Re Aurizon Operations Limited

[2015] FWCFB 540

[2015] FWCFB 540 [Note: refer to the Federal Court decision dated 3 September 2015 [2015] FCAFC 126 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

Aurizon Operations Limited; Aurizon Network Pty Ltd; Australia Eastern Railroad Pty Ltd
(AG2014/6009)

Rail industry
VICE PRESIDENT WATSON DEPUTY PRESIDENT GOSTENCNIK COMMISSIONER SPENCER	SYDNEY, 22 APRIL 2015

Application for termination of 14 enterprise agreements - Whether agreements which had a nominal expiry date of 31 December 2013 should be terminated - Whether termination of the agreements is contrary to the public interest - Whether it is appropriate to terminate the agreements - Approach to considering whether it is appropriate to terminate agreements - Notion that it will generally be inappropriate to terminate when negotiations ongoing rejected - Fair Work Act 2009 - ss.3, 58, 171, 225, 226.

CONTENTS

Paragraph
1. Introduction			[1]
2. Background and Evidence			[7]
The Aurizon companies and their businesses		[10]
The privatisation process and the making of the enterprise agreements		[17]
Aurizon’s concerns about the enterprise agreements		[23]
Expert evidence on Aurizon’s market position		[28]
Legacy provisions and the changes sought by Aurizon		[35]
“No forced redundancy”	[44]
QR National Passes policy	[48]
Recruitment and selection	[51]
Dispute resolution	[52]
Roster cycles	[53]
Drug and alcohol testing	[54]
Complex and inconsistent entitlements across the enterprise agreements	[55]
Other restrictive provisions	[56]
Impact of changes on employees		[60]
Bargaining for new agreements		[72]
Re-opening of matter		[84]
Aurizon’s Undertakings		[95]
Duration of the Undertakings	[97]
What is Aurizon undertaking to do?	[100]
Operation of the Undertakings	[105]
Interaction of the Undertakings and bargaining	[112]
3. The Statutory Test
Approach to construction of the relevant statutory provisions		[115]
Relevant statutory provisions and context		[118]
Proper construction and application of section 226		[127]
4. Is termination of the enterprise agreements contrary to the public interest?			[153]
5. Is it appropriate to terminate the enterprise agreements?			[167]
6. Conclusion			[181]

1. Introduction

[1] Aurizon Operations Limited, Aurizon Network Pty Ltd and Australia Eastern Railroad Pty Ltd (Aurizon) have applied under s. 225 of the Fair Work Act 2009 (the Act) to terminate 14 enterprise agreements that have each passed their nominal expiry date pursuant to s. 226 of the Act.

[2] The Agreements concerned are the Australia Eastern Railroad North Queensland Rail Operations Enterprise Agreement 2011 1, QR National Traincrew Enterprise Agreement 20102, QR National Corporate Enterprise Agreement 20103, QR National Network Enterprise Agreement 20104, QR National Coal and Regional Freight Support Enterprise Agreement 20105, QR National Coal and Regional Freight Logistics Enterprise Agreement 20106, QR National Network Services Trackside Systems Enterprise Agreement 20107, QR National Rollingstock and Component Services Enterprise Agreement 20108, QR National Network Services Support Enterprise Agreement 20109, QR National Network Services Civil Maintenance Enterprise Agreement 201010, QR National Network Services Electric Control Operators Enterprise Agreement 201011, QR National Coal and Regional Freight Rollingstock Maintenance Enterprise Agreement 201012, QR National Infrastructure Projects Enterprise Agreement 201013, QR National Network Services Facilities Enterprise Agreement 201014, (the enterprise agreements).

[3] Since the application was made, there has been a material change in circumstances relevant to the scope of the application. On 13 October 2014, Aurizon filed in the Fair Work Commission an application to approve a new enterprise agreement titled the Aurizon Staff Enterprise Agreement 2014 (the Staff EA 2014). This agreement was made when a majority of employees to be covered by that agreement, who cast a valid vote, approved the agreement. The agreement was approved by Deputy President Sams on 21 January 2015, 15and has now come into operation. The Staff EA 2014 agreement applies to all employees who were covered by the QR National Coal and Regional Freight Support Enterprise Agreement 2010 and QR National Network Services Support Enterprise Agreement 2010. Pursuant to s. 58 of the Act these agreements cease to apply to the employees covered by the later agreements.In these circumstances the current application is not pressed in relation to the two agreements that have been replaced and no longer operate.

[4] In addition the Staff EA 2014 also applies to all employees covered by QR National Corporate Enterprise Agreement 2010 with the exception of approximately 28 employees employed by Aurizon Operations Limited outside the State of Queensland and 26 temporary employees participating in Aurizon’s graduate training program. Accordingly, the application in relation to the QR National Corporate Enterprise Agreement 2010 is pressed, although the number of employees affected by the application to terminate that agreement has been significantly reduced.

[5] At the hearing of the matter on 5-7 November 2014, 10-12 November 2014 and 10 February 2015, Mr HJ Dixon SC and Mr S Meehan of counsel appeared on behalf of Aurizon. Mr W Friend QC represented the Australian Federated Union of Locomotive Employees (AFULE), the Queensland Services, Industrial Union of Employees (QSU), the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU), the Automotive, Food Metals, Engineering, Printing and Kindred Industries Union (AMWU) and Together Queensland. Mr R Reitano of counsel appeared on behalf of the Australian Rail Tram and Bus Industry Union (RTBU) and Ms M Anthony appeared on behalf of the Association of Professional Engineers Scientists and Managers Australia (APESMA). We refer to the registered organisations collectively as the “Unions”.

[6] We have decided that pursuant to s. 226 of the Act the 12 enterprise agreements, which remain the subject of the application, must be terminated because the preconditions in s. 226 are met—we are satisfied that it is not contrary to the public interest to terminate each of the agreements and we consider that it is appropriate in each case to do so. These are our reasons for reaching that conclusion.

