Peabody Energy Australia PCI Mine Management Pty Ltd

[2016] FWCA 1595

[2016] FWCA 1595 [Note: a correction has been issued to this document] [Note: An appeal pursuant to s.604 (C2016/736) was lodged against this decision - refer to Full Bench decision dated 17 June 2016 [[2016] FWCFB 3591] for result of appeal.]

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.225 - Application for termination of an enterprise agreement after its nominal expiry date

Peabody Energy Australia PCI Mine Management Pty Ltd
(AG2015/5904)

SEDGMAN EMPLOYMENT SERVICES PTY LTD BOWEN BASIN FRONT LINE EMPLOYEE ENTERPRISE AGREEMENT 2011-2014

Coal industry
SENIOR DEPUTY PRESIDENT HAMBERGER	SYDNEY, 11 MARCH 2016

Application for termination of the Sedgman Employment Services Pty Ltd Bowen Basin Front Line Employee Enterprise Agreement 2011-2014.

[1] Peabody Energy Australia PCI Mine Management Pty Ltd (Peabody, the applicant) has applied under s. 225 of the Fair Work Act 2009 (the FW Act) for the termination of the Sedgman Employment Services Pty Ltd Bowen Basin Front Line Employee Enterprise Agreement 2011-2014 (the Sedgman agreement).The application is opposed by the Construction, Forestry, Mining and Energy Union (CFMEU) and the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU).

[2] The Sedgman agreement applies to about 18 employees at the Coppabella coal handling and preparation plant (CHPP) located at the Coppabella Mine and the Moorvale CHPP located at the Moorvale Mine. Both CHPPs are owned and operated by the applicant. The Coppabella and Moorvale Mines are open cut coal mines owned and operated by the applicant. They are located 160km west and 156km south west of Mackay respectively.

[3] The matter was heard on 25 January and 17 February 2016. The applicant was represented by Mr D Williams, solicitor, the CFMEU by Mr S Crawshaw SC, and the CEPU by Ms N Traill.

[4] The applicant filed three witness statements by Mr J Economidis, General Manager of the Coppabella Mine. The CFMEU filed two witness statements by Mr S Pierce (Vice President of the CFMEU, Mining and Energy Division, Queensland District Branch). The CEPU filed a statement by Mr G Hall (Union Organiser, CEPU Electrical Division, Queensland and NT Divisional Branch).

The legislation

[5] The statutory provisions concerning enterprise agreements are to be found in Part 2-4 of the FW Act. The Full Bench in Aurizon said about this part of the FW Act:

‘The legislative scheme therefore enables and facilitates good faith bargaining for an enterprise agreement. It also facilitates the making of enterprise agreements but does not mandate that result. Once an enterprise agreement is made and approved by the Commission, it seems clear that the legislative scheme does not intend that such agreements operate in perpetuity. Agreements have a finite nominal life. At the end of the nominal life of an agreement, bargaining parties may bargain for a new agreement utilising all of the tools available under the Act; or a person to whom an agreement applies may take steps to bring the agreement to an end in accordance with the provisions of the Act; or both may occur.’ 1

[6] Subdivision D of Division 7 of Part 2-4 provides for the termination of an enterprise agreement after its nominal expiry date. This subdivision consists of ss. 225, 226 and 227, the terms of which are as follows:

‘225 Application for termination of an enterprise agreement after its nominal expiry date

If an enterprise agreement has passed its nominal expiry date, any of the following may apply to the FWC for the termination of the agreement:

(a) one or more of the employers covered by the agreement;
(b) an employee covered by the agreement;
(c) an employee organisation covered by the agreement.

226 When the FWC must terminate an enterprise agreement

If an application for the termination of an enterprise agreement is made under section 225, the FWC must terminate the agreement if:

(a) the FWC is satisfied that it is not contrary to the public interest to do so; and
(b) the FWC considers that it is appropriate to terminate the agreement taking into account all the circumstances including:

(i) the views of the employees, each employer, and each employee organisation (if any), covered by the agreement; and
(ii) the circumstances of those employees, employers and organisations including the likely effect that the termination will have on each of them.

227 When termination comes into operation

If an enterprise agreement is terminated under section 226, the termination operates from the day specified in the decision to terminate the agreement.’

