations v Construction, Forestry, Mining and Energy Union [2005] HCA 10(Amcor). In that case, Gummow, Hayne and Heydon JJ stated:

‘30. 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.’

[24]In that case Kirby J said:

‘94. However, certified agreements such as this commonly lack the precise drafting of legislation. As appears from a scrutiny of the provisions of the Agreement, it bears the common hallmarks of colloquial language and a measure of imprecision. Doubtless this is a result of the background of the drafters, the circumstances and possibly the urging of the preparation, the process of negotiation and the omission to hammer out every detail - including possibly because such an endeavour would endanger the accord necessary to consensus and certification by the Commission.

96. The nature of the document, the manner of its expression, the context in which it operated and the industrial purpose it served combine to suggest that the construction to be given to cl 55.1.1 should not be a strict one but one that contributes to a sensible industrial outcome such as should be attributed to the parties who negotiated and executed the Agreement. Approaching the interpretation of the clause in that way accords with the proper way, adopted by this Court, of interpreting industrial instruments and especially certified agreements. I agree with the following passage in the reasons of Madgwick J in Kucks v CSR Ltd, [1996] IRCA 166 where his Honour observed:

‘It is trite that narrow or pedantic approaches to the interpretation of an award are misplaced. The search is for the meaning intended by the framer(s) of the document, bearing in mind that such framer(s) were likely of a practical bent of mind: they may well have been more concerned with expressing an intention in ways likely to have been understood in the context of the relevant industry and industrial relations environment than with legal niceties or jargon. Thus, for example, it is justifiable to read the award to give effect to its evident purposes, having regard to such context, despite mere inconsistencies or infelicities of expression which might tend to some other reading. And meanings which avoid inconvenience or injustice may reasonably be strained for. For reasons such as these, expressions which have been held in the case of other instruments to have been used to mean particular things may sensibly and properly be held to mean something else in the document at hand.’ (references omitted)

[25]In the same case Callinan J stated that there was substance in the abovementioned observations of Madgwick J in Kucks v CSR Limited (Kucks). He then said:

‘131. An industrial agreement has a number of purposes, to settle disputes, to anticipate and make provision for the resolution of future disputes, to ensure fair and just treatment of both employer and employees, and generally to promote harmony in the workplace. It is with the third of these that cl 55 of the Agreement is particularly concerned. It is important to keep in mind therefore the desirability of a construction, if it is reasonably available, that will operate fairly towards both parties. …’

[26]In Kucks, following the passage quoted above, Madgwick J went on to say:

‘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.’

[27]A leading case in relation to the interpretation of commercial agreements is Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24. The dicta of Mason J, as he then was, (and with whom Stephen, Aickin and Wilson JJ agreed) has frequently been adopted and applied in matters concerning the interpretation of enterprise agreements. In Codelfa Mason J said (at 352):

‘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.’

[28]With these principles in mind we now consider the specific questions posed.” 3

[19] I intend to follow the decision of the Full Bench in ASU and CPSU v ATO and of the High Court in Amcor but I make the observation that whilst Gummow, Hayne and Heydon JJ stated that as part of the process of reading an enterprise agreement in context, regard must be had to “the legislative background against which the Agreement was made and in which it was to operate” not all of the provisions of the Workplace Relations Act relevant to the making of an agreement were considered by the High Court or by the Federal Court either at first instance or on appeal.

[20] In Amcor Callinan J said:

“133. Other provisions of the Act which provide a framework for the certification and interpretation of the Agreement are of little assistance in construing the Agreement. Sections 170LB and 170LC of the Act do deal with the concept of a business but they also refer to “an employer”. They accordingly give no indication of the preferable construction of the Agreement. Nor is it possible to obtain any assistance from ss 170MC and 170MD which contemplate an extension or variation of a certified Agreement. These provisions could perhaps have been sought to be invoked by the first respondent but it chose not to do so, leaving it for the Federal Court and this Court rather than the certifying tribunal to resolve the dispute the subject of the proceedings. Nothing however turns on that.”

[21] It is clear that no argument was pursued before the Federal Court either at first instance or on appeal or before the High Court on the relevance of s.170LJ(3) of the Workplace Relations Ac 1996 (the WR Act) which, at the time the agreement was made, required that:

“(3) The employer must take reasonable steps to ensure that:

(a) at least 14 days before any approval is given, all the persons either have, or have ready access to, the agreement, in writing; and

(b) before any approval is given, the terms of the agreement are explained to all the persons.”

[22] Similarly in the matter before the Commission both at first instance and on appeal in ASU and CPSU v ATO the relevance of s.180(5) of the FW Actwas not explored.