2. Background and Evidence

[7] The parties led extensive evidence, including expert evidence, about the context of this application. The evidence dealt with Aurizon’s business, the market in which it operates, changes that have occurred consequent upon its privatisation, the history of the enterprise agreements, the changes to the agreements sought by the parties during bargaining, and in particular the changes sought by Aurizon, the history of negotiations for new agreements, the importance of particular provisions of the agreements to employees, the operation of particular provisions in the workplace context and the impact on employees of the removal of particular provisions and of the termination of the relevant agreements that apply to the employees. Evidence was given by the following witnesses:

• Mr Michael Francis Heenan, Manager Employee Relations at Aurizon 16



• Mr Timothy Leslie Conroy, Human Resources Manager for the Maintenance division at Aurizon 17



• Mr Edward Graham McKeiver, Vice President Service Delivery Coal Markets at Aurizon 18



• Mr Patrick Maurice O’Donnell, Vice President Rollingstock Maintenance at Aurizon 19



• Mr Christopher John Gregg, Vice President Freight Service Delivery at Aurizon 20



• Mr Clayton John McDonald, Vice President Network Operations at Aurizon 21



• Mr Andrew MacDonald, Vice President Business Development at Aurizon 22



• Mr Adrian Dennis Browne, consultant at Aurizon 23



• Mr Euan Morton, Principal at Synergies 24



• Mr Shayne Edward Kummerfeld, Branch Organiser with the Queensland Branch of the RTBU 25



• Mr Peter James Allen, Principal Industrial Officer with the Queensland Branch of the RTBU 26



• Mr Richard Robinson, Associate Director - Economics at BIS Shrapnel Pty Ltd 27



• Mr Bradley Scott Strover Crofts, Director at Eureka Economics Pty Ltd 28



• Mr Jason Young, Deputy Secretary and Organiser with the Queensland and Northern Territory Divisional Branch of the ETU Division of the CEPU 29



• Ms Melissa Brewer, Industrial Officer of the AFULE 30



• Dr Chris Allen Hale, sole proprietor of Hale Consulting 31



• Dr Olav Titus Muurlink, Senior Lecturer at Central Queensland University 32



• Mr David Allan Wotton, delegate of the AMWU 33



• Mr Stephen Christopher Peacock, delegate of the QSU 34



• Mr Stewart Rach, Divisional Councillor for the AFULE 35

[8] Most of the evidence given by employees who are covered by the various agreements was not challenged by Aurizon, in the sense that the employees were not required for cross-examination and statements were simply tendered as evidence in the proceedings. Witness statements prepared by or on behalf of the following employees and officials were tendered:

• Mr Mark James O’Dempsey, delegate of the QSU 36



• Ms Sandra Ann Bratt, local convenor of the ETU Division of the CEPU 37



• Mr Anthony Vernon Brotherton, member of the AFULE 38



• Mr Bruce Mark Hodby, member of the AFULE 39



• Mr Michael John Coxon, delegate of the ETU Division of the CEPU 40



• Mr Bernard Stephen Misztal, senior delegate of the AMWU 41



• Mr Craig Jeffrey Allen, Branch Organiser with the Queensland Branch of the RTBU 42



• Mr Bruce Mackie, Branch President of the Queensland Branch of the RTBU 43



• Mr Donald Skerman, workplace representative for Professional Engineers at APESMA 44.

[9] In addition, a large amount of economic and market information was tendered in evidence. We propose to summarise the important aspects of this evidence before turning to the task we need to undertake to determine this application. Many aspects of the history of the company and its enterprise agreements, including the timing of relevant events, are relevant as they relate to the context of the agreements now sought to be terminated.

The Aurizon companies and their businesses

[10] Aurizon Holdings Limited is a listed company on the Australian Stock Exchange. Prior to December 2012 it was known as QR National Limited and wholly owned a number of subsidiaries including QR Limited. QR Limited was previously a government owned corporation, the shares of which were held by the Queensland Treasurer and the Queensland Transport Minister on behalf of the State of Queensland. In 2010 QR National Limited was privatised. QR Limited has since been renamed Aurizon Operations Limited. It continues to be wholly owned by Aurizon Holdings Limited and is the principal business operator and employer in the Aurizon Group. As the privatisation process is a significant part of the context of the enterprise agreements, we deal with it in further detail below.

[11] Aurizon Network Pty Ltd is a subsidiary of Aurizon Operations Limited and operates the Central Queensland Coal Network. Australia Eastern Railroad Pty Ltd is the other employer in the Aurizon Group and is covered by one of the enterprise agreements.

[12] The Aurizon business, comprising the various corporate entities, is structured on functional lines. The operations division deals with coal, freight, rolling stock maintenance, program delivery, operations planning and safety. The network division operates the rail network comprising approximately 2,670 kilometres of heavy haul rail infrastructure in Central Queensland, one of the world’s largest coal supply chains. Other functional divisions within the Aurizon Group deal with Human Resources, Commercial and Marketing, Strategy and Business Development, Finance and Enterprise Services (including IT, Procurement and Real Estate).

[13] The Aurizon business offers rail based freight transport and infrastructure services throughout Queensland, New South Wales, South Australia, Victoria and Western Australia. It is Australia’s largest rail freight operator and the world’s largest rail transporter of coal to port for export markets. It moves an average of 700,000 tonnes of coal, iron ore, other minerals, agricultural and general freight across Australia each day. At any particular time Aurizon operates approximately 60 coal trains in the Central Queensland Coal Network alone. The freight service delivery business is a national business covering bulk commodities including iron ore. The majority of bulk freight services are provided in Queensland and Western Australia. The Network Operations Division maintains the track, bridges, structures, overheads and associated facilities as well as planning, scheduling and controlling the running of trains on the Central Queensland Coal Network. The rolling stock maintenance division comprises three heavy maintenance workshops and 14 running maintenance facilities. It is responsible for maintaining all “above rail” assets.

[14] Apart from the mining companies that are its customers for the transport of coal from the Bowen Basin in Queensland, Aurizon’s customers include producers, suppliers and exporters of bulk agricultural, mineral, intermodal and other commodities.

[15] Aurizon employs over 6,000 employees located throughout Australia, who often reside in regional communities within close proximity to crew depots.

[16] Aurizon’s major competitor is Pacific National, which is wholly owned by publically listed company Asciano Limited. It also originated from government owned entities—National Rail and Freightcorp. Pacific National has obtained access to Aurizon’s Central Queensland Coal Network and has made a significant capital investment in its Queensland operations in order to compete for work. The markets in which Aurizon operates commonly involve contracts awarded on the basis of competitive tendering.

The privatisation process and the making of the enterprise agreements

[17] On 2 June 2009, the Queensland Premier issued a Ministerial Statement concerning the sale of a number of State owned entities including Queensland Rail. The Statement guaranteed employees’ terms and conditions of employment in enterprise agreements for the life of those agreements and provided employment guarantees for two years beyond the date of each asset sale.

