Newlands Coal Pty Ltd

[2010] FWA 4811

FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.185—Approval of enterprise agreement

Newlands Coal Pty Ltd
(AG2010/9568)

Coal industry
COMMISSIONER ROE	MELBOURNE, 29 JUNE 2010

Application for approval of the Newlands Coal Surface Operations Enterprise Agreement 2010 – validity of clause which allows individual employees to “opt out” of agreement – application refused unless further undertaking provided.

[1] An application has been made for approval of an Enterprise Agreement known as the Newlands Coal Surface Operations Enterprise Agreement 2010 (the Agreement). The application was made pursuant to s.185 of the Fair Work Act 2009 (the Act). Section 185 is in Part 2–4 of the Act which provides for the making of Enterprise Agreements between an employer and their employees who are employed at the time the agreement is made and who will be covered by the agreement. The application has been made by Newlands Coal Pty Ltd (the Applicant). The Agreement is a single-Enterprise Agreement. The Agreement will cover 154 employees. 109 employees cast a valid vote and 101 of them voted in favour of the Agreement.

[2] The application for approval was received by Fair Work Australia on 17 May 2010. On 20 May 2010 my Associate wrote to Mr Graeme Weeks, Operations Manager of Newlands Coal Pty Ltd raising some concerns. Mr Weeks replied on 27 May 2010 and there was further correspondence from me on 7 June 2010 and from Mr Weeks on 18 June 2010. A hearing was held on 24 June 2010. At the hearing on 24 June 2010 I granted leave for Mr I Humphreys for the Applicant and Mr A Slevin for the CFMEU to appear.

[3] Save for one matter which is dealt with below I am satisfied that each of the requirements of Sections 186, 187 and 188 of the Act as are relevant to the application for approval have been met.

[4] The Construction, Forestry, Mining and Energy Union (“CFMEU”) and the "Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union" known as the Australian Manufacturing Workers' Union (“AMWU”) being bargaining representatives for the Agreement have given notice under Section 183 of the Act that they want the Agreement to cover them. As required by Section 201(2) I note that the Agreement will cover those two organisations if it is approved.

[5] I have received from the CFMEU and from the Applicant, 31 conditional termination applications in respect to individual agreements (AWAs and ITEAs) which have passed their nominal expiry dates. There were originally 35 applications but 4 employees revoked their notices prior to the date of application for approval of the Agreement. Pursuant to Schedule 3 Item 18 of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 I have examined these applications and they are in order and, in the event that the Agreement is approved, the Agreement will apply to these 31 employees in lieu of the individual agreements.

The “opt out” provisions in the Agreement

[6] The issue of concern in this matter relates to Clause 2 Coverage of the Agreement which reads as follows:

“2. Coverage

2.1 Coverage – General

Subject to 2.2 below, this Agreement covers:

• Newlands Coal Pty Ltd (“Company”), and

• Employees of the Company who are engaged at the Newlands Surface Operations in the classes of work included in Schedule A – Production and Engineering Employees of the Black Coal Mining Industry Award 2010.

2.2 Employees Not Covered

This Agreement does not cover:

• Employees who are covered by an Australian Workplace Agreement (“AWA”), that has not reached its nominal expiry date; or

• Employees who at any time elect in writing not to be covered by the Agreement.

2.3 Employee Decision whether to be Covered

All persons proposed to be employed by the Company in the classes of work included in Schedule A Production and Engineering Employees of the Black Coal Mining Industry Award 2010 will be covered by this Agreement unless they elect in writing not to be covered by this Agreement.

All employees who are covered by an AWA or ITEA shall, following expiry of the nominal term of their AWA or ITEA, be covered by this Agreement unless they elect in writing not to be covered by this Agreement.”

[7] The concern is confined to the “opt out” provisions which are the second dot point of Clause 2.2 which excludes employees who elect in writing not to be covered by the Agreement at any time and the phrase in the first paragraph on Clause 2.3 which ensures that all new employees are covered by the Agreement “unless they elect in writing not to be covered by this Agreement”. The concerns raised in respect to the “opt out” clauses included:

Does the legislation allow for an Agreement to provide for an existing employee who participated in the vote for the making of an Agreement and is then covered by the Agreement to subsequently “opt out” of the Agreement?

Does the legislation allow for an Agreement to provide for a potential employee who would otherwise be covered by the Agreement to “opt out” of an Agreement prior to being engaged by the employer?

Is a provision which provides for an employee to “opt out” of an Agreement consistent with the Objects of the legislation? Does it undermine the objective to promote collective bargaining?

Can a genuine Agreement be reached with employees who may “opt out” of an Agreement at some future date and is it consistent with a genuine Agreement for future employees to be able to “opt out” prior to engagement?

How can I be sure that those employees who may “opt out” of the Agreement are better off overall (ie meet the Better Off Overall Test)?

Does the existence of an undefined group of existing and potential employees who may “opt out” of the Agreement mean that the group to be covered by the Agreement is no longer geographically, operationally or organisationally distinct? Does the existence of this undefined group mean that the group to be covered by the Agreement is not fairly chosen?

The undertakings proposed and offered

[8] I suggested to the Applicant on 7 June 2010 that I would accept an undertaking that “the provisions in Clauses 2.2 and 2.3 which provide for an existing or a new employee to elect in writing to not be covered by the Agreement will not apply and that the employer will neither request or accept any such election”. I would approve the Agreement pursuant to Section 190 of the Act based on such an undertaking and that undertaking would become a term of the Agreement pursuant to Section 191 of the Act. I am satisfied that such an undertaking is not likely to cause financial detriment to any employee covered by the agreement or result in substantial changes to the agreement.

[9] The Applicant on 27 May 2010 provided an alternative undertaking that “any employee who would be covered by the Newlands Coal Surface Operations Agreement 2010, except for their election in writing not to be covered, will be better off overall for the purpose of the Better Off Overall Test”. I advised the Applicant that I did not believe that this undertaking resolved the concerns I had about the “opt out” provisions of the Agreement. The CFMEU also advised that they were not consulted about this undertaking and did not believe that the undertaking resolved the concerns I had raised.

[10] The Applicant submitted that the group of employees to be covered by the Agreement as set out in Clause 2 of the Agreement was fairly chosen in that it was properly negotiated and agreed between the company and the bargaining representative, the CFMEU, and voted for in full understanding of its implications by the relevant employees. I do not doubt that the clause was understood and agreed but that in itself does not make the group to be covered fairly chosen. If this were not the case then there would be no work for Section 186(3) of the Act to do. The CFMEU submitted that they had advised the Applicant during the bargaining that they did not believe the clauses in question were allowable under the Act.

[11] The Applicant offered to make further undertakings if necessary to deal with the concerns I raised that a new employee might not be able to exercise free choice and that this was one reason why I suggested that the group of the employees covered by the Agreement may have been unfairly chosen. At the hearing on 24 June 2010 the Applicant gave a further undertaking which was subsequently signed and provided in the proper form as follows:

“UNDERTAKING – Free to Elect

Newlands Coal Pty Ltd undertakes that employees at Newlands Mine will be given a free choice as to whether or not they wish to be covered by the Agreement. Employment will not be conditional upon a prospective employee choosing to be covered or to not be covered by the Agreement.”

