Re Allen & O'Brien Pty Ltd

[2016] FWCA 1906

[2016] FWCA 1906

FAIR WORK COMMISSION

DECISION

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

Allen & O'Brien Pty Ltd T/A O'Brien Electrical Services
(AG2015/3736)

ALLEN & O'BRIEN PTY LTD T/A O'BRIEN ELECTRICAL SERVICES ENTERPRISE AGREEMENT 2010-2014

Electrical contracting industry
DEPUTY PRESIDENT GOSTENCNIK	MELBOURNE, 1 APRIL 2016

Application for termination of the Allen & O'Brien Pty Ltd t/a O'Brien Electrical Services Enterprise Agreement 2010-2014; not satisfied that it is not contrary to the public interest; application dismissed.

Introduction

[1] Allen & O’Brien Pty Ltd (Applicant) is covered by an enterprise agreement titled the Allen & O’Brien Pty Ltd t/a O’Brien Electrical Services Enterprise Agreement 2010 – 2014 (Agreement). The nominal expiry date of the Agreement is 31 October 2014 and it continues in operation.

[2] The Applicant and the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU), in its capacity as a bargaining representative, have been bargaining or attempting to bargain since February or March of 2015 1 for an enterprise agreement that, if made and approved by the Commission, would replace the Agreement.

[3] On 20 June 2015, the Applicant applied pursuant to s.225 of the Fair Work Act 2009 (Act), to terminate the Agreement.

[4] The CEPU is also covered by the Agreement and opposes its termination.

[5] I have decided to dismiss the application and these are my reasons for doing so.

Relevant legislative provisions

[6] The legislative mechanisms by which an enterprise agreement may be varied or terminated are dealt with in Division 7 of Part 2–4 of the Act. Subdivision C of Division 7 sets out the manner in which an enterprise agreement may be terminated by agreement, and for the approval of the termination of the enterprise agreement by the Fair Work Commission (Commission).

[7] Subdivision D of Division 7 of the Act contains provisions which enable the termination of an enterprise agreement after its nominal expiry date has passed.

[8] These provisions are as follows:

“Subdivision D—Termination of enterprise agreements after nominal expiry date

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.”

[9] As a Full Bench of this Commission observed in Aurizon Operations Limited; Aurizon Network Pty Ltd; Australia Eastern Railroad Pty Ltd (Aurizon), 2 these provisions, and relevantly s.226, must be construed in a manner that is consistent with the language and purpose of the provisions by reference to the language of the Act as a whole, and so the context, general purpose and policy of the provision are an important means by which the meaning and effect of a provision is to be ascertained.3

[10] The Full Bench in Aurizon discussed in some detail, the operation and proper application of s.226 of the Act and the ‘not contrary to the public interest’ consideration contained therein. 4 I adopt that approach without repeating it, noting also the observations of the Full Court of the Federal Court of Australia in Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Aurizon Operations Ltd.5

Consideration

Section 226(a) – not contrary to the public interest

[11] The approach to the assessment of whether the termination of an enterprise agreement that has passed its nominal expiry date is not contrary to the public interest, was discussed in Aurizon. Relevantly, the Full Bench in Aurizon said:

“[129] Section 226(a) requires a consideration of whether termination of the agreements is not contrary to the public interest. It seems to us that a consideration of the public interest will involve something that is distinct from the interests of the persons and bodies covered by the agreements. This distinction seems to be reflected in the structure of s. 226. The question of how the public interest is to be assessed was considered by a Full Bench of the Australian Industrial Relations Commission in Re Kellogg Brown and Root, Bass Strait (Esso) Onshore/Offshore Facilities Certified Agreement 2000.  The decision in Kellogg Brown concerned an application to terminate a certified agreement pursuant to s. 170MH of the WR Act. The Full Bench observed:

‘The absence of any reference to the interests of the negotiating parties in s.170MH(3) is significant. It follows that the views of persons bound by the agreement may be relevant to the exercise of the discretion if they shed light upon the effect of termination on the public interest, but they should not be given any independent weight. To do so would be to import into the application of the section something which on its proper construction it does not include.

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.’ 

[130] After considering the decision in Re Queensland Electricity Commission; Ex parte Electrical Trades Union of Australia, the Full Bench in Kellogg Brown said:

‘It is clear from this passage that the ascertainment of the public interest may involve balancing countervailing public interests. That the Commission should take all of the circumstances into account is made clear by Dawson J in Re Australian Insurance Employees Union; Ex parte Academy Insurance Pty Ltd  [(1988) 78 ALR 466 at 467]. These authorities provide useful general guidance in the application of the test in s. 170MH(3). They illustrate the types of interests which can be properly described as public interests and confirm the breadth of circumstances which may be relevant to the ascertainment of those interests.