[23] The decision of the High Court in Amcor makes clear that regard must be had to “the legislative background against which the Agreement was made and in which it was to operate”. Quite clearly part of that legislative background is the statutory requirement imposed by s.180(5) and (6) of the FW Act on an employer who wishes to make an enterprise agreement with its employees that:

“(5) The employer must take all reasonable steps to ensure that:

(a) the terms of the agreement, and the effect of those terms, are explained to the relevant employees; and

(b) the explanation is provided in an appropriate manner taking into account the particular circumstances and needs of the relevant employees.

(6) Without limiting paragraph (5)(b), the following are examples of the kinds of employees whose circumstances and needs are to be taken into account for the purposes of complying with that paragraph:

(a) employees from culturally and linguistically diverse backgrounds;

(b) young employees;

(c) employees who did not have a bargaining representative for the agreement.”

[24] The explanation of the terms and the effect of the terms of the enterprise agreement is an essential part of the legislative framework for making an enterprise agreement with employees and as such must be considered as part of the context of reading and interpreting an enterprise agreement.

[25] The very presence of s.180(5) assists in overcoming the problem identified by Mason J in Codelfa in distinguishing between the actual intentions of the parties who bargained for an enterprise agreement and the “the objective framework of facts within which the contract came into existence, and to the parties’ presumed intention in this setting.” The explanation of the terms of the enterprise agreement and the effect of the terms of the enterprise agreement given by the employer to the employees with whom the enterprise agreement is to be made provides an objective factual basis upon which the parties presumed intention can be discerned.

[26] Section 180(5) is not a new provision in relation to the making of agreements. It has a history going back to s.170MC(1)(f) of the Industrial Relations Act1996 (IR Act) which was introduced by the Industrial Relations Reform Act 1993. Section 170MC of the IR Actrelevantly provided as follows:

“170MC.(1) The Commission must certify an agreement if, and must not certify an agreement unless, it is satisfied that:

(a) wages and conditions of employment of the employees covered by the agreement are regulated by one or more awards (as defined in subsection (6)) that bind their employer, or their respective employers; and

(b) the agreement does not, in relation to their terms and conditions of employment, disadvantage the employees who are covered by the agreement; and

(c) the agreement includes procedures for preventing and settling disputes between the employers and employees covered by the agreement about matters arising under the agreement; and

(d) either:

(i) the agreement establishes a process for the parties to the agreement to consult each other about matters involving changes to the organisation or performance of work in any place of work to which the agreement relates; or

(ii) the parties have agreed that it is not appropriate for the agreement to provide as mentioned in subparagraph (i); and

(e) subject to subsection (3), during the negotiations for the agreement, reasonable steps were taken to consult the employees who are covered by the agreement about the agreement; and

(f) subject to subsection (3), before the application for certification was made, reasonable steps were taken:

(i) to inform the employees who are covered by the agreement about the terms of the agreement; and

(ii) to explain to those employees the effect of those terms; and

(iii) in particular, to explain to those employees the procedures referred to in paragraph (c); and

(iv) to inform those employees of the intention to apply to the Commission to certify the agreement, and about the consequences of certification; and

(g) if the agreement applies only to a single business, part of a single business or a single place of work:

(i) subject to subsections (4) and (5), the parties to the agreement include each organisation of employees that is a party to the award, or to one or more of the awards, referred to in paragraph (1)(a); and

(ii) the agreement has been negotiated, on the one hand, by each employer concerned or a representative of the employer, and, on the other hand, by a single person or group of persons representing all the other parties to the agreement; and (h) the agreement specifies the period of operation of the agreement.” (emphasis added)

[27] The introduction of s.170MC into the then IR Act expressed the very clear intention of Parliament that employees were to be properly informed about the terms of the collective agreement that they were being asked to approve.

[28] The approach identified in s.170MC was reflected in s.170LJ and 170LK of the WR Act and ultimately in s.180(5) of the FW Act.

[29] The purpose behind these provisions is clear. The Industrial Relations Reform Act 1993 introduced the ability of employers to make agreements directly with their employees and without unions. A key aspect of ensuring that employees approval of an agreement was genuine was to ensure that employees understood the terms and the effect of the terms of the agreement.