[12] For reasons that I will deal with later I do not believe the undertakings given by the Applicant resolve the problems with the “opt out” provisions in clauses 2.2 and 2.3.

Does the legislation permit an Agreement to provide for employees who are covered by the Agreement to “opt out” of Agreement coverage?

[13] It is necessary to consider a number of provisions of the Act in order to ascertain whether or not the legislation permits an Agreement to allow existing or new employees to elect not to be covered by the Agreement after the date upon which the Agreement is made. The most relevant provisions of the legislation are as follows:

1. An enterprise agreement is made with employees who are employed at the time the agreement is made and who will be covered by the agreement.

“172 Making an enterprise agreement

Single-enterprise agreements

(2) An employer, or 2 or more employers that are single interest employers, may make an enterprise agreement (a single-enterprise agreement):

(a) with the employees who are employed at the time the agreement is made and who will be covered by the agreement; or………”

2. Only those employees who will be covered by the agreement can vote for it (this includes those covered by conditional terminations) (Section 181(1)).

“181 Employers may request employees to approve a proposed enterprise agreement

(1) An employer that will be covered by a proposed enterprise agreement may request the employees employed at the time who will be covered by the agreement to approve the agreement by voting for it.”

3. The agreement is made with those who were eligible to vote for it when a valid majority has voted. (Section 182(1)).

“182 When an enterprise agreement is made

Single-enterprise agreement that is not a greenfields agreement

(1) If the employees of the employer, or each employer, that will be covered by a proposed single-enterprise agreement that is not a greenfields agreement have been asked to approve the agreement under subsection 181(1), the agreement is made when a majority of those employees who cast a valid vote approve the agreement.”

4. The agreement applies to all employees covered by it unless another provisions of the Act has the effect that the agreement does not apply to the employee (e.g. a person covered by another agreement or AWA) (Section 52(1)).

“52 When an enterprise agreement applies to an employer, employee or employee organisation

When an enterprise agreement applies to an employee, employer or organisation

(1) An enterprise agreement applies to an employee, employer or employee organisation if:

(a) the agreement is in operation; and

(b) the agreement covers the employee, employer or organisation; and

(c) no other provision of this Act provides, or has the effect, that the agreement does not apply to the employee, employer or organisation.”

5. An enterprise agreement covers those it is expressed to cover in respect to particular employment (Unless the agreement has ceased to operate or another order or provision of the Act provides to the contrary) (Section 53). This section also prescribes how an employee may otherwise become covered or may cease to be covered.

“53 When an enterprise agreement covers an employer, employee or employee organisation

Employees and employers

(1) An enterprise agreement covers an employee or employer if the agreement is expressed to cover (however described) the employee or the employer.”

Employee organisations

(2) An enterprise agreement covers an employee organisation:

(a) for an enterprise agreement that is not a greenfields agreement—if FWA has noted in its decision to approve the agreement that the agreement covers the organisation (see subsection 201(2)); or

(b) for a greenfields agreement—if the agreement is made by the organisation.

Effect of provisions of this Act, FWA orders and court orders on coverage

(3) An enterprise agreement also covers an employee, employer or employee organisation if any of the following provides, or has the effect, that the agreement covers the employee, employer or organisation:

(a) a provision of this Act or of the Fair Work (Registered Organisations) Act 2009;

(b) an FWA order made under a provision of this Act;

(4) Despite subsections (1), (2) and (3), an enterprise agreement does not cover an employee, employer or employee organisation if any of the following provides, or has the effect, that the agreement does not cover the employee, employer or organisation:

(a) another provision of this Act;

(b) an FWA order made under another provision of this Act;

Enterprise agreements that have ceased to operate

(5) Despite subsections (1), (2) and (3), an enterprise agreement that has ceased to operate does not cover an employee, employer or employee organisation.

Enterprise agreements cover employees in relation to particular employment

(6) A reference in this Act to an enterprise agreement covering an employee is a reference to the agreement covering the employee in relation to particular employment.”

6. An enterprise agreement continues in operation and therefore to cover those it covers until terminated or replaced (Section 54).

“54 When an enterprise agreement is in operation

(1) An enterprise agreement approved by FWA operatesfrom:

(a) 7 days after the agreement is approved; or

(b) if a later day is specified in the agreement—that later day.

(2) An enterprise agreement ceases to operate on the earlier of the following days:

(a) the day on which a termination of the agreement comes into operation under section 224 or 227;

(b) the day on which section 58 first has the effect that there is no employee to whom the agreement applies.

Note: Section 58 deals with when an enterprise agreement ceases to apply to an employee.

(3) An enterprise agreement that has ceased to operate can never operate again.”

7. FWA must be satisfied that the group of employees covered by the agreement was fairly chosen and in deciding whether the group was fairly chosen take into account whether the group is geographically, operationally or organisationally distinct (Section 186(3) and (3A)).

“186 When FWA must approve an enterprise agreement—general requirements

Basic rule

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

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

Requirements relating to the safety net etc.

(2) FWA must be satisfied that:

(a) if the agreement is not a greenfields agreement—the agreement has been genuinely agreed to by the employees covered by the agreement; and ……..

Requirement that the group of employees covered by the agreement is fairly chosen

(3) FWA must be satisfied that the group of employees covered by the agreement was fairly chosen.

(3A) If the agreement does not cover all of the employees of the employer or employers covered by the agreement, FWA must, in deciding whether the group of employees covered was fairly chosen, take into account whether the group is geographically, operationally or organisationally distinct.”

8. Section 256A(2) provides that the employees may be specified by class or by name and Section 256A(4) explains how the class may be described.

“256A How employees, employers and employee organisations are to be described

(1) This section applies if a provision of this Part requires or permits an instrument of any kind to specify the employers, employees or employee organisations covered, or who will be covered, by an enterprise agreement or other instrument.

(2) The employees may be specified by class or by name.

(3) The employers and employee organisations must be specified by name.

(4) Without limiting the way in which a class may be described for the purposes of subsection (2), the class may be described by reference to one or more of the following:

(a) a particular industry or part of an industry;

(b) a particular kind of work;

(d) a particular classification, job level or grade.”

[14] The Sections of the Act quoted above clearly do not allow an individual who is covered by an agreement and to whom the agreement applies to elect not to be covered by an agreement except by a subsequent decision by Fair Work Australia to vary, terminate or replace the Agreement. The reasons for this are:

Section 172(2) only allows a single enterprise agreement to be made with those who are employed at the time and who will be covered by the agreement. There is no provision for the agreement to be made with those who may be covered by the agreement.

Similarly Sections 52, 53 and 54 cover the field in describing who is covered by an agreement and to whom an agreement applies and there is no provision for optional coverage.

The effect of Section 54 is that an employee who is covered by an Agreement continues to be covered by that Agreement whilst they continue to be employed in the particular employment covered by the Agreement unless the Agreement is terminated, varied or replaced.