[18] On 28 May 2010, QR National was informed that the Queensland government’s position was that the employment guarantees were to be effected by inserting an enforceable mechanism into new enterprise agreements. The following day the government informed QR National that the guarantees were to be for a period of three years and to proceed with enterprise agreements on that basis.

[19] Mr Tim Conroy, who was involved in discussions with the Queensland government at the time on behalf of QR National, gave evidence that the employment guarantees were of significant concern to QR National at the time. He said that the guarantees presented very significant constraints on the manner in which it would be able to manage its business in the future, as future restructuring of QR’s business was inevitable. Mr Conroy also said that other new clauses were added to the agreements at the behest of the Unions despite his view that they had no place in the agreements. He said that the clauses were inserted due to the pressure being exerted by the Queensland government to make new agreements with the Unions or the government would make decisions on QR’s behalf.

[20] The operative enterprise agreements at the time had not passed their respective nominal expiry date. Most had a nominal expiry date of 30 April 2011. One agreement had a nominal expiry date of 30 June 2013 and two others had a nominal expiry date of 30 March 2011.

[21] Because of the need to give effect to the Queensland government’s directive on the employment guarantee, negotiations commenced for new enterprise agreements using the existing enterprise agreements as a starting point. The end result was that limited changes were made. The core provisions of the old agreements were maintained and the new agreements contained the employment guarantee and some of the other provisions that had been sought by the Unions. In September 2010 the Fair Work Australia (FWA) approved all but one of the agreements. The other agreement was approved by FWA on 3 March 2011. The nominal expiry date of each enterprise agreement was 31 December 2013. The application before us seeks to terminate these agreements, apart from the two we have earlier identified.

[22] In October 2010 the initial public share offer for shares in QR National was made and on 22 November 2010, QR National Limited was listed on the Australian Stock Exchange.

Aurizon’s concerns about the enterprise agreements

[23] Aurizon considers that as a result of the operation of its enterprise agreements, Pacific National has a significant labour cost and productivity advantage over Aurizon in the Central Queensland Coal Network. Aurizon considers that its business is seriously impaired by many restrictions and inefficiencies that are enshrined in its enterprise agreements, and which are largely a legacy of its previous government ownership, the privatisation process, and the requirements to insert provisions in the enterprise agreements to give effect to commitments and guarantees given by the Queensland government at the time.

[24] Apart from Pacific National, Aurizon must also compete with other providers of rail services. In recent times these have included the mining producers themselves, who have invested in rolling stock for the transport of their product.

[25] Mr Adrian Browne, a former consultant with Booz and Company, and a former employee of Freightcorp, has been employed by Aurizon as a consultant for the past five years. He gave evidence about a labour analysis he undertook in relation to Aurizon’s coal haulage business. The detail of his analysis was admitted into evidence on a confidential basis. The analysis contains comparative cost data between Aurizon and Pacific National and a quantification of ten key differences between the operational restraints on the two companies that pertained to Aurizon’s ability to effectively deploy train crew to desired tasks. For example, his evidence was that:

“A demarcation that exists under the QR Traincrew Agreement is the restriction on train crew performing ground work, such as shunting work, notwithstanding that train drivers are trained and competent to perform ground work.

Clauses 98.7 to 98.9 of the QR Traincrew Agreement have also resulted in the following restrictions:

a. Train drivers who have completed driving duties, cannot be required to perform “ground work”, notwithstanding that they may have returned to the depot well prior to the conclusion of their rostered shift;

b. Train drivers can often spend the balance of their rostered shift filling in time unproductively; and

c. Aurizon is required to employ and roster for duty yard crews who perform the ground work that train drivers are qualified for but do not perform.

The result of the demarcations is that Aurizon must employ ground staff to perform the ground work that could otherwise by performed by train crew employees. These are therefore categorised by me as Demarcation Conditions.

...

Aurizon is required to provide coal train crew employees with a minimum of 20 days off in any eight week period (see clause 81.1 of the QR Traincrew Agreement). This condition is an Availability Impact Condition.

This is, on average, two and half days per seven-day period. Days off (or “single leisure period”) constitutes a full 24-hours off commencing from 0001 hours and concluding at 2359 hours (see clause 80.6 of the QR Traincrew Agreement).

By way of example, this means that, if an employee finishes a shift at 8am, or any time thereafter, their “day off” will not start until 12:01am the next day, even though they are not working after 8am (or after such other time as their shift finishes).

Pacific National, on the other hand, is only required to provide rostered off duty periods calculated on the basis of the number of weeks in the roster cycle multiplied by two (clause 19.3 of the 2009 PN Coal Agreement).

...

There are currently restrictions imposed by the QR Traincrew Agreement on Aurizon’s capacity to require train crew to perform car driving duties.

The relevant restrictions are:

a. Train crew cannot be required to drive a motor vehicle for more than two hours between the hours of 10:00pm to 6:00am - clause 98.11;

b. Train crew cannot be rostered on to a car driving shift - clause 98.13

c. Train crew may be able to drive a motor vehicle during their shift only if they are signed off within the limitations of their hours - clause 98.13

d. If a train crew employee who is driving a motor vehicle has reached 10 hours of duty and the train crew employee is within the “car driving radius” (a physical boundary, which must be a minimum 1 hour’s driving distance around each depot), then the employee will continue to drive to the depot provided that in such circumstances, the driver must be signed off by the 11th hour of their shift - clauses 98.15.2 - 98.21;

e. Where train crew employees are not within the car driving radius by the 10th hour of their shift, then they are required to stop their motor vehicle and be relieved by another Aurizon employee.

The impact of these demarcations is that somebody other than the train crew employees who are actually assigned to drive the train must undertake the call car driving, with the train crew being passengers in that car.

Often this work is performed by train crew employees who are not at the time assigned to the train in question, which reduces the time that those employees can be rostered to and therefore actually, drive a train.

Alternatively, the work is performed either by other classifications of employees (i.e., someone who is not a train crew employee), or third party contractors such as taxi’s, hire cars or other similar services.

The Demarcation Condition exists, even though:

a. In all instances, the call car is either picking up or delivering the train crew from or to trains; and

b. Train crew employees, including those assigned to the train, are trained in, and are qualified to perform, the call car driving.

...

There are currently provisions in the QR Traincrew Agreement dealing with “time allowances” for signing on and signing off from duty (clause 77.1 of the QR Traincrew Agreement).