[30] What s.180(5) requires of an employer was considered by a Full Bench in NTEIU v UNSW 4. That matter concerned an appeal against a decision of VP Lawler to approve an enterprise agreement. The NTEIU opposed the approval of the enterprise agreement before VP Lawler arguing in part that UNSW had not complied with s.180(5). The Full Bench dealt with this issue as follows:

“[32]His Honour dealt with the challenge that was made by reference to the requirements of s.180(5)(a) in this way:

‘[46]The NTEU contends that the University failed to adequately explain the terms of the Agreement, and the effect of those terms, as required by s.180(5)(a) because it failed to identify certain disadvantageous changes from the 2006 Agreement. Having regard to the evidence of Mr Ward, which I accept, none of the matters relied upon by the NTEU were matters of any great moment. UNSW provided substantial explanatory material. A practical approach needs to be adopted in relation to the obligation in s.180(5)(a). Obviously, the nature of the explanation provided to employees who will be covered by an agreement, and the steps that will constitute “all reasonable steps” will vary according to the circumstances of the employer and employees covered by the agreement and the complexity of the agreement.

[47]In this case the Agreement is lengthy and complicated. The obligation in s.180(5)(a) did not require UNSW to explain every single feature or every single clause in the Agreement. I am not persuaded that UNSW failed to comply with s.180(5)(a).’

[33] We can identify no error in His Honour’s approach. We agree with the UNSW submission that the obligation on an employer in s.180(5)(a) of the Act to explain the terms of the Agreement and the effect of those terms to employees does not require an explanation of every clause in the Agreement. These are not employees new to bargaining and it can be assumed they were well informed about the pre-approval steps needed to be taken to obtain FWA approval of the Agreement. The evidence certainly establishes the UNSW went into great detail to explain these matters and the content of the Agreement. Comparative schedules identifying all significant provisions were distributed and some 14 information sessions were conducted. Although we accept it is the actions taken by the UNSW to explain the Agreement to which s.180(5)(a) is directed, it would be unrealistic to ignore the active campaigns undertaken by the Appellant and the CPSU accompanied as they were by leaflets, emails and posters. These facts, and taking account of the composition of the workforce to be covered by the Agreement, could properly inform His Honour in his consideration of the requirements of s.180(5)(a). As for the sign on bonus His Honour was taken to the various documents and occasions where it was explained to employees. The evidence was adequate for His Honour to form the view that the requirements of s.180(5)(a) were met. No error has been established.”

[31] The very existence of s.180(5) and its predecessor provisions highlights the fact that interpretation of enterprise agreements does not occur as a mere exercise in interpretation of the words of a document devoid of its context but rather the interpretation occurs in an industrial relations context in which, before the agreement can be made, the employer:

“must take all reasonable steps to ensure that:

(a) the terms of the agreement, and the effect of those terms, are explained to the relevant employees; and

(b) the explanation is provided in an appropriate manner taking into account the particular circumstances and needs of the relevant employees”.

[32] In Amcor Kirby J said:

“64. Also set out in other reasons, or described there, are the provisions of the Act that constitute the legislative background against which the Agreement was made and certified. It was a background that would have been in the minds of both parties (Amcor and its agent on the one side and the Union on the other) who negotiated the Agreement and hammered out its terms. The legislative background is therefore part of the common knowledge attributable to the parties to the Agreement. So far as it is relevant, it would ordinarily be assumed that, in agreeing as they did, the parties intended the Agreement to take its place within the industrial setting created by the Act.

65. To some extent, that industrial setting also incorporates not only the provisions of the Act dealing with the special problem of redundancy in employment under federal awards and certified agreements but also the consideration by courts and industrial tribunals during the past three decades of the issue of redundancy in employment. During that time, as is a matter of common knowledge, rapid advances of technology have presented instances of redundancy in employment (often through no particular fault of employers and no fault at all of employees) that called forth judicial, arbitral and legislative responses. As explained elsewhere, some of these developments illustrated the difficulty of defining “redundancy” for the purpose of measures protecting the industrial privileges of those whose employment was affected by such change.

66. All of these are useful details of a background character. All are relevant in the construction of the Agreement’s critical clause, the meaning of which is primarily in issue in these appeals (cl 55.1.1). In the interpretation of the Constitution and of legislation, Australian courts have passed beyond the age of the magnifying glass. No longer do courts (or industrial tribunals) seek to give meaning to contested language considered in isolation from the context in which the words are used and the purpose for which the words were apparently chosen. Nowadays, the same insistence on context, as well as text, permeates the approach to interpretation that is taken to legally binding agreements. Indeed, before this approach became normal in the courts, in the interpretation of contested instruments it was often the approach adopted for the construction of industrial texts. This was in keeping with an inclination of such tribunals towards practical, as distinct from purely verbal, constructions in that area of the law’s operation.