It should be emphasized that the Commission's consideration of the public interest for the purpose of s. 170MH(3) is directed to the consequences of terminating the agreement. In a given case, some consequences will be clearly predictable, others will be less so. For the most part the Commission should be guided by the likely foreseeable consequences of termination rather than speculation about possible consequences.’

[131] Section 226, unlike s. 170MH(3) of the WR Act, clearly requires the interests of the persons or bodies covered by an agreement to be taken into account. Those interests are considered separately from the question of the public interest, although it is accepted that these interests may nevertheless be similarly affected. It seems to us therefore, that the approach to the question of whether termination of an agreement is not contrary to the public interest in Kellogg Brown remains apposite.” 6 [Endnotes omitted]

[12] The Applicant’s case is that it is not contrary to the public interest to terminate the Agreement, having regard to its financial viability, its capacity to compete and continue to employ. These matters seem more likely to be concerned with the interests of the Applicant rather than the public interest. Nevertheless, I will deal with them under this head. In particular, the Applicant highlighted the following matters:

• That the Applicant’s business was losing money;



• That bargaining for a new agreement had not resulted in an agreement despite various efforts to reach agreement;



• That a number of the Applicant’s employees will likely be out of work; and



• That it is probable that the Applicant will not, because of its trading position, be in a position to train further apprentices. 7

[13] The Applicant submitted that it was in the public interest to maintain a business which employs people. 8 The Applicant’s case as to its financial viability is best summarised by the evidence given by Mr Dennis O’Brien, the owner of the Applicant. Mr O’Brien’s evidence was that:

“I signed the EBA back in 2011 due to the fact that we were doing some work that required a union endorsement. However, this is no longer the case and the cost to employ staff on the union EBA rates and conditions is having an enormous impact on the company.

I have had advice from my accountant to cut costs everywhere possible to try and stay competitive and keep the company running. However this is proving to be more and more difficult as we are being undercut by businesses that are not bound by an EBA.

As the EBA expired in Oct 2014 and no other EBA has been put forward I thought it would be a perfect opportunity to be excused from an expired agreement.

We have offered our employees a very similar employment NECA endorsed EBA contract with a few small changes that alters some benefits but not the current wages.

Most of our employees have a large bank of RDO’s which is one reason I want to change it from a 36 to a 38 hour week this (sic) will give our company more productive hours.” 9

[14] Mr Gerard Harrington is the Applicant’s accountant and taxation advisor. 10 It is in that capacity that he gave the advice referred to in Mr O’Brien’s evidence above, and it is in that capacity that he gave evidence before me about the Applicant’s current trading position.11 Mr Harrington’s evidence was that:

“It is undeniable that Allen & O'Brien Pty Ltd t/as O'Brien Electrical Services are at this present time in a dire financial position.

We have undertaken a complete audit of their current position with a view to determining whether or not the business can be salvaged. The company incurred significant losses during the 2014/15 financial year totalling $429,088 (refer Appendix 1). The results of our audit showed that there had been a considerable increase in costs relating to labour and materials as a percentage of turnover, and that turnover had fallen significantly due to their inability to compete effectively with their competitors in the current market sector.

I advised Denis to sell his engraving business and cut his costs. These cost cutting measures included restricting access to company vehicles to business use only, reducing staff numbers and investigating new ways to monitor, measure and improve the efficiencies of his remaining workforce. He has since reduced his workforce by a total of eight employees since December 2014 (he currently has 7 working tradesman and 2 apprentices). In spite of these improvements the business still remains uncompetitive due to the need to quote excessively high charge out rates as a result of his ongoing EBA agreement. Work traditionally won by the business is now going to competitors who are not bound by this agreement, and are able to constantly undercut his pricing structure and win jobs.

In spite of all the changes that have been undertaken the business remains uncompetitive in a changing market place and despite significant cost cutting, staff reductions and an increase in pricing the business has continued to incur losses totalling $44,894 up to 7 /12/l5(refer appendix 2)

The current EBA was established in 2010 and was appropriate when signed due to the nature of works (being a major focus on manufacturing), however this is now greatly reduced. Allen & O'Brien has undergone significant change since then and is no longer involved in the construction industry.

It is our professional opinion that the current EBA agreement is no longer appropriate for this business. Based on his current position, if he were unable to obtain a more competitive position in the current market, he would have little choice but to place the business into receivership and cease trading.” 12

[15] It seems to me plainly the case, based on the financial accounts that were introduced into evidence through Mr Harrington, 13 that the profitability of the Applicant has been significantly impacted since 30 June 2014 when it had made a before tax profit of $80,830.00 for the financial year ending 30 June 2014.14 For the financial year ending 30 June 2015, the Applicant had an operating loss of $429,088.0015 and for the period 1 July 2015 to 7 December 2015, the Applicant appears to be operating at a loss of $44,894.30.16 These losses appear to me, on the face of the financial records, to be largely attributable to a diminution in the trading income of the Applicant.