These provisions in their practical operation mean that there are 20 minutes “set aside” on each shift for signing on and signing off. This reduces the total productive time available in the shift for productive working. This condition is therefore an Availability Impact Condition.

...

Clause 67.1 of the QR Traincrew Agreement contains a table describing the maximum allowable rostered shift length arrangements which apply in respect of various crewing arrangements.

From a crew planning perspective, having various maximum shift lengths makes the consistent application of the most efficient shift length to a particular origin and destination combination much more difficult to achieve. This condition is therefore an Availability Impact Condition.

By way of illustration, from a planning perspective, a loading journey, on the Blackwater system, to and from the Gregory mine could be most efficiently covered by a 10.5 hour shift. However the maximum allowable rostered shift lengths prescribed in clause 67.1 of the QR Traincrew Agreement means that it is not always possible to roster a 10.5 hour shift to cover that loading journey.

...

Lift up and lay back is when employees can be called in early (lifted up) to an earlier sign-on time or have their shift commencement delayed (laid back) to a later time than shown on the posted roster.

By reason of clauses 85.4 and 85.5 of the QR Traincrew Agreement, Aurizon is only permitted to effect a “lift up” or “lay back” of one hour. Aurizon is restricted from “lifting up” or “laying back” a train crew’s shift at any time after the daily roster is set, which is any time in the period after 3pm, two calendar days before the train is scheduled to commence the relevant journey.

In contrast, Pacific National had the capacity to utilise lift up and lay back procedures which provided that lift up and lay back of four hours respectively could be utilised.” 45

[26] Other witnesses called by Aurizon gave evidence about operational restrictions and inefficiencies in the enterprise agreements. We do not propose to detail all of these matters in this decision. Apart from those mentioned in the evidence of Mr Browne and those referred to later in this decision, mention should be made of a “no forced redundancy” clause contained in each of the enterprise agreements. The application of the “no forced redundancy” clause requires Aurizon to continue to employ a significant number of employees in transition; that is, employees whose positions have become redundant but where no redeployment opportunities exist. At the time of the hearing of this application there were approximately 69 employees in this category. These employees are not engaged in any productive work. Mr Heenan said the following in relation to these employees:

“The inclusion of a “no forced redundancy clause” in the Expired Enterprise Agreements has led to a significant number of “employees in transition” within Aurizon. “Employees in transition” are those employees whose former positions within Aurizon became surplus to requirements and who are now registered with Aurizon's “Career Transition Unit”. The “Career Transition Unit” is responsible for managing employees in transition. This entails identifying possible redeployment opportunities with assistance from an external career transition adviser. The employees in transition are required to attend at Career Transition Unit locations each day and undertake job seeking activities. I am informed by Elizabeth Mills, Manager Career Transition Unit, that there are currently 67 employees in transition within Aurizon. 46

Unfortunately it is unlikely that in all cases redeployment opportunities will be identified for employees in transition. In cases where Aurizon cannot identify such opportunities it is prevented from effecting compulsory redundancies by reason of the “no forced redundancy” clauses in the Expired Enterprise Agreements.

The costs that Aurizon incur as a result of the “no forced redundancy” clauses includes the wages of employees in transition, the costs of managing employees in transition, including provision of office space, internal administration and career counselling.

In my experience the no forced redundancy clause has given rise to circumstances whereby surplus employees are unwilling to consider relocation opportunities because they are immune from retrenchment. This has led to situations where Aurizon has been forced to recruit and train new staff for roles that could have been filled by surplus employees from other locations within Aurizon's business.

Aurizon wishes to discontinue the “no forced redundancy” clause which has a detrimental effect on, and is unsuitable for, its business.” 47

[27] The evidence of other witnesses also dealt with restrictive provisions in the enterprise agreements said to be a barrier to productivity improvements and efficiency as well as the changes sought by Aurizon and the operational context of the changes. We deal with this evidence further below when considering the changes sought by Aurizon in the negotiations for new enterprise agreements.

Expert evidence on Aurizon’s market position

[28] The Unions opposed to the applications commissioned expert reports on the nature of Aurizon’s business, the markets in which it operates and employee perspectives on such matters. Dr Chris Hale is now a consultant in his own consulting business. He was previously a lecturer in Transport at the University of Melbourne. The executive summary and key findings from his report are as follows:

“The analyst's considered appraisal suggests: that Aurizon currently faces a stable business outlook, involving only mild, constrained and manageable competitive pressures toward its core business activities. Aurizon holds resources, capabilities and advantages of incumbency in a concentrated, highly regulated sector that will allow it to maintain a dominant position within the Australian and Queensland rail freight sector for the foreseeable future.

Key findings include:

• The freight rail industry to which Aurizon and its competitors belong is largely a legacy industry, which is highly regulated and concentrated, and which continues to be shaped by the history of public rail asset ownership from which it emerged. Although there is a diverse sector of mainly privately-owned transport operators in the country, the utilisation of rail for freight purposes within a bulk haulage or an integrated supply chain fashion is to a large degree a function only of the activities of Aurizon, Asciano and Qube.



• Aurizon holds a roughly 70-75% market share for coal haulage in Queensland.



• Aurizon's ownership and control over large swathes of Queensland's coal and other rail infrastructure assets results ultimately in an Aurizon-Asciano duopoly (to all practical intents and purposes) in rail bulk haulage, rather than a “marketplace” featuring even low levels of real diversity of firms or competition.



• Rail track ownership can be considered a monopoly (to Aurizon) under most accepted practical definitions, across most of the Queensland geography. This of itself provides a clear explanation of the real level of “competitive business pressure” experienced by Aurizon.



• Within Queensland, Aurizon holds further advantages through its “vertically integrated” track+ operations model - which reinforces its market dominance and relative freedom from open and genuine competitive business pressures.



• The “integrated rail freight” market across Australia is an effective tri-opoly, consisting of Aurizon, Asciano, and Qube. From an estimated annual sectorial revenue of $AUD 3.54 billion, a market share of around 29% is held by Aurizon.



• Aurizon dominates the Australian stock market-listed freight (and rail freight) sector. Its market capitalisation of around $AUD 9.73 billion compares to Asciano at around $6 billion and Qube at some $2.6 billion. This sector is concentrated and lacking in diversity of sizeable firms, with Chalmers holding position as the next largest stock market listed freight company with a market value of $180 million.



• The dominance of Aurizon, Asciano and Qube in business scale (compared to other listed companies) suggests little or no medium term likelihood of market challenge and genuine competition emerging from other existing players.