and

68. One danger of a generalist court, such as this, construing an Agreement designed to have effect in a particular legal environment, is that of ignorance or oversight of considerations that may throw a different light upon the arguments of the parties. This does not mean that special problems in the law are somehow disjoined from the application of broad doctrines which this Court must uphold. But there is a risk that issues will be disconnected from context so that they are misunderstood by newcomers unfamiliar with the particular legal terrain.

and

70.......... As the Federal Court has demonstrated in earlier decisions, it is undesirable to adopt a purely result-oriented approach to the interpretation of such industrial agreements. Ultimately, a court’s duty under the Constitution is to give effect to the meaning of each such document as expressed in its words. This is true where the argument is an attempt by a union to secure a “better bargain” than that which was agreed upon and expressed in the instrument. However, a neutral application of legal principles requires that the same outcome should follow where the terms of the subject agreement are such as to result in a “worse bargain” for the employer than, in retrospect, the employer ought to have provided for, might have expected and even might have deserved in an industrial sense.

71. In superintending the interpretation of the agreement in question in the present case, this Court, as the repository of the general law, must keep in mind the dangers that can attend interpretations of written texts based only on intuition. What cuts one way on one occasion may cut the other on the next. All of this was considered by the Full Court. It is important that this Court should take the same considerations into account in discharging its function.

and

77. As the judges of the Federal Court correctly pointed out, before them the issue was, and was only, the meaning and application of the Agreement, specifically cl 55.1.1. That issue required the identification of the legal rights of the parties under the Agreement. Such rights would not be determined by judges blind-folded to the industrial context. Yet in the end their duty, as in all tasks involving a judicial construction of a text having legal force, was to give effect to that text. The judges of the Federal Court, in my view, were correct in adopting that approach.”

[33] The specific requirement of s.180(5)(a) is to explain “the terms of the agreement, and the effect of those terms” of the agreement to employees. In Minister for Employment and Workplace Relations a Full Bench attributed a quite narrow meaning to the word “effect” in s.202(1)(a) and also concluded that the same meaning applied to the use of the word “effect” elsewhere in the FW Act. 5 The Full Bench did not consider the meaning of the word “effect’ specifically within the context of its use in s.180(5) of the FW Act and it appears that there is real tension between that decision and the decision of the Full Bench in NTEIU v UNSW. Any such tension should be resolved in favour of the approach adopted by the Full Bench in NTEIU v UNSW.

[34] Sections 180(5) and (6) sit within the legislative framework in which an enterprise agreement is made when employees genuinely agree to approve the enterprise agreement. An enterprise agreement has been genuinely agreed to when the requirements of s.188 are met:

“188 When employees have genuinely agreed to an enterprise agreement

An enterprise agreement has been genuinely agreed to by the employees covered by the agreement if the FWC is satisfied that:

(a) the employer, or each of the employers, covered by the agreement complied with the following provisions in relation to the agreement:

(i) subsections 180(2), (3) and (5) (which deal with pre-approval steps);

(ii) subsection 181(2) (which requires that employees not be requested to approve an enterprise agreement until 21 days after the last notice of employee representational rights is given); and

(b) the agreement was made in accordance with whichever of subsection 182(1) or (2) applies (those subsections deal with the making of different kinds of enterprise agreements by employee vote); and

(c) there are no other reasonable grounds for believing that the agreement has not been genuinely agreed to by the employees.”

[35] The very nature of the explanation of the terms and the effect of the terms of an enterprise agreement which have been given to employees in accordance with ss.180(5) and (6) is relevant in relation to both s.188(a)(i) and (c). An explanation of the terms of an enterprise agreement may by commission or omission mislead employees and in such circumstances even if s.180(5) can be satisfied the Commission may consider that there are reasonable grounds for believing that the agreement has not been genuinely agreed to by the employees.

[36] It is also relevant that fulsome compliance with the requirement in s.180(5) of the FW Act to explain the terms and the effect of the terms of an enterprise agreement to the employees before they vote to approve the enterprise agreement should ensure that the employer does not breach s.345 of the FW Act:

“345 Misrepresentations

(1) A person must not knowingly or recklessly make a false or misleading representation about:

(a) the workplace rights of another person; or

(b) the exercise, or the effect of the exercise, of a workplace right by another person.

Note: This subsection is a civil remedy provision (see Part 4-1).

(2) Subsection (1) does not apply if the person to whom the representation is made would not be expected to rely on it.”

[37] Failure to provide a fulsome explanation of the terms and the effect of the terms of an enterprise agreement to employees before the employees vote to approve the enterprise agreement may not only lead to the Commission being satisfied that employees have not genuinely agreed to the enterprise agreement but it may also constitute a breach of s.345.