[7] The application to terminate the Sedgman agreement has been made under s.225. In accordance with s.226, the Commission must grant the application if it is satisfied that it is not contrary to the public interest to do so; and considers that it is appropriate to terminate the agreement taking into account all the circumstances, including the views of the employees, the employer (Peabody) the employee organisation covered by the agreement (the CFMEU); and the circumstances of the employees, Peabody, and the CFMEU, including the likely effect that the termination will have on each of them.

[8] Referring to the terms of s.226(a) the Full Bench in Aurizon cited a passage from a decision of a Full Bench of the Australian Industrial Relations Commission in Re Kellogg Brown and Root, Bass Strait (Esso) Onshore/Offshore Facilities Certified Agreement 2000 which was concerned with a corresponding, albeit not identical, provision of the Workplace Relations Act 1996:

‘The notion of public interest refers to matters that might affect the public as a whole such as the achievement or otherwise of the various objects of the Act, employment levels, inflation, and the maintenance of proper industrial standards. An example of something in the last category may be a case in which there was no applicable award and the termination of the agreement would lead to an absence of award coverage for the employees. While the content of the notion of public interest cannot be precisely defined, it is distinct in nature from the interests of the parties. And although the public interest and the interests of the parties may be simultaneously affected, that fact does not lessen the distinction between them.’ 2

[9] The object of the FW Act is set out in s.3:

‘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.’

[10] The object of that part of the FW Act that deals with enterprise agreements is set out in s. 171:

‘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 the FWC to facilitate good faith bargaining and the making of enterprise agreements, including through:

(i) making bargaining orders; and

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

(iii) ensuring that applications to the FWC for approval of enterprise agreements are dealt with without delay.’

[11] The Federal Court, in CEPU v Aurizon, noted in reference to the objects set out in ss. 3 and 171 that:

‘While the Commission would undoubtedly be required to exercise any otherwise unconfined discretion in a way that was not antagonistic to these objects, it must be remembered that the primary means by which the legislature sought to achieve them was to enact the detailed provisions of the FW Act itself. It will be the section, or group of sections, that applies directly that will most usefully indicate what it was that the legislature was seeking to achieve in a particular situation.’ 3

[12] In discussing s.226(b) the Full Bench in Aurizon said:

‘All of the circumstances also need to be taken into account in considering whether termination of the agreement is appropriate … The requirement in s.226 (b) to take into account all of the circumstances including those set out in s.226 (b) (i) and (ii) is a requirement to take the matters into account and to give them due weight in assessing whether it is appropriate to terminate an enterprise agreement.’ 4

The Sedgman agreement

[13] The Sedgman agreement was approved by the Commission on 6 February 2012. 5 The agreement was negotiated by Sedgman Employment Services Pty Ltd (Sedgman). The agreement covered all of Sedgman’s ‘Front Line’ employees at any site operated by Sedgman in the Bowen Basin. It included provisions specific to Sedgman’s operations, such as the ability to transfer employees between different sites (Clause 2.7). The agreement had a nominal expiry date of 31 March 2014. The CFMEU was a bargaining representative for the agreement and became covered by it.

[14] At the time the Sedgman agreement was made, Sedgman was operating the two CHPPs as a contractor to Peabody. In July 2013, Peabody ‘insourced’ the operation of the CHPPs. Many of Sedgman’s employees were offered and accepted employment with Peabody.

[15] Under the transfer of business provisions of the FW Act, Sedgman employees who transferred their employment to Peabody continued to be covered by the Sedgman agreement (which had not yet reached its nominal expiry date of 31 March 2014). Just prior to taking over the operation of the CHPPs Peabody applied to the Commission for an order that would also enable any new employees recruited by Peabody to work at the CHPPs to be covered by the Sedgman agreement. The primary reason given to the Commission by Peabody for this application was that without the order employees working at the CHPP after the transition would be covered by two different industrial instruments. The transferring employees would be covered by the Sedgman agreement and new non-transferring employees would be covered by the modern award.