The effect of Section 53 in conjunction with Section 256A is that the class of employees whom the Agreement specifies will be covered by an Agreement remain covered by that Agreement. This includes new and existing employees.

Section 53 specifies how other employees may be covered by an Agreement or be excluded from coverage of an Agreement. There is no provision in Section 53 for an Agreement itself to provide for optional coverage of an Agreement.

The same principles apply in respect of the application of the Agreement in Section 52. There is no provision in Section 52 for an Agreement itself to provide for optional coverage or application. There is no provision in the legislation which is relevant to the circumstances of these proceedings which would provide for those employees to whom the Agreement applies to no longer have the Agreement apply to them unless they are no longer employed in the classes of employment covered by the Agreement or unless the Agreement is varied, terminated or replaced.

The effect of Section 181(1) is that only those who will be covered by the Agreement can be requested to vote for it.

The effect of Section 182(1) is that an agreement is made and can only be made when a valid majority of the employees who will be covered by the agreement vote for it. An Agreement cannot be made with those who may be covered by an Agreement. Sections 52 and 53 make it clear that “will be covered by the Agreement” is not confined to the point the Agreement is made. It must be read as “will be covered by the Agreement” unless it is varied, replaced or terminated or unless the employee ceases to be employed in the classes of employees covered by the Agreement or unless another provision of the legislation specifically removes them from coverage. Hence, if an employee is able to “opt out” at some future point then it cannot be said that they “will be covered by the Agreement” in the sense that this is defined by the legislation.

An Agreement of course can be made with an employee who at some subsequent time might cease to be an employee of the employer or the employee might move to be employed in a classification which is not covered by the Agreement and in both these cases the employee ceases to be covered by the Agreement and the Agreement no longer applies to them. This is explicitly provided for in Sections 52, 53 and 54. However, “opting out” is different and this is not provided for.

Of course the employees in locations or classifications excluded from the agreement’s coverage do not and cannot participate in the voting for the Agreement and the Agreement is not made with them. If they do participate then it puts into question the validity of the voting and the making of the Agreement. An employee who elects not to be covered by the Agreement at some future time is similarly not an employee who will be covered by the Agreement and their participation in the voting and making of the Agreement would similarly contaminate the process.

[15] For the reasons set out above the “opt out” provision cannot apply to existing employees. There is no capacity for a person to be provisionally or conditionally covered by an Agreement. They are either covered or they are not. Similarly the agreement either applies to them or it does not. Coverage and application are established at the point an agreement is made and continues until the Agreement is varied, terminated or replaced or unless the employee ceases to be employed by the employer in the classes of work covered by the Agreement (or is a named employee who ceases to be employed by the employer in the classes of work covered by the Agreement). The effect of the legislation is that all of the employees (except for some employees covered by an ITEA or AWA) who voted for the agreement and who are in the categories of employment covered by the agreement have the agreement applying to them from the date 7 days after the agreement is approved by FWA. There is no capacity for them to be provisionally or conditionally covered (except as transitionally provided for in respect of AWAs and ITEAs).

[16] Only those classes of employees who will be covered by the Agreement can participate in the vote for the Agreement. If those who would not be covered by the Agreement participate in the vote then this would breach Section 181 and put into question the validity of the vote and the capacity of the Tribunal to approve the Agreement. The Fair Work Bill 2008 Explanatory Memorandum at paragraph 749 makes it clear that Section 182(1) taken together with Section 181(1) provides that an agreement is made when the agreement is approved by a majority of the employees who will be covered by the agreement and who cast a valid vote. In other words, you cannot have employees who vote that are not covered by the Agreement and will not remain covered by the Agreement until it is varied, replaced or terminated or unless there is some other specific legislative provision under which they cease to be covered.

[17] In the proceedings on June 25 2010 the Applicant confirmed that at the time of the voting there were no employees who had opted to not be covered by the Agreement. 1 It follows from this that once the employees had voted for the Agreement and the Agreement had been made the Agreement covers and applies to all those employees from 7 days after it is approved by this Tribunal. The coverage and application of the Agreement to those employees cannot then be altered except by variation, termination or replacement of the Agreement under the Act. The “opt out” provision of Clause 2.2 of the Agreement only purports to apply to those who are already covered by the Agreement and to whom the Agreement applied prior to them electing to “opt out” of the Agreement. I am convinced that no one who is already covered by the Agreement and to whom the Agreement applies can “opt out” of the Agreement without a subsequent decision of Fair Work Australia to vary, terminate or replace the Agreement unless they cease to be an employee employed by the employer in the classes of work stated to be covered by the Agreement.

[18] Mr Humphreys for the Applicant argued that Section 172(2)(a) of the Act by referring to “the employees who are employed at the time the agreement is made and who will be covered by it” is simply focusing on the point of time at which the agreement is made and as a matter of logic that means that existing and future employees may or may not be covered at some future point. I do not accept this as Sections 172(2)(a) and 181(1) also refer to “and who will be covered by it” not just “who are employed at the time the agreement is made”. Furthermore, it is Sections 52, 53, 54, 256A(2) and 186(3) and (3A) which regulate which employees are covered by an agreement and how that agreement applies to them. That scheme of regulation covers the field in that it deals with how an employee comes to both be covered and not covered by an agreement and how an employee comes to have an agreement apply or not apply to them. There is no concept that coverage and application can be conditional or optional or that there can be a valid individual agreement to “opt out” of coverage.

[19] Section 53(1) when taken together with Section 186 certainly makes it clear that the parties may bargain over the scope of a proposed agreement. However, that bargaining is about who will be covered by the agreement not about who may be covered.

[20] Section 53(1) provides that:

“An enterprise agreement covers an employee or employer if the agreement is expressed to cover (however described) the employee or the employer.”

[21] An agreement must be expressed to cover an employee. There is no room for an agreement to be expressed as covering an employee in relation to particular employment (Section 53(6)) for some of the time or in a conditional manner. The words “however described” are in my view to cover the situation where lay people in drafting the agreement may not use the technical terms “cover” or “apply” and may describe different categories of employees to be covered in different ways. I do not see the words “however described” as providing for conditional or optional coverage. The Section says the agreement covers the employee not that it may cover the employee.

[22] Section 53(3) describes the other circumstances in which an employee can be brought within the coverage of an agreement and Section 53(4) and (5) describes the other circumstances in which an employee can be brought outside the coverage of an agreement. The legislation has a scheme for dealing with employees moving in and out of agreements and the parties are not free to devise their own mechanisms by which this can occur.

[23] Section 52 provides that there are circumstances in which an agreement may cover an employee but the agreement may not apply to that employee. However, those circumstances are confined to situations where the agreement ceases to operate or where another provision of the Act “provides, or has the effect, that the agreement does not apply to the employee”. I can find no provision of the Act which specifically provides for an individual to choose to have an agreement no longer apply to them or for an Agreement to provide for this.