[16] However, I am not satisfied that the evidence establishes that the existence of the Agreement is the cause of or a significant contributing factor to the diminishing profit results experienced by the Applicant. Firstly, this is because the Agreement was also in operation during the financial year ending 30 June 2014 at which time the Applicant was profitable. Secondly, the assertion made by Mr Harrington in his evidence that the Applicant’s business remains uncompetitive in a changing market place and that this is as a consequence of the Agreement no longer being appropriate for the business, is not supported by any credible evidence by way of market analysis which would underpin the assertion made. Thirdly, Mr Harrington conceded that he had no knowledge of the Applicant’s competitors or the industrial arrangements that apply to those competitors. 17 The assessment made by Mr Harrington is therefore made without any objective evidentiary foundation.

[17] In this regard, the Applicant’s attempt to frame its case to coalesce with the circumstances in Aurizon fails because of the absence of any evidence of market conditions or competitive pressures, except for the bare assertions made by Mr Harrington.

[18] It follows, because of the absence of any evidence of a causal link between the operation of the Agreement and the Applicant’s financial position, that I am not persuaded that the impact on the employment of some of the employees of the Applicant, or on its capacity to employ apprentices arising from the financial position of the Applicant, is a significant factor in assessing whether it is not contrary to public interest to terminate the Agreement. The Applicant has simply not established, by cogent evidence, that the operation of the Agreement is a significant contributing factor to its financial position or its capacity to compete for work. For example, the Applicant did not lead any evidence from potential clients in relation to which it had tendered for work, but was unsuccessful. Such evidence might have disclosed the reason for an unsuccessful tender or bid for work. Moreover, no evidence was led as to the composition of the market in which the Applicant operates, the competitors in that market or the industrial arrangements which operate in the market. It would be wrong for me to infer a causal connection between the Applicant’s reduced income or profitability and the operation of the Agreement, without a sound evidentiary basis for doing so.

[19] The question of whether it is contrary to the public interest needs to be considered against all of the circumstances. The other basis for the Applicant’s contention that it is not contrary to the public interest to terminate the Agreement, was the fact that despite attempts to do so, the Applicant has been unsuccessful in achieving a new agreement. Apart from the Applicant’s desire to conclude an agreement with employees which is a “NECA endorsed EBA”, 18 it is not readily apparent how the Applicant says that the failure to reach agreement touches upon the public interest question. It seems to me on the evidence, that at various stages, the Applicant and the CEPU have been close to reaching an agreement. This is no more evident than in the position reached in negotiations as at 16 December 2015.19 To the extent that it is suggested that the failure to reach an agreement is being inhibited by the continued operation of the Agreement, that suggestion is rejected. It is doubtless the case that the Applicant wants to negotiate an enterprise agreement which is in terms different to the Agreement, but as the position in recent negotiations on 16 December 2015 demonstrates, negotiations for a new agreement were progressing. The evidence does not demonstrate that there is little prospect of reaching an agreement. To the contrary, it seems to me that at least as at 16 December 2015 the parties were close.

[20] The Applicant has not made out any of the grounds on which it says it is not contrary to the public interest to terminate the Agreement.Moreover, there are real questions as to the Applicant’s motivation for making the application to terminate the Agreement. Specifically, there is the evidence of Mr O’Brien that he sees the making of this application to terminate, if successful, as a way of bypassing the CEPU, a bargaining representative for the proposed agreement. 20 Although this view is misguided, that the Applicant’s owner views the application to terminate in this light, weighs against a conclusion that it is not contrary to the public interest to terminate the Agreement. In my view, it is not in the public interest to permit the termination of agreement provisions of the Act to be utilised by a party as a means, albeit misguided, to avoid dealing with a bargaining representative for a proposed agreement. The importance of enterprise agreements in the regulation of terms and conditions of employment under the Act cannot be gainsaid.21 Neither can the central role of collective bargaining in that arena,22 nor the means by which collective bargaining is to be conducted under the Act. I am therefore, on the evidence, not satisfied that it is not contrary to the public interest to terminate the Agreement.

Section 226(b) - appropriate to terminate the agreement

[21] Given my conclusion above, it is strictly unnecessary for me to consider whether it is appropriate to terminate the Agreement. Nevertheless, I will make the following observations.