[16] Peabody expressed concern that having two separate industrial instruments covering employees could create significant administrative difficulties (e.g. for payroll and rostering); could lead to significant complexity in staff communications about entitlements, benefits and the like, and would create divisions between former Sedgman employees and new employees, leading to industrial disharmony and negative impacts on productivity. Peabody also submitted that there was:

‘… a lack of business synergy between the Sedgman EA and the Modern Award. The Sedgman EA more appropriately reflects Peabody’s business arrangements at the Mines, whereas the Modern Award simply provides terms and conditions appropriate for the black coal industry generally.’ 6

[17] The Commission made the order as sought on 26 June 2013. 7

Negotiations for a new agreement

[18] There have been twelve bargaining meetings since mid-2014 for an enterprise agreement to replace the Sedgman agreement. The employee bargaining representatives have adopted a common position in negotiations.

[19] At the second bargaining meeting, on 1 August 2014, Peabody indicated that it wished to replace the Work Allowance in the Sedgman agreement with a Short Term Incentive Plan (STIP). Clause 1.4.31 of the Sedgman agreement indicates that the Work Allowance is in compensation for all disabilities and allowances, fares and travelling time not elsewhere provided for in the agreement, and a ‘top up’ payment to the Roster Base Wage ‘to maintain competitive remuneration’. The level of the Work Allowance is set out in clause 4.2.2 of the Sedgman agreement. It is $512.72 per week ($26,661.44 per year)for a Level 1 employee ranging up to $562.52 per week ($29,251.04) for a Level 3 employee.

[20] In his written evidence Mr Economidis explained Peabody’s rationale for replacing the Work Allowance with a STIP:

‘… throughout the negotiations it has been Peabody’s very strong preference to reduce the component of the remuneration which was guaranteed, and put a proportion of it at risk, linked to employee performance and production outcomes.

This preference is reflective of Peabody’s view that in order to move to the ideal position where employees work more productively, more efficiently, with a focus on safety and eliminating waste, the best way to genuinely incentivise employees is through financial incentives, specifically by making part of their remuneration component ‘at risk ‘and linked to personal and company performance.’ 8

[21] Mr Economidis said that the only way the two mines could maintain viable operations for the foreseeable future would be to optimise production, but with reduced costs. 9 He continued:

‘Employees will need to focus on ways that they can improve their productivity, predominantly by working more efficiently and diligently for their entire shift, and by working together as a team in a way that produces at the lowest sustainable costs. This is the key driver for Peabody’s proposed remuneration structure – to put part of employees’ remuneration at-risk in order to incentivise them to increase their productivity (individually and collectively).’ 10

[22] At the third bargaining meeting on 18 August 2014, Peabody indicated that it was also seeking the introduction of a new trainee level, a requirement that a Level 2 employee hold a trade qualification, the replacement of weekly pay with monthly pay, and a reduction in the redundancy payment for the first year of service from four weeks to three weeks’ pay. Amongst other things discussed at the meeting, the employee representatives expressed concern that the replacement of the Work Allowance with the STIP would involve a substantial reduction in remuneration.

[23] At the fourth bargaining meeting on 9 September 2014, the parties worked through the Sedgman agreement clause by clause, with agreement being reached on a number of matters, while leaving others for further discussion. The CFMEU representative (Mr Pierce) indicated that the employee representatives would be tabling their claim on any wage increases at the end of the bargaining process. He added that:

‘… if Peabody persisted with the proposal to remove the Work Allowance, which resulted in a wage cut of about $30,000 per employee, the Employee Bargaining Representatives would have to reconsider that position and may respond with increased wage and other claims to offset the loss of the Work Allowance.’ 11

[24] At the fifth bargaining meeting on 19 September 2014 the parties continued to work through the agreement on a clause by clause basis. The parties also spent some time discussing the STIP proposal. Peabody explained the performance indicators which related to a mixture of individual and group performance. The employee representatives asked Peabody to consider a bonus scheme similar to that at North Goonyella CHPP (another Peabody operation in Central Queensland.) Peabody rejected this suggestion on the grounds that it was inconsistent with the bonus scheme at the Coppabella and Moorvale Mines. Mr Pierce said that his understanding was that the Work Allowance incorporated a number of payments that would otherwise apply in relation to disabilities, allowances and other payments. He asked Peabody for a breakdown of the disabilities, allowances and other payments that had been incorporated into the Work Allowance; however Peabody did not agree to do this.