[24] I am satisfied that the Agreement cannot be approved if it contains a clause which allows an individual employee who was covered by the Agreement to “opt out” of the Agreement.

Can potential new employees “opt out” of Agreement coverage prior to engagement by the employer covered by the Agreement?

[25] I have found that existing employees who were able to vote for an Agreement and who were covered by the Agreement at the time it was made cannot “opt out” of the Agreement. However, new employees might be in a different situation as they did not vote for the Agreement. The Agreement clearly applies to new employees in the classes of work specified in the coverage clause by virtue of Section 52 and Section 53. There is no provision of the Act which allows an employee who would otherwise by covered by an Agreement to “opt out” of coverage. There is no provision which prevents those new employees covered by the agreement from having the agreement apply to them.

[26] However, it might be argued that Section 53(1) provides that an agreement covers those whom it is expressed to cover and this Agreement is not expressed to cover a new employee who prior to engagement elects not to be covered and therefore new employees who “opt out” prior to engagement are not covered by the Agreement. This is distinguishable from an existing employee who is already covered by the Agreement by virtue of the valid majority vote or a new employee who opts out after they have become employed and hence is covered by the Agreement prior to “opting out”. I have already found that once covered by the Agreement an employee cannot “opt out” and that an Agreement cannot be made in such terms.

[27] I do not accept the argument that a new employee could “opt out” prior to engagement and favour the view that if a class of existing employees is covered by an agreement then new employees in that class must also be covered. An agreement not to be covered that was reached prior to engagement could not override the fact that the effect of Sections 52, 53 and 54 is that the Agreement covers new employees in the class of employees who are covered by the Agreement. The coverage of an Agreement cannot be altered by an employer and a prospective employee prior to engagement and this is what clause 2.3 seeks to do. Hence the employee upon engagement is covered by the Agreement and once engaged cannot “opt out” of the Agreement. Any election not to be covered prior to engagement is of no effect as the Agreement has no power to alter the rights prior to engagement.

[28] However, even if I am wrong in this view, I believe that the concept that new employees can “opt out” is not consistent with the Objects of the Act and encouragement of collective bargaining in particular and “opting out” is also not consistent with the requirement for genuine agreement.

Are “opt out” clauses consistent with the Objects of the legislation and does the Act allow for contracting or “opting out” of awards and collective agreements?

[29] My conclusions about the specific provisions of the legislation in respect to the making of collective agreements that they don’t permit the “opting out” are reinforced by my view that such clauses are not consistent with the objects of the legislation and also not consistent with a long line of decisions which prevent contracting out or “opting out” of awards and statutory agreements both individual and collective.

[30] The Objects of the Act and Sections 3(a), (c), (e) and (f) and Section 171 in particular and the Explanatory Memorandum do not support statutory individual contracts and promote collective bargaining. Allowing an individual to “opt out” of a collective agreement is not consistent with these objects.

“3 Object of this Act

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

(a) providing workplace relations laws that are fair to working Australians, are flexible for businesses, promote productivity and economic growth for Australia’s future economic prosperity and take into account Australia’s international labour obligations; and

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

(c) ensuring that the guaranteed safety net of fair, relevant and enforceable minimum wages and conditions can no longer be undermined by the making of statutory individual employment agreements of any kind given that such agreements can never be part of a fair workplace relations system; and

(d) assisting employees to balance their work and family responsibilities by providing for flexible working arrangements; and

(e) enabling fairness and representation at work and the prevention of discrimination by recognising the right to freedom of association and the right to be represented, protecting against unfair treatment and discrimination, providing accessible and effective procedures to resolve grievances and disputes and providing effective compliance mechanisms; and

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

(g) acknowledging the special circumstances of small and medium-sized businesses.”

“171 Objects of this Part

The objects of this Part are:

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

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

(i) makingbargaining orders; and

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

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

[31] I believe that the concept that existing or new employees can “opt out” is inconsistent with the principles of collective bargaining and genuine agreement. There is no effective and enforceable way that an employer could be prevented from exerting unfair influence on an employee to not be covered by the collective agreement but instead to be covered by alternative arrangements particularly at the point of engagement. The concept of a collective agreement is that it is binding on the parties for the duration of the agreement and the parties cannot take protected industrial action in pursuit of further claims prior to the nominal expiry date. The integrity of the agreement is broken if there is “opting out” and an employer can potentially reduce or alter the conditions for a new class of employees. “Opting out” also potentially allows the employer to make and implement new claims during the life of an agreement when the other parties to the Agreement are barred from doing so. Such new claims are then a reality which changes the power relationships for future bargaining about those matters after the nominal expiry date of the Agreement. It may also undermine the extent to which those employees who have opted out might be an effective part of the bargaining process for a new agreement. I am not suggesting that the Applicant has these intentions. However, an agreement which is inconsistent with the scheme for collective bargaining in this manner would be inconsistent with the Objects of the Act.

[32] I am also not satisfied that free choice at the point of engagement can be guaranteed through an undertaking of the sort proposed by the Applicant (paragraph 11 above) given the nature of the power relationship at the point of engagement. I believe that one of the reasons why the current legislation does not make provision for statutory individual contracts is because the legislators found that the practice of making the signing of an agreement (whether it is a statutory contract or otherwise is immaterial) which replaces an award or a collective agreement a condition of engagement is inherently unfair. Furthermore, the legislators, consistent with the international conventions, have determined to promote collective not individual bargaining. Allowing individual employees, particularly at the point of engagement, to “opt out” of a collective agreement fundamentally undermines collective bargaining. 2

[33] The undertaking provided by the Applicant that employees who “opt out” will be better off overall for the purposes of the BOOT also does nothing to overcome this problem. If the Agreement does not apply then the Award does. However, in this case the Agreement is significantly above the Award in many respects and there is absolutely nothing to stop an employee who opts out from being significantly disadvantaged when compared to the Agreement. Furthermore there is nothing to stop the disadvantage to the interests of the collective group of remaining employees which would result from employees being on different arrangements from the Agreement. The disadvantage to the collective group of employees remaining could be significant even where overall the employee who opts out is better off overall when compared to the Award given that the collectively arrived at conditions could be undermined.

[34] I agree with the submission of Mr Slevin for the CFMEU that:

“there isn’t a general notion of freedom of contract (in the Act). There are notions of industrial instruments that will be enforceable under the legislation so long as those agreements meet the requirements of the legislation.” 3

[35] The concept that an individual employer or employee cannot simply contract out of an Award or statutory collective or individual agreement has been a consistent theme of the legislation since 1904 in Australia. It is also consistent with the International Labour Organisation conventions in respect of collective bargaining and freedom of association. One of the objects of the Act is to “take into account Australia’s international labour obligations” (Section 3(a) of the Act). The 1904 Act provided that awards continue in force until replaced, that awards have effect on all parties and their members, and that an employer cannot refuse to employ a worker on award conditions. Subsequent legislation provided for statutory collective agreements to prevail over awards provided they met certain conditions and then for statutory individual contracts to prevail over awards and collective agreements provided they met certain conditions.