[38] As the decisions in ASU and CPSU v ATO and in Amcor show the Commission and Courts will not always need to go to the operation of s.180(5) when establishing the industrial context in which the Commission or Court is interpreting provisions of an enterprise agreement. That said, there will be instances in which a careful consideration of the operation of s.180(5) of the FW Act is necessary to create a clear picture of the industrial context in which an enterprise agreement is to be interpreted.

[39] With all of this in mind I now turn to the question before me.

[40] The central question posed by this dispute is: Does clause 23.2 permit Venture DMG to reduce the wage rate of employees who have had the benefit of clause 22.12 and who are currently receiving wage rates higher than the agreement wage rate for the work they now perform?

[41] Venture DMG in reliance upon clause 23.2 gave written notice to a number of employees in November 2013 in the following general terms:

“COST AND PAY CLASSIFICATIONS REVIEW

As part of the ongoing need to assure the sustainability of the business, we have conducted a review of our operations and costs. We have, as previously advised to employees, extended this review to include payroll structures and current job classifications. This review considers current job classifications under the Enterprise Agreement 2012 and compares it to the tasks and duties currently performed by employees.

As part of this review, it has come to our attention that you are currently incorrectly classified and being paid above the level of a Manufacturing/Production Level 5 employee, when you have in fact been performing the duties of a Manufacturing/Production Level 2 employee for some time.

Under clause 23.2 of the Enterprise Agreement 2012, the Company is permitted to reclassify employees to the correct classifications according to the level of work performed and pay employees at that rate of pay going forward. Your new rate of pay should apply from your next shift, however we will give you one week’s notice at the old rate and commence the new rate in one week.

As a consequence, the Company has reclassified you at the appropriate level and your rate of pay will accordingly change from $22.41 to $19.44 per hour, effective one week from today.

Please contact me if you want to discuss further the contents of this letter.

Yours faithfully,

Kaine Tamlyn

Plant Manager

Venture DMG Pty Ltd”

[42] Each employee who received a similar letter was specifically advised of the quantum of the wage reduction to be imposed by Venture DMG. Whilst the letter above identifies that the employee who received that letter would suffer a reduction of nearly $3.00 per hour or $113 per week other employees were to have their wages cut by greater amounts. One employee who provided a witness statement in this matter identified a wage reduction from $26.58 per hour to $20.29 per hour, a reduction of $6.29 per hour or $239.02 per week.

[43] It is clear from the structure of clauses 22.12 and 23.2 that the two clauses are interconnected.

[44] Clause 22.12 provides employees with a right to retain pre-existing wage rates that are higher than the agreement wage rates and to receive the agreement increases on those rates subject to the operation of clause 23.2 which provides that an employee can have their wage rate reduced where the employee is transferred to a lower grade of work than that upon which he/she is usually employed.

[45] Clause 23.2 requires that there be a transfer of an employee from their usual work to lower grade work before there can be a wage reduction. Although clause 23.2 has been in agreements applying to Venture DMG since 2006 the current clause could only operate in relation to transfers to lower grade work which occurred after the commencement of operation of the 2012 Agreement.

[46] At its simplest it would appear that if the conditions in clause 23.2 are met then clause 22.12 saves nothing.

[47] The contention of Venture DMG is even blunter than this simple reading of the interaction of clauses 22.12 and 23.2. Venture DMG contended that where an employee has been transferred to lower grade work at any time since Venture DMG took over the operations of DMG Industries then it retains the ability to use clause 23.2 to reclassify an employee and to reduce the employee’s pay rate accordingly. This contention appears to be clearly reflected in the terms of the letters sent to employees’ in November 2013 as the letter does not purport to identify when the transfer to lower grade work occurred.

[48] In the case of some of the employees who received the letter in November 2013 those employees were employed by DMG Industries as tradespersons in the tool room. Very shortly after Venture acquired the business of DMG Industries Venture DMG decided to significantly reduce the staffing in the tool room and a number of employees were transferred to production work whilst retaining their toolroom rates of pay. The evidence shows that Venture DMG didn’t want to lose the skills of these employees as Venture DMG thought that there might be future opportunities to do tooling work. Venture DMG now contends that there is no possibility of any tooling work and that the fact that employees were transferred from the tool room to lower grade work in 2006 or 2007 is sufficient to enable Venture DMG to now use clause 23.2 to reduce the wage rates of these employees. Venture DMG contends that no redundancy situation arises with these employees because, although Venture DMG no longer requires them for tooling work it does require them for the lower grade production work they have actually been performing since 2006 or 2007.