• Aurizon has continued to grow its revenues year-on-year for the last three financial years.



• Aurizon has continued to grow its return on invested capital (ROIC) year on-year for the past three financial years. It now rests at some 8.8% per annum - which is appropriate, and within expectations for asset-heavy companies operating in highly regulated markets with limited competition and contestability (such as privatised former utilities).



• There are currently no identifiable changes to regulatory or policy based mechanisms within the rail freight sector either flagged or foreseeable from major regulators - hence little likelihood exists at this time that competitive pressures and contestability will be substantially enhanced through those avenues.



• Given the pre-eminence and very robust market position of companies like Aurizon, it is unlikely that Australia or Queensland will see the entry, emergence or growth of genuine rail freight competitors over the medium term. Rail freight in Queensland will most likely remain a largely non-competitive duopoly for many years to come.



• Aurizon faces a stable forward business outlook according to its senior office holders.

The overall picture emerging from this investigation is a situation of ongoing stability, moderate business growth, and freedom from any prospect of genuine, hard edged competitive pressures of the sort faced by most mainstream businesses operating in Australia.

A reasonable appraisal would suggest that Aurizon faces only marginal competition pressures toward its overwhelmingly dominant position in sectors such as Queensland coal haulage—and the company needs to stand and face those limited pressures through mainstream responses of business strategy and ordinary ongoing adaptation. Any “competition” faced by Aurizon lies at the more abstract and faint end of a spectrum, given its scale and dominance and its highly regulated and concentrated industry contexts.

This analytical exercise found no evidence of any discussion among reasonable independent Australian business operators, or independent experts in rail or competition policy, suggesting that Aurizon is subject to meaningful competitive pressures at this time.” 48

[29] Mr Richard Robinson is a Senior Economist and Associate Director - Economics with BIS Shrapnel and had a principal role in the compilation of a report by his firm entitled “The Economic Impact of Terminating Aurizon’s Enterprise Agreements with the RTBU.” Key aspects of the BIS Shrapnel report are as follows:

“In the current Australian environment, the pervading corporate logic is to reduce costs to achieve two objectives: firstly, to increase profitability of their operations, and secondly to allow them to better compete for business and increase market share. This logic applies to both Aurizon and Pacific National. Their virtual duopoly in the Queensland coal freight market sets the scene for aggressive competition between the two companies, both in terms of winning business and driving down costs from their suppliers, including suppliers of labour.

Aurizon has indicated in its evidence that it seeks to reduce its labour costs and is currently restricted by the conditions imposed under the Enterprise Agreements. If the Fair Work Commission (Commission) agrees to Aurizon's application to terminate these Enterprise Agreements, the only restrictions on future employment conditions would be the minimum standards provided by the applicable awards for each category of labour and the National Employment Standards. These minimum standards are below the corresponding conditions provided by the Enterprise Agreements. Any wage levels or conditions above that minimum would be determined by the interaction of supply and demand for the types of labour covered by the Enterprise Agreements and the market power of Aurizon relative to labour in this market. As I will outline below, due to the significant market power of Aurizon in the labour market for the coal haulage industry and the structural oversupply of labour that is likely to result from the removal of the protections provided in the Enterprise Agreements, I believe that termination of the Enterprise Agreements would lead to a significant reduction in wage levels and employment conditions for employees of Aurizon.

Currently, two companies dominate coal rail haulage services in Queensland, Aurizon and Pacific National. A third operator, BMA, commenced operations in 2013, but their operations are only on a very small scale compared to Aurizon and Pacific National. Aurizon also owns rail infrastructure which Pacific National, BMA and other potential haulage operators use for coal haulage services in Queensland, for which Pacific National and other operators pay Aurizon access fees under an access agreement approved by the Queensland Competition Authority. There are significant barriers to entry to this market due to the large investment required in rollingstock and employees, the need to pay access fees to Aurizon to use their rail infrastructure, the relationships needed with coal suppliers to secure long-term haulage contracts and the scale required to compete efficiently in this industry with large established companies. Therefore I consider it unlikely that another company will attain a significant share as a supplier in the Queensland coal haulage market or become a significant purchaser of labour for the Queensland coal haulage industry in the medium term.

This market structure gives Aurizon and Pacific National significant market power in the Queensland coal haulage market as virtual duopolies, since each is one of only two dominant suppliers of the service. Aurizon and Pacific National also have significant market power in the labour market for the Queensland coal haulage industry as duopsonies, since each is one of only two major purchasers in the market for this form of labour. Aurizon's market power in the labour market allows it to exert downward pressure on wages and conditions, as there is limited need to compete with other employers to secure a sufficient supply of labour. A collective bargaining process provides a countervailing restraint as it increases the market power of workers from what they would have as individuals so that they are likely able to achieve a more favourable outcome than through individual bargaining. I understand that the bargaining process between Aurizon and the Rail, Tram and Bus Union (RTBU) for replacement enterprise agreements was ended by Aurizon, and that Aurizon is now seeking to terminate the existing Enterprise Agreements.

The termination of the existing Enterprise Agreements is likely to reduce the capacity of employees or the RTBU to negotiate replacement enterprise agreements due to the following circumstances. I understand that unless the application to terminate is approved by the Commission, the conditions currently provided by the Enterprise Agreements will persist until replaced by other enterprise agreements. I understand that, if the Enterprise Agreements are terminated, workers currently covered by these will be subsequently employed for the following 6 months under the conditions provided by the Undertaking to Employees dated 12 May 2014 issued by Aurizon, unless and until these are replaced by another enterprise agreement or employment contract. I understand that these conditions are more favourable to Aurizon and less favourable to the RTBU and Aurizon's employees than those provided by the Enterprise Agreements. Therefore, if the termination results in Aurizon obtaining changes to working conditions that it considers to be less efficient than those in Pacific National (or Aurizon's desired “optimum”), it will remove the incentive Aurizon currently has to negotiate with workers for replacement enterprise agreements to amend those “less efficient” conditions that will otherwise continue. Furthermore if the termination is granted, it will remove the current restriction on Aurizon’s ability to exercise its market power and will mean employees are unlikely to be able to use collective bargaining to improve their employment conditions from those set by Aurizon in the Undertaking to Employees.

...