[36] In the Harvester Judgment 4, Justice Higgins explained what lies behind the prohibition on individual contracting out of Awards. He said that Australian legislation was designed to deliver what employees cannot get “by the ordinary system of individual bargaining”. He said that “a worker and employer do not contract on a fair or equal footing when they contract to work for low wages to avoid starvation or pauperism”.

[37] The prohibition on contracting out of awards and its consequences were well set out in the judgment of Justice French in Metropolitan Health Services Board v Australian Nursing Federation: 5

“[18] The nature of the relationship between awards and contracts of employment has been much agitated: de Meyrick, ``The Interaction of Awards and Contracts'’ (1995) 8 AJLL 1 and the cases and articles there cited. But the present law is plain. The award is independent of contract. It is neither incorporated by statute nor by implication into the contract of employment: Byrne v Australian Airlines Ltd (1995) 185 CLR 410; 131 ALR 422. Nor can those bound by an award contract out of it: Josephson v Walker (1914) 18 CLR 691 at 700 (Isaacs J) approved in Byrne at CLR 421. That is not to say that a contract may not be made which confers benefits upon an employee over and above those conferred by the award: Byrne at CLR 421. Nor does it prevent parties from expressly agreeing to incorporate the terms of an award into their contract of employment thus providing remedies over and above those provided by statute: True v Amalgamated Collieries of WA Ltd [1940] AC 537 adopted in Byrne at CLR 420 and 444.

[19] Up until the enactment of the Workplace Relations Act 1996, an honest and common but erroneous assumption of parties to an award as to the nature of the rights it confers and obligations it imposes has been seen to have little effect against its statutory force. Griffiths CJ in Josephson v Walker put it thus (at 696):

The obligation created by [the award] does not depend upon any agreement of the parties express or implied, and may arise without their knowledge. If by the award it is determined that journeymen plumbers shall receive not less than a certain rate of wages, each journeyman plumber is entitled to those wages, and, although the employer and the employee have gone on for a long time the one paying and the other receiving what each honestly believes to be the proper rate of wages, nevertheless if it is afterward found that the wages paid are less than those fixed by the award, the right of the employee to receive the wages so fixed has accrued.

It is possible to perceive in that passage some of the matters which might be relied upon today to found an estoppel.

[20] The inability to contract out of an award by virtue of its statutory operation militates against the proposition that parties may be estopped from enforcing its provisions or may waive its benefits in a way that is legally enforceable. The effect of the statutory provisions which give awards their binding force are at least as powerful against the common law and equitable principles of estoppel and waiver as they are against the common law of contract. There is nothing novel in the general proposition that statutes which preclude contracting out of the rights and obligations they confer will defeat the application of estoppel and waiver to like effect: Beckford Nominees Pty Ltd v Shell Co of Australia Ltd(1986) 73 ALR 373 at 378 (Pincus J).”

[38] Justice Gordon in Regional Express Holdings Ltd v Clarke 6 found that this principle against contracting out extended to statutory agreements under the subsequent legislation.

“[44] Although it is not possible to contract out of a statutory instrument (Josephson at 700; Kidd v Savage River Mines (1984) 6 FCR 398 at 409–410; Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 421; Textile, Clothing and Footwear Union of Australia v Givoni Pty Ltd (2002) 121 IR 250 at [23] to [33] and McLennan at 125), that does not prevent an employment contract conferring additional benefits upon an employee over and above those conferred by a statutory instrument: Givoni at [29] to [35] and the authorities referred to. These latter cases were concerned with awards, however the same principles apply to certified agreements: see Ardmona Foods Ltd at [16] and [31]; Amcor Ltd v Construction, Forestry, Mining and Energy Union (“CFMEU”) [2003] FCAFC 57 at [34] and Amcor Ltd v CFMEU(2005) 214 ALR 56 at [144] per Callinan J.

[45] In the present case, the issue was not whether additional benefits were conferred by the employment contract. The issue was whether the employment contract, and in particular, the Training Bond, which imposed an obligation on Mr Clarke to pay $7,500 to REX if he left REX’s employment within a specified time, was enforceable.

[46] The Certified Agreement satisfied Division 2 of Pt VIB — it was in writing and it contained “matters pertaining to the relationship between” an employer (REX) and all persons who (at the time the agreement is in operation) were employed in its business including Mr Clarke: s 170LI. The ‘matters’ it pertained to included training and termination.

[47] The question was not whether the Certified Agreement was comprehensive — it clearly was not. The question was whether the term of the Training Bond, by which Mr Clarke agreed to pay $7,500 to REX if he left REX’s employment within a specified time, was a matter pertaining to the relationship between REX and the pilots that the Certified Agreement dealt with and if so, whether that term effectively altered or varied the rights and obligations concerning that matter or those matters in the Certified Agreement to the disadvantage of Mr Clarke? If the answer is yes, then consistent with the decision of the Full Court in McLennan it was not open to REX to seek to recover $7,500 from Mr Clarke because “… [b]y clear implication, the [Workplace Relations] Act prohibits the alteration of such rights or obligations which might disadvantage the employee by means other than those provided in the Act and renders ineffectual any agreement which purports to do so”: McLennan at [48].

[39] The Federal Court took the same approach in Quickenden v O’Connor, Commissioner of the AIRC and others 7. The Federal Court extended the same approach to Australian Workplace Agreements in McLennan v Surveillance Australia Pty Ltd.8 Chief Justice Black and Justice Moore found:

“[48] Nothing in the actual language used by the legislature would suggest a different conclusion. As noted above, a variation agreement is defined in s 170VA as meaning "an agreement to vary an AWA". It is to be recalled that the essential characteristic of an AWA identified by s 170VF is that it is an agreement "that deals with matters pertaining to the relationship between an employer and employee" (emphasis added). Section 170VL provides that an employer and an employee may make a written agreement varying an AWA. While the heading to the section speaks of varying the "terms" of the AWA, the heading does not form part of the Act: see s 13 of the Acts Interpretation Act 1901 (Cth). The language used to describe a variation agreement having regard to the processes which must be undertaken for its approval, are consistent with such an agreement being directed not only to varying the text of an agreement but varying the substance of the agreement as well. Indeed it might be thought that the statutory scheme of approval was directed primarily to the latter type of variation. In our opinion, if an AWA deals with a particular matter pertaining to the relationship between an employer and employee, then the parties to the AWA can only alter their rights and obligations in relation to that matter in a way which might disadvantage the employee, by entering into and obtaining approval for, a variation agreement. By clear implication, the Act prohibits the alteration of such rights or obligations which might disadvantage the employee by means other than those provided in the Act and renders ineffectual any agreement which purports to do so.”

[40] The scheme of the Fair Work Act 2009 unlike its predecessors since 1996 does not allow for the use of individual statutory agreements to replace collective agreements or awards. It retains the principles that awards and agreements continue in force unless varied, terminated or replaced. There is nothing I can find in the Fair Work Act 2009 which changes the general prohibition in respect to contracting out or “opting out” of awards or collective agreements. The general scheme and objects of the present legislation in many ways strengthen the principle that classes of employees will be covered by awards and/or collective agreements and they will remain covered unless there is specific legislative provision and/or specific action by Fair Work Australia under the provisions of that legislation.