[25] There were further discussions about the proposed removal of the Work Allowance and the proposed STIP at a sixth bargaining meeting held on 30 October 2014.

[26] On 21 November 2014 Peabody issued its ‘fifth update’ to the employees on the enterprise agreement negotiations. This referred to the meeting on 19 October 2014 and included the following:

‘The focus of this meeting was on finalising outstanding clauses and progressing remuneration-related clauses. It was a productive meeting with robust discussions held on a number of clauses. The meeting also included the Company tabling its best case remuneration position, incorporating the duration, escalation, introduction of a one-off payment on certification, removal of the work allowance and introduction of a 10% short term incentive plan (STIP).’

[27] The update indicated that 11 clauses were close to being finalised, and that seven clauses had been finalised. It indicated that Peabody had tabled its ‘best possible position for consideration at the next engagement discussion.’ This included a three-year agreement; escalation of 0%, 1.5%, 1.5%; grandfathering the additional one week redundancy payment for the first year of service, introduction of an at target STIP (bonus) of 10%, removal of the Work Allowance and a one-off payment on certification of the agreement. This payment would be equal to the monetary difference between year one of the new agreement and the Sedgman agreement, and 50% of the difference in year two. 12

[28] A further meeting was held on 19 November 2014 at which Peabody explained its remuneration offer. This offer was then discussed at an eighth bargaining meeting, held on 11 December 2014. In particular the employee representatives sought changes to the STIP proposal.

[29] At the ninth bargaining meeting, held on 12 January 2015, it appears that Peabody agreed that the STIP should be paid on Total Fixed Remuneration and not base remuneration as had been originally proposed. 13 Mr Pierce again requested that Peabody provide a breakdown of the disabilities, allowances and other payments that had been incorporated into the Work Allowance. He indicated that the employee representatives accepted that there was a portion of the Work Allowance that was not strictly related to a particular disability, allowance or other payment under the award, but was a ‘top up ‘or a ‘warm and fuzzy payment’. He said that they might be prepared to put the ‘top up’ component of the Work Allowance at risk and tied to performance; however the remaining amount of the Work Allowance should remain a fixed payment.

[30] At the tenth bargaining meeting, held on 25 February 2015, the employee representatives presented Peabody with a document that sought to describe the components that make up the Work Allowance and ascribed a monetary amount to each component. According to the employee representatives, $360.75 of the total weekly Work Allowance of $562.52 was comprised of payments for disabilities, allowances and other payments and the remaining $201.87 was the ‘top up’ component. Peabody, by contrast, indicated that it would only retain the components that it considered would otherwise apply under the award. In its view this amounted to an annual figure of $7203.24. During the meeting Peabody indicated that it would be putting the enterprise agreement to a vote of the workforce. Mr Pierce said that was premature and the parties should keep negotiating and that conducting a vote in the circumstances would only polarise the workforce and force them to harden their position.

[31] There was disagreement between the parties about the impact that Peabody’s offer (if implemented) would have on the employees’ remuneration. This is largely because of disagreements on how to value the STIP. The STIP is by definition an ‘at risk’ payment, set in accordance with the achievement or otherwise of specific KPIs, thus it is impossible to be certain about what it would mean for employee remuneration. Mr Pierce stated at one point that the proposal would have left employees far worse off and amounted to a pay cut of about $30,000 per year for each employee. 14 Mr Economidis, by contrast, gave evidence that, under Peabody’s proposed enterprise agreement, the impact on Level 2 employees when compared to the Sedgman agreement would be a reduction of 0$ in the first year, $3,280 in the second year and $4,155 in the third year. These figures appear to be based on the assumption that employees would receive a 10% bonus, together with the ‘one off’ transitional payment. He added that if the employees exceeded their STIP targets and achieved the ‘stretch targets’ (which would result in a 15% bonus) the resulting change for a Level 2 employees would have been an increase of $7,280 in the first year, $4,109 in the second and $3,334 in the third.15

[32] During March 2015 the employees voted on Peabody’s proposed enterprise agreement (Peabody’s final offer). The final tally was two votes for and 30 votes against Peabody’s final offer.