Based on our above forecast rate of 0.2% per annum, growth in unit labour demand in the Queensland coal haulage industry in aggregate could absorb just over 1 percentage point of this amount by 2018-19. As will be demonstrated below, many of these employees are based in regional Queensland, an area which offers minimal alternative employment opportunities for these workers, and so there would be little reduction in the oversupply by movement to (i.e. employment in) other industries. Therefore I forecast there would be a long-term surplus of labour in the coal haulage industry if these Enterprise Agreements are terminated, which would have two results: it will cause structural unemployment in the industry and allow further downward pressure on wages and labour conditions in the industry.

...

I expect that if the Enterprise Agreements were terminated, Aurizon would be able to materially reduce unit labour costs, as asserted in the Browne Statement and other evidence submitted by Aurizon. In that case, Pacific National's employment conditions would be uncompetitive relative to those of Aurizon. Therefore, when the Pacific National 2014 Agreement nominally expires in May 2017, it would be in Pacific National’s economic interest to propose to its employees wages and conditions equivalent to Aurizon in a replacement enterprise agreement for 2017 and, if they did not agree, to apply for a termination of the agreement, supported by the same arguments as those made by Aurizon in the current application.

If the Commission refused the application, after having accepted the application for Aurizon to terminate its Enterprise Agreements, it would require Pacific National to continue with more restrictive employment conditions than Aurizon and face higher unit labour costs. This would entrench the competitive disadvantage of Pacific National and further reduce its capacity to pressure Aurizon to pass on its labour costs savings in the form of lower prices for coal haulage. It would also further strengthen Aurizon's market power as the major provider of rail haulage in Queensland and the major purchaser of labour in this industry, and potentially allow Aurizon to increase the coal haulage prices it charges to coal producers already facing low profitability due to falling world coal prices.

If the Commission accepted Pacific National's application for termination, this would contribute to the dismantling of the enterprise bargaining system from the QLD coal haulage industry. It may allow Aurizon and Pacific National to exercise their market power in labour markets to reduce employment conditions due to the loss of a countervailing restraint from collective bargaining by workers. In effect, there is a strong motivation for both Aurizon and Pacific National to aggressively reduce their labour costs and, as a virtual duopsony in terms of rail haulage, will have the economic power to achieve these reductions in conditions at the expense of workers in the absence of the countervailing power such as collective agreements. Moreover, the removal of certain protections on working conditions currently provided by for the coal haulage industry may threaten the safety of employees in the industry, with the lower safety of the employees and potentially for the wider community “contrary to the public interest”.

...

While acknowledging that all the job losses would not be in regional Queensland areas, it is likely that the majority of the train crew and other workers (other than those in administration at the Brisbane head office), will live in rural and regional areas of Queensland, and in Central Queensland in particular. While the numbers are not large relative to total employment in these regions, the problem is that these workers will become unemployed in regions where the labour market is already weak and unemployment is rising - making it less likely the retrenched workers will find alternative employment. Employment in Central Queensland is suffering at present due to job losses in the coal mining sector, losses associated with the severe drought (affecting both on-farm labour and lower spending in rural communities), rising unemployment in the construction sector as the mining and gas-related investment declines and a local tourism sector weakened by the high Australian dollar. Potential job losses in the rail haulage sector will also have secondary ‘knock-on’ effects as lower incomes and spending from these retrenched workers affects retail and service industries in the regional towns. The end result is higher unemployment in these regions.

I believe the effects of the potential job losses, both direct and indirect effects (including the uneconomic social impacts), represent a major negative to the community and therefore would be “contrary to the public interest”.” 49

[30] Dr Olav Muurlink, a qualified psychologist, is a senior Lecturer in Strategic Management/Human Resource Management at Central Queensland University. He conducted a survey of Aurizon employees. The conclusions he drew from the results of the study were as follows:

“The results of this study of Aurizon employees indicate a few things quite conclusively. There is a high degree of at least superficial awareness of the EBA, and redundancy restrictions, pay and conditions generally are highly salient components of the Aurizon agreements that members wish to retain. In conducting this study, I sought to deal with two weaknesses common in attitude surveys. Firstly, unless one is very careful, guiding respondents towards a particular desired response is easy. We asked an identical ‘do you support the termination of your current agreement’ question both at the beginning and end of the interview, to check for the impact of priming (‘push polling’) on responses. There was no significant impact. Secondly, a mere ‘yes’ ‘no’ poll can be deceptive, because it gives little indication of the conviction with which an attitude is held (Abelson, 1988), and the degree to which an attitude is based on knowledge, or the underlying causes of that attitude being held. We asked respondents, very early in the interview, to list the three aspects of the current agreements that are most important for them. Such non-guided, open-ended questions are ideal for interpreting underlying attitudes, and confirm the strong concerns the respondents had about the importance of the redundancy provisions in particular.

On one level, the study offers a simple answer to the key question: there is overwhelming opposition to the termination of the agreements. Key components of the agreements-forced redundancy restrictions, starting and finishing time restrictions, shift lengths, mandatory consultation for major changes, shunting changes and restrictions on work impeding on blocks of leisure times-did prove to be highly important to members, when they were directly asked. There was one exception: the rules on restricting shunting. However, even here, a significant majority rated this as highly important.

All other components were given a modal (i.e. most common) response, on a scale of zero to ten, of ten. Clearly issues of health and safety, as well as work-life balance underpin some of these strongly held views, and remuneration is a clear concern in the qualitative comments given by workers. However, the issue of anxiety about redundancy appears from the data to be related to the fungibility of skills gained in the rail industry. I found a statistically significant negative relationship between an employee's confidence in their ability to get a job elsewhere and the importance of the forced redundancy restrictions.

It is worth noting that there is also a latent suspicion of Aurizon. Aurizon's role in negotiations is not perceived positively. On the occasions in the open ended responses when Aurizon's name was mentioned by respondents directly, 89% of these mentions were clearly negative, with the balance neutral or understanding of Aurizon's position (“I understand the issues that Aurizon has” or “Aurizon is only a business”) rather than positive. The negative comments clustered around three themes: bullying and recalcitrance (“Aurizon are stonewalling,” “Aurizon won't budge”, “I think Aurizon should stop trying to bully and tell us what we can and can't have”), bad faith (“I think the union are but we don't think Aurizon are. We think they're negotiating so we get to the point where the Fair Work Commission cancels our agreement”) and propaganda (“We are being bombarded with what I would call propaganda from Aurizon”). More generally, the members expressed concern about being poorly informed or sensing that they did not have full knowledge of the facts.” 50

[31] Aurizon commissioned two reports prepared by Mr Euan Morton, Principal, of Synergies Economic Consulting. Mr Morton has degrees in economics, law and commerce. He is a former member of the National Competition Policy Unit of Queensland Treasury and the inaugural Director of the Queensland Competition Authority. His first report was a response to the witness statement of Dr Hale. The summary and concluding remarks in his report are as follows:

“I do not agree with the following statements of Dr Hale, for the reasons set out in italics:

a) Rail freight in Queensland will most likely remain a largely non-competitive duopoly for many years to come.