[41] For these reasons a clause in an Agreement which allows either new or existing employees to “opt out” of the coverage of the Agreement cannot be valid.

Genuine Agreement.

[42] Mr Slevin for the CFMEU referred to the decision of the Federal Court in CFMEU v AIRC known as the Gordonstone case. 9 The Explanatory Memorandum for the Fair Work Bill 200810 also cites this case as directly relevant to determining whether or not there has been genuine agreement for the purposes of Section 188(c) and whether or not the agreement has been validly made in accordance with Section182 as required by Section 188(b).

[43] Section 188 provides:

“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 FWA 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.”

[44] As the explanatory memorandum points out, the question of genuine agreement and of whether an agreement can be validly made with the group who have voted on it are directly related. What is clear is that in some cases the choice of the group of employees to vote on an agreement may be so artificial or unfair as to require a conclusion that there has not been a genuine agreement. For example, if the agreement is reached with a very small group of employees and a much larger group are going to be covered shortly after the agreement is made but the larger group have had no role in bargaining or voting on the agreement. If the choice of the group is not consistent with genuine agreement then this is also grounds for finding it was not fairly chosen as required by Section 186(3).

[45] The Federal Court in Gordonstone looked at what had happened having regard to the scheme of the legislation as a whole and the context or circumstances as a whole. Furthermore, the judges in the Gordonstone matter found that there are limits to the extent to which the coverage of an agreement is simply a matter for the parties to determine:

“We accept the submissions of the CFMEU on this issue. It is clearly the intention of the parties to the agreement that it should apply to the employment of persons in production, engineering, supervision and administration roles at the Gordonstone Mine. It was suggested in argument that mine management had a single business of the operation of coal mines generally; however this suggestion cannot stand with the contemporaneous evidence and understanding of mine management's representatives.

In any case, in January 1999 no employee was shown to be working in the operation of any coal mine. The question is therefore whether an agreement regulating terms and conditions of employment in a proposed single business made with employees, who may in the future be employed in that business but are not yet so employed qualifies as an agreement that may be certified under the act. In our view the preferable conclusion as a matter of textual and purposive interpretation of the act is that it does not.” 11

[46] Mr Slevin for the CFMEU submitted that:

“There are differences in the circumstances between that and this matter, but it's clear that what was being proposed in the mine management agreement was that it was going to deal with employment in the future and a changing, as it were, electorate, or a changing group from the electorate that voted the agreement up. Notwithstanding the differences in the factual matrix underpinning that decision and the circumstances here, my submission is that the approach taken by the court was to deal both with the act in a textual and purposive manner; in other words, the sort of approach that has been suggested in your correspondence.” 12

[47] The Federal Court in Gordonstone made its judgement by looking at the particular case in the context of the scheme of the legislation as a whole and concluded:

“There can hardly be fair agreement-making between employer and employees about wages and employment conditions in a workplace - a mine is a good example - before both sets of parties have actual experience of the work and its place of performance: without that cooperative workplace relations are unlikely to be achieved. An agreement prematurely made is unlikely to be effective, measuring effectiveness in this context by such matters as durability, aptness and comprehensiveness. Established safety net standards are less likely to be respected and maintained because the range of conditions in relation to which such standards exist may not have been fully comprehended.

In short, the act clearly indicates a concern for fairness and efficacy in agreement-making, as well as flexibility. The subject matter of the act makes it understandable parliament had such concerns. A consideration of those concerns supports the interpretation we consider preferable on more narrow grounds…” 13

[48] I doubt that there can be “genuine agreement” if an undefined group of employees may at some future date be excluded from the Agreement by “opting out”. This is particularly the case if new employees are excluded prior to their engagement. As the Federal Court said in Gordonstone when looking at the mirror image of this situation:

“The question is therefore whether an agreement regulating terms and conditions of employment in a proposed single business made with employees, who may in the future be employed in that business but are not yet so employed qualifies as an agreement that may be certified under the act. In our view the preferable conclusion as a matter of textual and purposive interpretation of the act is that it does not.”

[49] In this case the agreement purports to regulate a group of future employees by allowing them to “opt out” of coverage of the agreement before they are covered by it. I believe that this is unfair and it is not valid for existing employees to vote to place new employees in the situation where they might not have the benefit of the agreement to which they would otherwise be entitled because of the operation of Sections 52 to 54 of the legislation.

[50] The Gordonstone decision does support the approach I have taken in determining that “opting out” is not consistent with the scheme of the legislation and it also supports a finding that the group to be covered was not fairly chosen.

[51] It also raises questions as to whether the “opting out” clause means there has not been genuine agreement as required by Section 188(b) and (c). In the circumstances of this case it is not necessary for me to determine this matter however I am inclined to the view that Clauses 2.2 and 2.3 of this Agreement also mean that there is not genuine agreement and the Agreement should not be approved because of Section 188(b) and (c).

Does the “opt out” clause affect the Better Off Overall Test?

[52] The Better Off Overall Test only applies to an employee who is covered by the agreement or a prospective employee who would be covered by the agreement if they were an employee of the employer at the test time. If the “opt out” clause is valid then the BOOT does apply to an existing employee who is covered by the Agreement at the test time but who subsequently opted out. An employee who opted not to be covered by the Agreement would not be disadvantaged when compared to the relevant Award since the relevant Award would normally apply. However there is no guarantee that the employee would be Better Off Overall.

[53] A prospective employee would be covered by the agreement if they were an employee of the employer at test time. However, if they have opted out prior to engagement then of course the BOOT would not apply but for the reasons set out earlier it is not possible for an agreement to allow “opting out” prior to engagement and hence they could not be an employee in this category at the test time. Therefore if the “opt out” clause is valid the BOOT does apply to a prospective employee who would be covered by the agreement at the test time but who then opted out immediately after engagement. An employee who opted not to be covered by the Agreement would not be disadvantaged when compared to the relevant Award since the relevant Award would normally apply. However there is no guarantee that the employee would be Better Off Overall.

[54] As discussed earlier the Applicant has provided an undertaking that an employee who opts out “will be better off overall for the purpose of the Better Off Overall Test”. I am not satisfied that such an undertaking is adequate to ensure that an employee will be better off overall. An employee who opted out would have access to the Award disputes settlement process which does not provide for arbitration without consent of both parties. There is no mechanism whereby the undertaking is readily enforceable since the employee would no longer be covered by the Agreement. Also the undertaking relates to the Award as a whole rather than any specific provision and hence there is a great deal of room for differing judgments as to what would or would not meet the test. To leave this judgment essentially to the employer would not be an adequate guarantee that it is achieved. The legislation provides for the Tribunal to conduct this complex evaluation in respect to the Agreement but the undertaking suggests that it is adequate for the employer alone to make this judgment at some time in the future about an alternative common law employment contract.