[33] A twelfth bargaining meeting was held on 2 June 2015. The employee representatives tabled a counter offer. The key features of this counter offer included the replacement of the Work Allowance by a CHPP Allowance worth $22,047.64 (a reduction of $4613.93 to $7203.24 depending on classification level when compared to the value of the Work Allowance); and an ‘at risk’ bonus worth 5% of total remuneration. According to the employee representatives’ calculations the counter offer would involve an increase in potential earnings of between $2905 and $992 (depending on classification level) when compared to the Sedgman agreement. This was in contrast to the Peabody’s final offer, which involved a reduction in potential earnings of between $7350 and $8385 according to the employee representatives’ calculations. 16

[34] Peabody responded in writing to the counter offer on 30 June 2015. It indicated that the proposal had been carefully considered but there were a number of aspects which were unacceptable to Peabody and it was not able to agree to vary the proposal which had been rejected by the workforce. It continued:

‘In particular, the Company has at all times throughout the negotiations indicated it was not prepared to agree to the work allowance (even in a modified form to that which is provided for in the expired Sedgman agreement) because it is not sustainable for the Company going forward.

In summary, our position is that the remuneration structure provided for under the expired Sedgman agreement is not suited to an owner/operator environment for a number of reasons; most importantly because there is no link between performance and reward under that agreement. Our other concerns about the expired agreement include that it is not in line with the current market conditions in the coal industry, it was designed to cover a number of sites and therefore allowed for flexibility for transfer across the sites which is not applicable for the industrial arrangements at Coppabella and Moorvale Mines, and many terms were also linked to the life of Sedgman’s client contracts.

The significant drop in coal prices over the past 12 months, and other difficulties in the industry have had a serious impact on each mine’s operations. As such, we are constantly looking for opportunities across the business to achieve productivity gains and implement cost saving measures, including through our industrial arrangements.

The proposed work allowance, which has no link between performance and reward, will not deliver the necessary productivity gains to justify the cost of the benefit.

Future of Negotiations

The Company has been prepared to move on its remuneration proposal three times during negotiations, but the Company’s remuneration proposal put forward in January 2015 was our best and final remuneration proposal.

In our most recent meetings since the proposed agreement was voted down by employees, the bargaining representatives collectively indicated that if the Company is not prepared to move again on salaries – beyond the level which the Company had previously said it was prepared to go to – then neither they, nor those they represent, would accept an agreement containing our current remuneration proposal.

I acknowledge that the parties have made significant progress on a number of matters for the proposed agreement and I am thankful for everyone’s efforts during this process. However, given how clearly the parties have expressed their final positions, I can see no benefit in any further negotiation about a proposed agreement.

Accordingly, Peabody will regard the negotiation as at an end, and will have to consider its future options for achieving a viable and sustainable operation in the Moorvale and Coppabella CHPPS.’

[35] The letter was signed by Mr Economidis (General Manager, Coppabella Mine) and Mr Scheepers (General Manager, Moorvale Mine). 17

[36] According to Mr Pierce’s statement, since the letter of 30 June 2015, there had been no further communication from Peabody to the employee bargaining representatives. 18

[37] In June 2015 Peabody reduced the shift length at the Coppabella Mine (for mining and maintenance personnel) from 12.5 hours to 10 hours, with an associated reduction in remuneration. There was a similar roster change at the Moorvale Mine. 19

Peabody Undertaking

[38] During the proceedings Peabody gave an undertaking that if the Sedgman agreement was terminated, it would apply the terms of its final offer to employees for a period of three months, during which time it would negotiate in good faith for a replacement enterprise agreement (interim proposal). However the final offer included a temporary transitional ‘top up’ payment to be paid outside of the enterprise agreement, in years one and two of the agreement. That payment did not form part of the interim proposal. 20 I am satisfied that the undertaking is given in good faith and would be complied with by Peabody.