[22] All of the circumstances also need to be taken into account in considering whether termination of the Agreement is appropriate. In particular, the views of employers, employees and employee organisations covered by the Agreement, their circumstances, and the impact of termination need to be taken into account. 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. 23 In assessing appropriateness by taking into account all of the circumstances, it is appropriate to approach the task by reference to the construction of s.226 and the contextual matters that bear upon that construction as well as giving specific consideration to the matters identified in s.226(b)(i) and (ii).24

[23] Turning first to the views of the employees, employer and employee organisation who are covered by the Agreement. It is clear that the CEPU, an employee organisation covered by the Agreement opposes its termination. It is also clear that the Applicant supports the termination of the Agreement. There is also evidence that some employees who are covered by the Agreement do not support its termination. 25 The Applicant did not lead any evidence from any employee who is covered by the Agreement which would suggest that there are some employees who support the termination of the Agreement.

[24] As to the circumstances of the employees, the employer and the employee organisation, including the likely effect that the termination would have on each of them, it was implicit in the Applicant’s case that the termination of the Agreement would have a positive impact on its profitability, viability and competitiveness in the marketplace. For the reasons given earlier, I am not satisfied that the Applicant has made out a case that the existence of the Agreement is the cause of the financial difficulties in which the Applicant finds itself. Moreover, that the Applicant was prepared as at 16 December 2015 to agree upon particular terms 26 is indicative that the Applicant desires only minor changes to terms and conditions which are contained in the Agreement, and that is inconsistent with the Applicant’s case theory that it’s ongoing viability hinges on the termination of the Agreement.

[25] I also accept the evidence of the employees who gave evidence and who are covered by the Agreement that the termination of the Agreement will have some deleterious effect on the terms and conditions of their employment. 27 Whilst it is not unusual for an employee’s terms and conditions to be effected by reason of the termination of an enterprise agreement and a reversion to modern award terms and conditions, that this would be the result of a termination in circumstances where the underlying case theory for termination (financial viability and competiveness) has not been made out, is a factor that weighs heavily against the appropriateness of the termination of the Agreement. The undertaking proffered by the Applicant, whilst relevant, does not alter my assessment.

[26] If, in the circumstances, it were necessary for me to do so, then on the evidence I would not be satisfied that it is appropriate to terminate the Agreement.

Conclusion

[27] The application to terminate the Agreement is dismissed. An order giving effect to this decision is separately issued in PR578546.

DEPUTY PRESIDENT

Appearances:

Ms D. O’Brien on behalf of the Applicant.

Ms L. Weber on behalf of the Respondent.

Hearing details:

2016.

Melbourne.

January 27.

Final written submissions:

Applicant’s Final Written Submissions dated 12 February 2016.

Respondent’s Closing Submissions dated 26 February 2016.

Applicant’s Submissions in Response dated 4 March 2016.

 1 Exhibit 7 at [3]; Exhibit 4 at [2].

 2   [2015] FWCFB 540.

 3 Ibid at [120].

 4   Ibid at [118]-[152].

 5 [2015] FCAFC 126 at [22]–[25].

 6   [2015] FWCFB 540 at [129]-[131],

 7 Exhibit 4 at [31].

 8   Applicant's Submissions dated 12 February 2016 at [9] – [10].

 9   Exhibit 3 at [3] – [7].

 10 Exhibit 2 at [1].

 11   Ibid.

 12   Exhibit 2 at [2] – [8].

 13   Exhibit 2, Appendix 1 and Appendix 2.

 14   Exhibit 2, Appendix 1.

 15   Ibid.

 16   Exhibit 2, Appendix 2.

 17   Transcript PN 138 – PN 140.

 18   Exhibit 3 at [6]; Transcript PN 378.

 19   See Transcript PN 356 – PN 361 and Exhibit 5.

 20   Transcript PN 374 – PN 379.

 21   Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Aurizon Operations Ltd [2015] FCAFC 126 at [24].

 22   Ibid.

 23   See for example Nestle Australia Ltd v Federal Commissioner of Taxation (1987)16 FCR 167 at 184; Elias v Commissioner of Taxation [2002] FCA 845; (2002) 123 FCR 499 at [62]; Construction, Forestry, Mining and Energy Union v New Oakleigh Coal Pty Ltd and another[2012] FWAFB 5107 at [15].

 24   Aurizon Operations Limited; Aurizon Network Pty Ltd; Australia Eastern Railroad Pty Ltd [2015] FWCFB 540 at [167].

 25   Exhibit 7, NJ2, Exhibit 8, Exhibit 9, Exhibit 10, Exhibit 11 and Exhibit 12.

 26   See Exhibit 5.

 27   Exhibit 8, Exhibit 9, Exhibit 10, Exhibit 11 and Exhibit 12.

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