[55] Given my earlier findings it is not necessary to determine if the clauses offend the BOOT. However I am inclined to the view that the Agreement with the “opt out” clauses does not meet the Better Off Overall Test.

Can the group of employees to be covered by the Agreement be fairly chosen if the group covered excludes those who elect to “opt out” of coverage?

[56] I also have serious concerns that Section 186(3) and (3A) of the Act may not be satisfied in that I do not see how I can be satisfied that the group of employees covered by the Agreement was fairly chosen if an undefined group of employees may be excluded from coverage at some time in the future.

[57] Section 186 and Section 256A have in common the concept that the group of employees who are covered by the Agreement is clearly defined. It is true that Section 186(3) does not say that the group of employees covered has to be geographically, operationally or organisationally distinct but clearly if it is not then there must be some other fair reason or basis for selection. It is not likely to be fair if there is not some clear reason or basis. However, we have no idea under what circumstances an employee might elect not to be covered by the Agreement and which existing or prospective employee might make such an election. I cannot determine that a group is fairly chosen unless the nature of the group is able to be clearly known.

[58] Similarly, Section 256A(2) provides that “the employees (specified as being covered or who will be covered) may be specified by class or by name.” They cannot be specified in any other manner. Section 256A(4) makes it clear that a class is something clearly defined. A class or a list of names is something which would enable those who have to administer, implement or enforce an agreement to know whether a person was included or not. In other words it must be possible to know who is covered and who is not by virtue of the definition at the time the Agreement is made and approved NOT by virtue of subsequent choice or election.

[59] Taken together Sections 186 and 256A would allow coverage clauses which said that the Agreement does not cover managerial employees however the following managerial positions are covered OR the following managerial positions are not covered OR the following named managers are covered OR the following named managers are not covered. The net result of all these approaches would be that the persons/classifications to be covered are clearly defined and known.

[60] A consequence of a coverage clause which only covered named managers would be that new managers would not be covered and could not elect to be covered. However, similarly they could not elect not to be covered. So the situation is clear and a judgement can be made at the time of approval as to whether this means those to be covered have been fairly chosen or not.

[61] I think the import of Sections 52, 53 and 54 is that new employees in classes of employees that are covered by an agreement must also be covered by that agreement. Furthermore, it would not normally be a fair choice of coverage as required by section 186(3) to exclude new employees from an agreement as it would fundamentally undermine those employees’ bargaining rights.Generally it would not be fair to have an agreement which only applies to existing employees and not to new employees doing the same class of work. However, there might be some exceptions to this, for example, if there was a class of employees who were going to be excluded from an agreement for good reason in the future but there were some named existing employees who should remain covered.

[62] For the reasons given I do not think that an unspecified group of employees who elect in writing not to be covered by the Agreement are a class of employees or named employees and hence I doubt that the coverage clause is consistent with the requirements of Section 256A. Furthermore, I do not think that it could be said that those employees who elect in writing not to be covered by the Agreement are a group of employees who are fairly chosen since I can have no knowledge of who those persons will be or the circumstances in which they might choose or be encouraged to elect not to be covered by the Agreement.

[63] I considered extensive submissions from the Applicant and from the CFMEU on the issue of Section 186(3) and (3A). Mr Humphreys for the Applicant suggested that the requirement in Section 186(3) that “FWA must be satisfied that the group of employees covered by the agreement was fairly chosen” means that I only need to be satisfied that the process by which the group was chosen was fair not that the outcome was fair. I do not believe that the Section has such a narrow meaning. Clearly if the outcome, that is the group chosen, results in unfairness then it is likely that the process of choosing will be found to have been unfair. The legislation does not say that the process of choosing must be fair. It says no more than that the group must have been fairly chosen. For the group to be fairly chosen there must be a sound and fair reason for why some employees are included and why some are excluded. I therefore favour the interpretation given in the Fair Work Bill 2008 Explanatory Memorandum at Paragraph 777 which says of Section 186(3) and (3A):

“It is intended that in assessing whether the group of employees covered by the agreement is fairly chosen, FWA might have regard to matters such as the way in which the employer has chosen to organise its enterprise and whether it is reasonable for the excluded employees to be covered by the agreement, having regard to the nature of the work they perform and the organisational and operational relationship between them and the employees who will be covered by the agreement.”

[64] The references Mr Humphreys took me to in the main related to the making of scope orders. The matters which will determine whether or not FWA should issue a scope order and what order they should issue are related but somewhat different to the matters which will determine whether or not FWA can approve an Agreement. Notwithstanding this, all the cases Mr Humphreys took me to have some regard for the fairness of the outcome of the choice of employees to be covered by an agreement and are not just concerned with whether the process of arriving or agreeing on the group of employees to be covered was fair.

[65] Mr Humphreys referred to a decision of SDP Richards in The Australasian Meat Industry Employees Union v Woolworths Ltd 14. I agree with SDP Richards that the legislation does not require that the group of employees must be geographically, operationally or organisationally distinct. There can be other groupings chosen so long as they are fairly chosen. The issue of coverage will rightly be the subject of bargaining. However, it does not follow from this that just because the parties agree to a certain coverage that makes it fair. Indeed, in the case decided by SDP Richards the AMIEU was seeking a scope order because they felt that the groupings chosen by other parties, namely Woolworths and the SDA, were unfair. FWA has to examine the circumstances and determine if the group has been fairly chosen or not.

[66] Mr Humphreys referred to a decision of Senior Deputy President Acton in Wattyl Australia Pty Ltd v the LHMEU 15 issued in Melbourne on 31 March 2010, the Senior Deputy President says:

“The group of employees is largely the same as that covered by the 2005 agreement. The group is not geographically, operationally or organisationally distinct to the extent it does not include the employees at Kilburn in South Australia currently covered by the distribution agreement and the maintenance employees at Blacktown in New South Wales currently covered by the maintenance agreement. However, those employees are currently covered by their own agreements.”

[67] In other words, the Senior Deputy President has looked at the fairness of the outcome not just narrowly at the process and explained why the outcome reached is fair. I support this approach.

[68] The Full Bench in United Firefighters Union of Australia v Metropolitan Fire and Emergency Services Board 16at paragraphs 54 to 56 make it clear that in any particular case there may be a number of potential groupings which could be fair. The Full Bench found that:

“In such a case the tribunal in deciding whether the group is fairly chosen must take into account whether the group is distinct in one of three specified respects. It may follow that if the group is not distinct in one of those respects, it may not have been fairly chosen but it does not necessarily follow in all circumstances.” 17

[69] I agree with the Full Bench. If the group is not geographically, operationally or organisationally distinct it may not have been fairly chosen. The bar is raised and there must be good reasons to satisfy FWA why the group chosen is fair.