The state of the coal industry

[39] The global coal industry has seen a sharp downturn in recent times. There is no turnaround predicted for the foreseeable future. Mr Economidis described the factors contributing to the downturn as it affects the two mines, including oversupply (following the significant increase in global productive capacity in 2007-11), quality specification increases, lower strip ratio competitors, take or pay obligations (for key infrastructure) and unsustainable cost structures. 21

[40] With regard to cost structures, Mr Economidis gave evidence that:

‘Contracts and labour rates negotiated and agreed during the ‘boom’ period in 2007- 2011 are no longer commercially viable in circumstances where global demand for coal has not been maintained at the levels that existed during the boom.

As a result, many companies, including Peabody, are now left with those uncommercial labour rates and contracts which represent inflated and unsustainable costs in many areas. One of the significant areas in which Peabody is carrying these unsustainable cost structures is our labour costs.’ 22

[41] The coal price applicable for term contracts in the fourth quarter of 2011 (when the Sedgman agreement was negotiated) for Coppabella and Moorvale product was approximately US$208/A$208 per tonne. In April 2014, when Peabody ‘insourced’ mine operations, the coal price was approximately US$107/A$115 per tonne. In March 2015, the coal price was approximately US$98/A$127 per tonne. It is now approximately US$69/AU$95. 23 In other words the price for the product of the two mines is less than half what it was at the time the Sedgman agreement was entered into.

Consideration

[42] I have had regard to the following circumstances in considering the requirements of s.226 of the FW Act (as well as the factual matters set out above). As will be clear, some circumstances are relevant to s.226 (a) and some to s.226 (b) and some to both subsections.

The views of the employees, Peabody and the Construction, Forestry, Mining and Energy Union

[43] Section 226 (b) specifically requires the Commission to have regard to the views of (in this case) Peabody, the CFMEU and the affected employees. I am satisfied that a significant number of the employees covered by the Sedgman agreement are members of the CFMEU. 24 I am also satisfied that the great majority of these employees are opposed to the Sedgman agreement being terminated.25 Peabody clearly favours the termination of the agreement and the CFMEU is strongly opposed.

The negotiation process and the likelihood of reaching agreement if the application is dismissed

[44] I am satisfied that significant progress has been made during the negotiations, with agreement in-principle on most clauses. To the extent that it is relevant, I am satisfied that both parties have been negotiating in good faith. Both parties have significantly modified their respective positions in relation to a number of items. The employee representatives have shown willingness – in their counter offer – to agree a limited incentive payment – though one largely on top of a slightly reduced fixed allowance (replacing the Work Allowance with a ‘CHPP allowance’ worth slightly less). However the parties have reached a deadlock on the critical issue of remuneration. Peabody wants an agreement that more closely reflects the current state of the coal industry and will encourage employees to improve productivity. Central to these goals is the replacement of the Work Allowance with a STIP. The CFMEU and the employees on the other hand are understandably concerned not to see any reduction in remuneration, and are largely opposed to the replacement of guaranteed pay – as reflected by the existing Work Allowance (and the proposed ‘CHPP allowance’) – with an at risk component – as reflected in the STIP. In the current low inflation environment they have a very strong incentive to stick with the terms of the current agreement. Given the position of the parties on this fundamental issue, and the history of the negotiations, it is my judgment that if the Sedgman agreement is not terminated the parties are unlikely to be able conclude a new enterprise agreement for the foreseeable future.

The circumstances of the employees, Peabody and the CFMEU including the likely effect that the termination will have on each of them

[45] Section 226 (b) specifically requires the Commission to have regard to the circumstances of the affected employees, Peabody and the CFMEU, including the likely effect that termination of the Sedgman agreement would have on them. The CFMEU submitted that the likely foreseeable consequences of terminating the Sedgman agreement are: to push the parties further apart; to fundamentally alter the approach to bargaining adopted by the parties to date; the employees reconsidering many of the concessions that have been offered and the employees engaging in industrial action. I do not agree. In my judgment, the most likely foreseeable outcome of terminating the agreement would be that the parties would make a new enterprise agreement broadly along the lines of Peabody’s ‘interim proposal’, probably within the three month period covered by the Peabody undertaking or shortly thereafter. I am satisfied that Peabody would continue to offer an agreement similar to that rejected last year by the employees, with or without the transitional ‘top up’ then proposed but with a STIP replacing the Work Allowance. While it would theoretically be open to Peabody to revert the employees back to the modern award (once the three month period covered by the undertaking is complete) I consider this unlikely. The conditions in the award are unlikely to suit Peabody (as they noted at the time they applied for orders to extend the coverage of the Sedgman agreement in 2013), and, as recognised by Mr Economidis during his cross-examination, the pay and conditions in the modern award would be uncompetitive. 26 Once the option of remaining with the Sedgman agreement is effectively removed by its termination the next best option for the employees would almost certainly be an agreement broadly along the lines proposed by Peabody. It would be open to the employees to take protected action to try and obtain a better deal, but that would, in my view, be unlikely.27