[49] Mr Cain, Finance Director of Venture DMG identified in his evidence that he also had effective control of the industrial relations portfolio at Venture DMG and that he was actively involved in the negotiation of the enterprise agreements which cover Venture. Mr Cain’s evidence was that he always held the view that clause 23.2 could be used by Venture DMG in the way in which it was currently being used, i.e. clause 23.2 provides an effective way to defeat the savings provisions of clause 22.12. Mr Cain also gave evidence that at no stage during the process of making the 2010 or 2012 enterprise agreements did Venture DMG explain to employees that the combined operation of clause 22.12 and 23.2 meant that the protection provided by clause 22.12 could be removed simply by Venture DMG transferring an employee to a lower grade job for more than one day and that once the protection of clause 22.12 was removed that Venture DMG could reduce the pay of the employee down from their protected rate to the enterprise agreement rate.

[50] The evidence of Mr John Glover, the NUW Union Organiser who was involved in the negotiation of the 2010 Agreement and the 2012 Agreement and who conducted meetings with employees to explain those agreements before employees’ voted to approve them, was that the explanations to employees were relatively simple and brief and that at no stage were employees advised that the changes made to clause 22.12 in the 2010 enterprise agreement, and continued in the 2012 enterprise agreement, permitted Venture DMG to cut the wages of the employees on protected rates simply by transferring the employee to lower grade work for more than one day. Rather the explanations to employees informed them that they would all get wage increases as provided by the enterprise agreement.

[51] Mr Maher, solicitor for Venture DMG, contended that there was no requirement on Venture DMG to explain to employees every term of an enterprise agreement nor the effect of every term of an enterprise agreement before the employees voted to approve the enterprise agreement. Specifically, Mr Maher contended that:

PN1475. Commissioner Ryan: What's the explanation you gave to the employees who made the agreement? Remember an agreement under the Fair Work Act is made when the employees - - -

PN1476. MR MAHER: Yes, I do accept that, but bearing in mind – and you would remember this from your own experience as a union official. The unions are recognised under the new Act as the bargaining representatives of the employees. Now, there is an assumption if I get a bargaining representative – I can appoint my own bargaining representative. I could appoint Mike. Now, I would expect Mike to provide me the necessary information that I was required to provide.

PN1477. Now, the company has done it in the sense that they have allowed the union on site, the union who has the relationship, and Mr Glover gave very, very clear evidence about the fact that information is better coming from the union than it is from the employer because there is a better trust situation with their union representatives. It is absolutely unreasonable to suggest that the employer go through line by line and think of any possible change when they have been talking about with the bargaining representative of the employees, their expert industrial representative - they've gone through it with them. They're aware of it and to suggest that you can't enforce something against – to someone's detriment - - -

[52] The contention of Mr Maher that “It is absolutely unreasonable to suggest that the employer go through line by line and think of any possible change when they have been talking about with the bargaining representative of the employees, their expert industrial representative - they've gone through it with them” is clearly inconsistent with the decision of the Full Bench in NTEIU v UNSW which said:

“[46] A practical approach needs to be adopted in relation to the obligation in s.180(5)(a). Obviously, the nature of the explanation provided to employees who will be covered by an agreement, and the steps that will constitute “all reasonable steps” will vary according to the circumstances of the employer and employees covered by the agreement and the complexity of the agreement.”

[53] There is a very stark difference between the workforce covered by the Venture DMG enterprise agreement and the workforce covered by the enterprise agreement in NTEIU v UNSW and the circumstances surrounding the making of the respective enterprise agreements.

[54] Contrary to what Mr Maher contended it may very well be absolutely reasonable to suggest that the employer go through the agreement line by line and explain the agreement in detail to the employees who are being asked to vote to approve the agreement. What constitutes an acceptable explanation of the terms and the effect of the terms of an enterprise agreement will depend on the particular circumstances and needs of the employees. This, and nothing more and nothing less is what is required by language of s.180(5)(b) of the FW Act.

[55] What the Full Bench said in NTEIU v UNSW at pn [46] clearly forms part of the industrial context in which an enterprise agreement is made and in turn forms part of the context in which this Commission or the Courts will interpret the terms of an enterprise agreement (as per Kirby J in Amcor citing Kuck’s case).