[70] Mr Humphreys referred to a decision of Vice President Lawler in Stadium Australia Operations Pty Ltd trading as ANZ Stadium in relation to the ANZ Stadium Casual Employees Enterprise Agreement. 18 This decision is directly relevant to this case in that unlike other decisions referred to it is about the approval of an agreement not a scope order. Mr Humphreys suggested that Vice President Lawler in this decision says that FWA should only look at whether the process of choosing the group was fair and not whether the outcome was fair. He relied upon the following observation of his Honour:

“On the plain words of the provision the requirement in 186(3) is concerned with the fairness of the choice of the group of employees to be covered by an agreement rather than the fairness of the content of the agreement. It seems to me that since the concern is with the fairness of the choosing a consideration of the requirement in section 186(3) should be directed at the time the group was chosen.” 19

[71] In my view the Vice President is not making such an absolute or artificial distinction between process and outcome. The Vice President goes on in the decision to examine whether or not the outcome of the choice the parties made was fair or not. In this case the main reason why it was argued that the choice of employees to be covered by the agreement may have been unfair was because the agreement resulted in one group of employees being disadvantaged when compared to another group. Vice President Lawler said:

“I can see no warrant in the language of 186(3) when construed in context for utilising that requirement to determine that the group of employees covered by an agreement was not fairly chosen merely because at the conclusion of bargaining one subgroup of employees had fared relatively worse than another subgroup of employees when compared to the actual terms and conditions of employment of both subgroups that attained before the agreement was made.” 20

[72] In other words, just because a group of employees are not happy with the outcome of the bargaining does not provide them with a conclusive argument that they have been unfairly included in the agreement. Vice President Lawler said that the employees in this case could have had an argument for a scope order if they felt that the tyranny of the majority was resulting in unfairness to them. Vice President Lawler did not say that FWA cannot look at the outcome of the choice of employees to be covered by an agreement in deciding whether or not it is fair. In fact he says: 21

“The group of employees covered by the Agreement is described at paragraphs 0-0 above. Almost all of the employer’s operational staff are employed on a casual basis. The nature of event scheduling at a venue like ANZ Stadium makes it rational and not obviously unreasonable for the employer to operate on that basis. The group chosen was essentially ‘all casual employees’ (there is no suggestion that the exclusion of casual ground maintenance staff is relevant to the present application). The group chosen was a rational choice. It consists of a series of operationally distinct subgroups all of whom work at the one geographical location. I am not persuaded on the material before me that the group covered was chosen with the intent of prejudicing customer service staff in the way that the objectors complain of. Rather, the Company prepared the draft agreement with the intent of removing what is saw as anomalies in the different classifications and rates applicable to the various categories of staff and creating a single set of broad banded classifications covering all of its casual staff and providing for a greater commonality conditions. It was the pursuit of this object that saw the food and beverage rates increase and some rates for customer service staff decrease. For whatever reason, the AWU was prepared to agree to that outcome. Approaching s.186(3) in the manner that I have indicated, I am satisfied that the group of employees covered by the Agreement was fairly chosen and that the requirement in s.186(3) is met”.

[73] The Vice President has made his decision based upon a thorough analysis of the fairness of the process of choosing and the outcome of the choice arrived at. I adopt his approach.

[74] Mr Humphreys argued that the employees covered will change after the agreement is made due to employees leaving employment and/or being moved to an employment category which is not covered by the agreement. This is correct and it doesn’t change the fairness of the group chosen nor whether it is geographically, operationally or organisationally distinct. The nature of these employees in my view is clearly defined and specifically contemplated by the legislation (Sections 52(1)(b) and Section 53(6)). However, in my view the group of employees who may at some time in the future elect not to be covered does alter the nature of the group covered so that it is no longer geographically, operationally or organisationally distinct.

[75] If there are 100 employees covered by the agreement and the group is geographically, operationally or organisationally distinct and two of them cease their employment or are promoted to positions which are not within the coverage of the agreement then there are 98 persons still employed in a group that is geographically, operationally or organisationally distinct and importantly the fairness of the group chosen has not changed at all. However, if two employees elect not to be covered by the agreement but are still employed in the classifications within the scope of the agreement then there are now two groups: 98 covered by the agreement and 2 in the same geographical, operational or organisational group who are not covered by the agreement. Hence it is clear that the group covered by the agreement is no longer geographically, operationally or organisationally distinct.

[76] Importantly the choice of those employees who are not covered by the agreement has not been done through a fair process nor does it achieve a fair outcome as it directly undermines collective bargaining and the interests of the other employees. It could not be a fair process since those involved in voting for the agreement have no way of knowing who might be in what group in the future or the circumstances or extent to which the group might change and the impacts that might have. Those who might “opt out” do not have any common characteristics and it is impossible for FWA to determine:

“whether it is reasonable for the excluded employees to be covered by the agreement, having regard to the nature of the work they perform and the organisational and operational relationship between them and the employees who will be covered by the agreement.” 22

[77] For these reasons and also for the reasons raised earlier (paragraphs 42-50) I am not satisfied that the group of employees to be covered by the Agreement was fairly chosen as required by Section 186(3) and (3A). I cannot approve an agreement where the group of employees to be covered by the Agreement has not been fairly chosen.

Conclusion

[78] For the reasons given I cannot approve the Agreement unless there is a further undertaking from the employer that overcomes the problems I have identified with the coverage clauses, Clause 2.2 and 2.3, of the Agreement. I believe that the undertaking I have suggested to the parties would not cause detriment to any employee and that it would not result in a substantial change to the Agreement.

[79] The CFMEU as the bargaining representative have been consulted about the undertaking proposed and support that undertaking being given.

[80] I will give the Applicant seven days in which to advise me as to whether or not they are prepared to give the undertaking either in the form I have suggested or in an alternative form that achieves a similar outcome. If the Applicant advises within seven days that they do not wish to give such an undertaking, or if there is no response from the Applicant, the application for approval of the Agreement will be dismissed. If the Applicant provides a satisfactory undertaking in the required form the Agreement will be approved and will operate from seven days from the date of receipt of the undertaking and the undertaking will form a part of the Agreement. The nominal expiry date of the Agreement in that case will be two years from the date from which the agreement will operate.

COMMISSIONER

1 PN17 to PN20.

2 ILO, Digest of decisions and principles of the Freedom of Association Committee of the Governing Body of the ILO, 5^th (revised) edition, 2006, Geneva, at paragraphs 1055 and 1057.

3 PN171.

4 (1907) 2 CAR 1.

5 (2000) 176 ALR 46, paragraphs 17-25.

6 (2007) FCA 957.

7 (2001) 184 ALR 260.

8 (2005) FCAFC 46.

9 (1999) 93 FCR 317.

10 Paragraph 797.

11 Paragraph 120.

12 PN201 to PN203.

13 Paragraphs 126-127.

14 (2009) FWA 849, PR990251.

15 (2010 FWA 2587, PR 995618, paragraph 48.

16 2010 FWAFB 3009.

17 Paragraph 56.

18 (2010) FWA 3758, PR997051.

19 Paragraph 28.

20 Paragraph 31.

21 Paragraph 34.

22 Explanatory Memorandum Fair Work Bill, paragraph 777.

Printed by authority of the Commonwealth Government Printer

[2010] FWA 4811

29 JUNE 2010