The rail freight market in Queensland is characterised by insubstantial barriers to entry, entry by well-resourced suppliers over the last five years, and vigorous competition between suppliers.

b) The overall picture emerging from this investigation is a situation of ongoing stability, moderate business growth, and freedom from any prospect of genuine hard edged competitive pressure of the sort faced by most main stream businesses operating in Australia.

Aurizon faces vigorous competition in coal haulage, effective regulation of its below-rail activities and operates in a market that is volatile and risky.

c) Any competition faced by Aurizon lies at the more abstract and faint end of a spectrum, given it scale and dominance and its highly regulated and concentrated industry contexts.

Aurizon faces vigorous not abstract or faint competition in coal haulage and effective regulation of its below-rail activities.

d) It can also be contended on a reasonable basis that the Aurizon-Asciano duopoly does not, for the most part, involve 'competition' as that term would be used in any mainstream business, academic or vernacular understanding of the concept.

Aurizon and Asciano do not constitute a duopoly. Insubstantial barriers to entry and the fact of entry result in vigorous competition in the market which is recognised as such.

e) In short, Aurizon's ownership and control of track assets appears to limit and constrain, a priori, any opportunity for even a semi-competitive ‘open market regime’ for coal haulage or track usage by other organisations in Queensland.

Regulation by the QCA prevents Aurizon from taking advantage of its control over below-rail services to reduce competition in coal haulage or track usage.

f) In short, there is no current or looming prospect of a genuinely
‘competitive’ coal haulage market in Queensland-without major changes to regulation, a move to vertical separation of Aurizon's business, and/or the appearance of serious new market entrants. There is currently no prospect of these eventualities.

The QCA effectively regulates Aurizon Network. As a result, there is no need for major regulatory change of vertical separation. Nor are such changes likely. The market has already accommodated two serious new market entrants, demonstrating that it is genuinely competitive.

g) From these figures it is clear that Aurizon is a leading and equal national market player, in the context of a sector with only three major companies and hence very limited levels of real competition.

The ‘Australian’ market for integrated non-coal rail freight to which Dr Hale is referring exhibits competition between road and rail. It is not possible to determine that it lacks ‘real competition’ by an analysis of only the rail operators that supply that market. Nor do I consider that it lacks real competition.

h) The very concepts of competition and change in business circumstances remain at the margins of business realities and business planning for Aurizon - at least for the next 3-4 year period.

Aurizon faces vigorous not abstract or faint competition in coal haulage and effective regulation of its below-rail activities which it must recognise and manage through its business planning.

i) Aurizon currently faces a stable business outlook, involving only mild and constrained external competitive pressures towards its core business activities.

Aurizon faces a risky business outlook because of the combined effects of regulation, vigorous competition and potentially volatile markets for export coal.” 51

[32] The second report was a response to the witness statement of Richard Robinson. Mr Morton’s summary and concluding remarks were as follows:

“In summary:

a) I do not agree with Mr Robinson that Aurizon and Pacific National have market power in the Queensland coal haulage market because the threat and actuality of entry, as well as competition inter se, results in vigorous competition incompatible with market power.

b) I do not agree with Mr Robinson that Aurizon and Pacific National have market power in the market for Queensland coal haulage labour. I am unable to determine whether there is a distinct market for Queensland coal haulage labour, although this seems doubtful. In my view, the evidence and reasoning presented by Mr Robinson do not demonstrate that there is such a market. Accordingly, Mr Robinson has not established an essential pre-requisite, namely the existence of a distinct market, that would allow him to validly conclude that Aurizon and Pacific National have market power within it.

c) I do not agree that the likelihood that labour cost reductions for Aurizon will be passed on in the form of lower prices is limited by long term contracts and market power in the Queensland coal haulage market. This proposition is inconsistent with my finding that the Queensland coal haulage market is competitive.

d) Similarly, I do not consider that the assumed higher labour costs of Pacific National until 2017 under its EAs are likely to represent a floor that would limit the extent to which Aurizon is forced to pass on its cost savings in the form of lower prices. Nor do I consider that they would limit the competitive pressure on Aurizon for any new contracts that came up for renewal between now and 2017. These propositions are also inconsistent with my finding that the Queensland coal haulage market is competitive.” 52

[33] In our view aspects of the evidence of Dr Hale do not represent a sound analysis of the market position of the rail freight industry. We found his evidence overly dismissive of obvious competitive pressures and unduly complacent in relation to the necessity for cost reductions and work practice improvements. In particular his view that there could not be a competitive market when only two competitors were involved adopts an overly technical approach. Pacific National has made major inroads into Aurizon’s market dominance in a very short time. Such competitive pressures cannot be ignored by Aurizon. In our view Dr Hale’s evidence failed to address the actual business circumstances of Aurizon in a realistic or practical manner.

[34] The evidence of Mr Robinson is characterised by a significant misunderstanding as to the effect of termination of the agreements. In assuming that Aurizon would be able to enforce bare award terms on its employees and significantly undercut Pacific National’s cost base, he has failed to appreciate the ongoing bargaining process and the likelihood of a new agreement on negotiated terms. He seemed unaware that bargaining for a new agreement could continue and the Unions and employees could avail themselves of protected industrial action to advance employee claims. While it is likely that Aurizon will be able to introduce some changes if it is free to do so, it is in our view also reasonable to expect that any new enterprise agreements while containing less operational inefficiency, will also contain similar wages and conditions of employment for employees. This is because the bargaining power of the employees and their bargaining representatives, the Unions, is not insignificant. The assumptions made by Mr Robinson in his evidence were not, in our view, sound and his evidence did not provide a great deal of assistance to us.

Legacy provisions and the changes sought by Aurizon

[35] As we earlier indicated, various of the witnesses called by Aurizon gave evidence about the key changes that it sought to negotiate as terms of any new agreements. These changes and the Unions’ responses are summarised below.