[46] Mr Economidis gave evidence enabling a comparison between Peabody’s final offer and the employees’ current remuneration. I accept his evidence, set out in Exhibit P2, as generally accurate. This shows the current remuneration for Level 2 employees (the level at which all the employees covered by the agreement are currently employed) as being $137,879 for employees at Coppabella (who work a five day roster) and $187,814 for employees at Moorvale (who work a six day roster). Peabody’s final offer (inclusive of the transitional top up payment and a 10% STIP) would have delivered a remuneration level (based on the rosters currently worked) of $134, 120 in the first year of the agreement for employees at Coppabella and $188,521 for employees at Moorvale. If one subtracts the top up payment (as this is not included in Peabody’s interim proposal) this would lead to remuneration levels of $125,169 at Coppabella and $178,863 at Moorvale. Of course, the final terms of any new agreement would be subject to negotiation (for example it is plausible that Peabody would reinstate the top up as an incentive to reach an agreement). However it is likely the employees would see a small but significant reduction in their overall remuneration if the agreement was terminated. In addition a significant portion of that remuneration would be dependent on the achievement of a range of personal and organisational KPIs. I would add that, based on the evidence presented, I am satisfied that it is reasonable to assume that employees would generally receive a STIP of around 10%, though it could end up being a bit less or a bit more. 28

[47] Termination of the agreement would be unlikely to have a significant effect on the CFMEU, though it would undoubtedly reduce its bargaining power in relation to negotiating the terms and conditions for employees at the two CHPPs.

[48] Termination of the agreement would be likely to enable Peabody to negotiate terms and conditions more in line with their business objectives, including the introduction of greater incentives for improved productivity, similar to the agreement negotiated for Coppabella’s miming and maintenance workforce.

The change in the state of the coal industry

[49] Another relevant factor is the change in the state of the coal industry since the Sedgman agreement was negotiated in 2011. The price of coal has fallen during that period by more than half. This has placed pressure on the whole industry in Australia, including the Coppabella and Moorvale Mines. Thousands of coal workers have lost their jobs, and the labour market has been completely transformed. It is noteworthy that the Work Allowance in the Sedgman agreement was expressly designed to provide ‘competitive remuneration’ at a time when it was hard to recruit employees to work in the coal industry. It is hard to justify the retention of such an allowance in current conditions. It is noted that Sedgman itself has renegotiated its enterprise agreement with significantly lower levels of remuneration including the complete removal of the work allowance (at least for employees employed after March 2014). 29

The origins of the Sedgman agreement

[50] Another relevant factor is that Peabody in effect ‘inherited’ the Sedgman agreement when it ‘insourced’ the operation of the CHPPs. It is true that Peabody took active steps to obtain an order from the Commission to extend the operation of the Sedgman agreement to any new ‘non-transferring’ employees it might employ. However it was bound, by the force of the FW Act, to apply the Sedgman agreement (which was then well within its nominal term) to those employees who transferred across from Sedgman. Its main motivation for seeking the order from the Commission, as it made plain at the time, was to avoid having to apply two different industrial instruments to employees working side by side.

Is termination of the Sedgman agreement contrary to the public interest?

[51] The CFMEU submitted that the bargaining for a replacement agreement had been cooperative and productive, ‘which is consistent with the objects of the Act.’ While the parties remained apart on the issue of remuneration, termination would make reaching a new agreement less rather than more likely.