[56] In the present matter the structure of the workforce at Venture DMG is part of the relevant industrial context both for the purposes of s.180(5) and (6) of the FW Act and for the purpose of interpreting the terms of the enterprise agreement made with those employees. The Statutory Declaration (Form F17) filed in support of the application for approval of the 2012 Agreement identifies that there were 320 employees who were to be covered by the enterprise agreement and of these 272 were employees with a Non-English speaking background (NESB). Also of the 320 employees 96 were female and 96 were over 45 years of age. Whilst the figures do permit identification as to how many of the 272 NESB employees were either female or over 45 years of age or both female and over 45 years of age the raw figures suggest a high likelihood that some of the 272 NESB employees were both female and over 45 years of age and some were male and over 45 years of age. Identifying an employee as NESB does not identify the employee’s capacity to understand the English language at any level let alone the ability of a NESB employee to understand the terms and the effect of the terms of an enterprise agreement even when explained in the employee’s first language.

[57] The limited evidence in this matter suggests that many of the employees are at the lower end of the classification structure in the relevant modern award and are persons with limited understanding of enterprise agreements.

[58] The industrial context in which the 2010 and 2012 Agreements operate includes 3 key facts, (1) the fact that employees had specifically been assured by Venture DMG, when Venture DMG acquired the business of DMG Industries, that Venture DMG would continue to pay the personal rates paid to each employee as set by DMG Industries and (2) the fact that those saved rates would be increased in line with increases set out in the enterprise agreements, and (3) the fact that it was never explained to employees in either 2010 or 2012 that Venture DMG considered that the enterprise agreement provided Venture DMG with the right to reduce any employees’ saved rate by transferring that employee to lower grade work for more than one day.

[59] What Venture DMG is attempting to achieve through its interpretation of the operation of clauses 22.12 and 23.2 of the 2012 Agreement is to (paraphrasing the words of Kirby J in Amcor) impose on employees a “worse bargain” for the employees than, in retrospect, the employees ought to have provided for, might have expected and even might have deserved in an industrial sense.

[60] The outcome sought by Venture DMG in these proceedings would not be a “worse outcome” for employees if employees voted to approve the 2010 and 2012 Agreements in the clear knowledge that the outcome now sought by Venture DMG was specifically provided for by the interaction between clauses 22.12 and 23.2 of the agreement. This is so because if the interpretation of clauses 22.12 and 23.2 contended for by Venture DMG was explained to employees before they voted on the approval of the agreements then it would have been a bargain that employees provided for, expected and deserved in an industrial sense.

[61] Venture DMG contended that if the Commission does not support the interpretation of clauses 22.12 and 23.2 contended for by Venture DMG then the Commission is effectively robbing clause 23.2 of any work to do.  6

[62] A rejection of the contention of Venture DMG still leaves clause 23.3 with work to do. Clauses 22.12 and 23.2 do not exist in isolation from the rest of the enterprise agreement.

[63] The 2001 agreement made between the NUW and DMG Industries, PR903467, provided at clause 10 the following:

“10. SAVINGS PROVISION

10.1 No employee will as a result of the making of this Agreement , suffer any loss of existing wages or other benefits to which the employee’s entitled prior to the date of the coming into operation of this agreement except where specifically provided for by this agreement.”

[64] The clause is in exactly the same terms (including the misplaced comma after the word Agreement) and with the same numbering in each of the 2007, 2010 and 2012 Agreements.

[65] Similarly, clause 23.2 has remained unchanged in each agreement since the 2001 Agreement.

[66] The introduction into the 2007 Agreement of clause 22.12 and 22.13 was to address the specific concerns of employees who wanted to ensure the protection of their individual based rates of pay which were higher than the agreement rates and which had been carried over from DMG Industries as well as giving Venture DMG the opportunity of reviewing the classification structure.

[67] Clearly the introduction of clause 22.12 was intended to do more than the savings provision in clause 10. The very specific purpose of clause 22.12 was to protect the rates of pay of those employees who were previously employed by DMG Industries and who became employees of Venture DMG. The rates of pay being protected were the rates of pay the employee had received at DMG Industries. For these employees clause 23.1 and 23.2 could have real work to do. Where an employee was engaged in work, which under the agreement attracted a higher rate than the personal rate saved for that employee, then the employee could and would receive higher duties and, could and would be reduced back to their saved rate when transferred from the higher duties back to lower paid work.

The variation of clause 22.12 in the 2010 Agreement permits clause 23.2 to operate as described above and ensures that the purpose behind the introduction of clause 22.12 in the 2007 Agreement is retained but not able to be expanded.

Decision

[68] I am satisfied that the correct interpretation as to the operation of clause 22.12 and 23.2 is as follows:

[69] Where an employee has a saved rate in accordance with the operation of clause 22.12 then clause 23.2 will operate on the basis that where an employee is engaged in work, which under the agreement attracted a higher rate than the personal rate saved for that employee, then the employee could and would receive higher duties (23.1) and, the employee could and would be reduced back to their saved rate when transferred from the higher duties back to lower paid work (23.2).