‘Considering the bargaining approach to date has been entirely consistent with the object of the FW Act, a fundamental alteration of that approach would be contrary to the public interest. For that reason, it would be contrary to the public interest to terminate the Agreement.’ 30

[52] As is clear from my earlier discussion on the topic, I do not agree with the CFMEU’s assessment of the likely consequences of terminating the agreement. I consider that negotiations have reached an impasse and termination of the agreement would make the negotiation of a new agreement more likely. Moreover it would be an agreement that more closely reflected the state of the coal industry as it now is, rather than how it was at the peak of the boom. It was not unreasonable for Mr Williams to describe the Sedgman agreement as ‘a relic of another time.’ 31

[53] I do not consider that termination of the Sedgman agreement would be contrary to the public interest. Terminating the agreement would have no significant effect on anyone other than the parties immediately involved. Nor would termination be inconsistent with the object of the FW Act as a whole (as found in s.3) or the objects of that part of the FW Act dealing with enterprise agreements (as found in s.171).

[54] As was pointed out by the Full Bench in Aurizon once an enterprise agreement is made and approved by the Commission, the legislative scheme does not intend that such agreements operate in perpetuity. Agreements have a finite nominal life. Given the structure of the legislation, it is reasonable to infer that it is not inconsistent with the objects of the FW Act per se to terminate an agreement where it has not been possible to negotiate a replacement.

[55] Termination of the agreement would not prevent the employees continuing to be covered by proper industrial standards. Moreover, termination of the Sedgman agreement would, in my judgment facilitate the negotiation of a new enterprise agreement that would deliver productivity benefits.

Is it appropriate to terminate the Sedgman agreement?

[56] Taking into account all the relevant circumstances, as outlined above, I consider that it would be appropriate to terminate the agreement. In summary, the current agreement was negotiated by a previous employer to suit its circumstances at the time. It was inherited by Peabody when it insourced the operations of the two CHPPS. It contains provisions that were relevant to Sedgman but are not relevant to Peabody. Even more importantly it was negotiated in very different circumstances. There has been a very significant change in the state of the coal mining industry since the Sedgman agreement was negotiated. It is well past its nominal expiry date, and it has not been possible, despite many months of good faith bargaining, to negotiate a replacement. In these circumstances it would be reasonable to facilitate the negotiation of a new agreement that better reflects the current state of the industry, and would provide incentives for improved productivity. I recognise that there is likely to be a small but significant reduction in remuneration for the employees in question. However, in the circumstances, I do not consider that that is enough to make it inappropriate to make termination of the agreement inappropriate.

[57] I am satisfied that having regard to the circumstances, including those specifically referred to in s.226 (b), it is appropriate to terminate the Sedgman agreement, and I so order.

SENIOR DEPUTY PRESIDENT

 1   Aurizon Operations Limited; Aurizon Network Pty Ltd; Australia Eastern Railroad Pty Ltd [2015] FWCFB 540 at [126]

 2 (2005) 139 IR 34

 3   Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Aurizon Operations Ltd [2015] FCAFC 126

 4   At [167]

 5   [2012] FWAA 1057

 6   CFMEU 3

 7   PR538223

 8   Exhibit P1, paragraphs 52-53

 9   Paragraph 55

 10   Paragraph 56

 11   CFMEU 1, paragraph 38

 12   CFMEU 1, annexure SP18

 13   CFMEU1, paragraph 61

 14   CFMEU1, paragraph 33

 15   Exhibit P1, paragraph 8

 16   CFMEU1, annexure SP31

 17   annexure SP34

 18   Paragraph 79

 19   Exhibit P1, paragraph 36

 20   Exhibit P2, paragraphs 2-4

 21   Exhibit P1 paragraphs 20-21

 22   Paragraphs 26 -27

 23   Paragraph 43

 24   Exhibit CFMEU1, paragraph 15

 25   Exhibit CFMEU 1, paragraph 94

 26   PN411-412, 42-426

 27   This would be consistent with the evidence given by Mr Pierce at PN237-245

 28   In particular, exhibit P4

 29   Sedgman Employment Services Pty Ltd Bowen Basin Front Line Employee Enterprise Agreement 2014-2016; as discussed at PN1003

 30  CFMEU final outline of submissions, paragraph 58

 31   PN1558

Printed by authority of the Commonwealth Government Printer

<Price code G, AE891488  PR577956>