[70] Therefore Venture DMG is not entitled to reduce the saved rates of pay of employees who received the letter dated 25 November 2013.

Further Observations which are not part of the Decision

[71] I observed to the parties near to the conclusion of the hearing of this matter that it appeared that the issue in dispute was so narrowly defined that resolution of the issue in dispute would not necessarily resolve the dispute between Venture DMG and its employees over what should be the correct rate of pay.

[72] This dispute was being dealt with by the Commission at the same time that there was significant media and political attention being directed at the Federal Court decision of Bromberg J in Marmara v Toyota Motor Corporation Australia Ltd 7 which prevented Toyota from putting claims to its workforce that the workforce agree to reductions in entitlements.

[73] The basis for the decision of Bromberg J was the wording of clause 4 of the enterprise agreement covering Toyota employees which provided in part that:

“The parties agree they will not prior to the end of this agreement:

Make any further claims in relation to wages or any other terms and conditions of employment”.

[74] I drew to the attention of the parties in this matter that clause 54 of the 2012 Agreement was significantly different to that in the Toyota matter. Clause 54 in the 2012 Agreement is as follows:

“54. No Extra Claims

54.1 It is a term of this agreement that neither party shall pursue any extra claims during the life of this agreement except where consistent with a decision of FWA.”

[75] Neither party sought to address me at any length on the terms of clause 54 and for that reason I make no decision in relation to clause 54. However I observe that the limitations facing Toyota as a result of the decision in Marmara v Toyota do not appear to be faced by Venture DMG given clause 54.

[76] During the course of the conduct of this matte I became aware through media reports of the existence of the Productivity Commission Preliminary Findings Report into Australia’s Automotive Manufacturing Industry, which at page 46 says:

“Workplace relations and tax policies have impacts on the sector

The broader policy environment affects the operation of firms in the automotive manufacturing industry. In particular, the enterprise bargaining framework established by the Fair Work Act 2009 (Cwlth) sets parameters for negotiations between firms and their employees and representatives. To the extent that these parameters impede flexibility at the workplace level, they limit the ways in which the automotive manufacturing industry can respond to future challenges. Further, rigidities in the policy environment can increase the threat from any future shocks if firms in the industry are not able to continually adapt to changing circumstances. The Federal Court decision of 12 December 2013 in regard to Toyota — which may restrict the scope for enterprise agreements to be varied before their expiry date — is likely to be influential in this regard. (On 19 December 2013, Toyota lodged an appeal against the Court’s decision (Toyota Australia 2013b).)”

[77] I am not aware of any provisions of the Fair Work Act which set parameters for negotiations between firms and their employees and representatives in relation to enterprise bargaining and which “impede flexibility at the workplace level”.

[78] In the present matter the outcome sought by Venture DMG was always available to it through the enterprise bargaining framework of the Workplace Relations Act in relation to the 2007 Agreement and of the FW Act in relation to the 2010 and 2012 Agreements. However as the evidence shows in this matter Venture DMG never sought to have employees specifically agree to the outcome now sought by Venture DMG. In that sense the FW Act is not the problem rather the conduct of the parties in this matter has inevitably led to the position that Venture DMG finds itself in.

[79] It is important to observe that employees of Venture DMG have been generously treated by Venture DMG. Whilst DMG Industries rewarded employees with personal rates higher than the rate provided for in the agreement which covered the employees work it did so as part of a business which was run unsoundly and which in the end was insolvent. Employees need to understand that the rates paid by DMG Industries and now saved and increased by Venture DMG should to be subject of genuine review by both Venture DMG and its employees and their representatives, the NUW.

[80] The recent announcement of the closure of Toyota’s manufacturing plant in Victoria means that there is some compelling urgency for Venture DMG and its employees and the NUW to work constructively together to resolve the broad issue of pay rates for saved employees at Venture DMG. The Commission is always able to be accessed to provide assistance to the parties through conciliation or conferencing.

COMMISSIONER

Appearances:

Ms A. Grogan for the Applicant

Mr A. Maher, for the Respondent

Hearing details:

2013.

Melbourne:

29, 30 January

 1   Transcript at PN984.

 2   Transcript at PN988.

 3   ASU and CPSU v TO[2013] FWCFB 4752, 17 July 2013, VP Watson, DP Gostenick, Blair C.

 4   NTEIU v UNSW[2011] FWAFB 5163.

 5   Minister for Employment and Workplace Relations [2010] FWAFB 3552 at pn [20].

 6   Transcript at PN1432 and PN1433.

 7   Marmara v Toyota Motor Corporation Australia Ltd [2013] FCA 1351.

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