[36] Mr Michael Heenan the Manager of Employee Relations for Aurizon gave evidence about the scope, nature and impact of the current enterprise agreements in the context of Aurizon’s business operations. He said that 13 of the 14 agreements cover employees of Aurizon Operations Limited and Aurizon Network Pty Ltd and that all of these agreements contain a number of “legacy provisions” or terms and conditions that were applicable to QR Limited, as and when it operated as a government corporation. 53 The circumstances in which these provisions were included in the enterprise agreements is set out in the evidence to which reference has already been made, of Mr Tim Conroy, Aurizon’s Human Resources Manager.54 Mr Heenan said that Aurizon regards a number of the “legacy provisions” as having a detrimental effect on, and as unsuitable for its business.55

[37] Mr Heenan detailed the structure of Aurizon and said that Aurizon has changed since privatisation from a “business unit structure” to a “functional model” 56. He said that the "functional model" which Aurizon has adopted, has resulted in a division of the organisation, along functional lines, as follows:

• Operations (which includes coal, freight, rolling stock maintenance, program delivery, operations planning and safety);



• Network;



• Human Resources;



• Commercial and Marketing;



• Strategy and Business Development;



• Finance; and



• Enterprise Services (which includes IT, procurement, real estate, etc).  57

[38] Mr Heenan said that in Aurizon's current organisation, there is delineation between the operations and support functions within the business, excepting Network, which operates under a specific statutory regime and is structurally separate. He said that Network has its own operations function and limited support functions such as finance, commercial development and network regulation. 58

[39] The changes sought through bargaining by Aurizon are said to be necessary for operational and commercial reasons. That is, the operation of a number of the “legacy provisions” results in significant inefficiencies and restraints on Aurizon’s operations and negatively impacts on productivity and the reasonable utilisation of its workforce. Specifically, Aurizon says it is seeking to remove restraints on three affected areas:

• planning and utilisation of labour;



• scheduling; and



• the execution process for coal haulage. 59

[40] There is nothing in the evidence suggesting a motive other than that which Aurizon has advanced.

[41] Further, Aurizon argued that the removal of restrictive provisions will enhance its ability to compete for contracts across the coal rail network, freight, the intermodal business and maintenance services. There can be little doubt that this is so.

[42] The “legacy provisions” include: 60

“ “No forced redundancy”

• QR National Passes policy



• Recruitment and selection clause



• Credit for service with Queensland Rail clause



• Individual Flexibility Agreements



• Dispute Resolution



• Roster cycles



• Drug and alcohol testing



• Complex and inconsistent entitlements across the Expired Enterprise Agreements



• Shift worker swapping public holidays on RDOs.

[43] The evidence about some of these is examined briefly below.

“No forced redundancy”

[44] The no forced redundancy clause prevents Aurizon from reducing its workforce in the event of positions becoming redundant or because of organisational or structural changes, other than by seeking volunteers. It is thereby also limited in its capacity to select the most appropriate person for any redundancy by using objective selection criteria having regard to the operational needs of the business.

[45] As we have already noted, Mr Heenan gave evidence that the “no forced redundancy” clause has led to a significant number of "employees in transition", being those employees whose former positions are no longer required. At the time of hearing, Mr Heenan confirmed there were 69 employees 61 registered with Aurizon's "Career Transition Unit", which is responsible for managing employees in transition. He said it was unlikely that redeployment opportunities will be identified for all employees in transition. Therefore, Aurizon is prevented from effecting compulsory redundancies where it cannot identify redeployment opportunities for affected employees, and these persons remain employed but ‘in transition’ by reason of the "no forced redundancy" clauses.62

[46] Mr Heenan said:

“In my experience the no forced redundancy clause has given rise to circumstances whereby surplus employees are unwilling to consider relocation opportunities because they are immune from retrenchment. This has led to situations where Aurizon has been forced to recruit and train new staff for roles that could have been filled by surplus employees from other locations within Aurizon's business.” 63

[47]  The continuation of the no forced redundancy provision was budgeted at cost of $8.6 million for this financial year. 64 The average cost is $120,000 per employee.65 Mr Heenan said that the costs associated with the no forced redundancy clauses included wages, and the cost of managing employees in transition, including provision of office space, internal administration and career counselling.66

QR National Passes policy

[48] The QR National Passes policy is a legacy entitlement derived from the then existing entitlement of Queensland Rail employees to free or concessional rail travel. As a result, Aurizon employees, their dependents and partners receive free or discounted rail travel depending on their purpose of travel and employee’s length of service.

[49] The QR National Passes policy can only be changed with the agreement of the Unions covered by each agreement. 67

[50] Aurizon does not operate the rail services to which the pass relates. Mr Heenan said that from 1 January 2014, Aurizon was “required to pay Queensland Rail and Translink (a division of the Department of Transport and Main Roads) a fee to secure the rail pass benefits for its employees. In addition, Aurizon is required to pay fringe benefits tax on this benefit.” 68 Mr Heenan said that the estimated cost of maintaining the "QR National Passes policy" is in excess of $3 million annually.69 Aurizon maintains that there is “no ongoing justification for a provision that in effect prevents Aurizon from discontinuing the provision of free or discounted rail travel to Aurizon employees”.70

Recruitment and selection

[51] The enterprise agreements impose a requirement, with some limited exceptions, that Aurizon advertise all identified vacancies internally. Mr Heenan said this led to excessive administration and that it would be more efficient to appoint an employee who is acting in the role, or who has been identified as having the necessary skills and experience to meet the requirements of the role. 71

Dispute resolution

[52] The essence of the evidence given by Mr Heenan was that the restriction on implementation of workplace changes until steps in the dispute settlement procedure had been completed resulted in its use by the Unions to bring about unnecessary and tactical delays so as to frustrate Aurizon’s capacity to implement change. 72

Roster cycles

[53] Mr Heenan gave evidence that the roster cycle provisions of the various agreements impose restrictions on the way in which Aurizon may roster working hours of its employees. In consequence Aurizon is unable to roster in a manner that best suits its operational requirements. 73

Drug and alcohol testing

[54] Mr Heenan’s evidence 74 was that Aurizon should be able to use any lawful and reliable means to test employees as part of its alcohol and drug testing program. The enterprise agreements prevent it from doing so and limit its capacity to use blood or urine testing.

Complex and inconsistent entitlements across the enterprise agreements

[55] Aurizon seeks consistent provisions. For example, it manages over 900 classification points and a multiplicity of allowances and disability payments payable under the various enterprise agreements. The effect is inconsistency in entitlements across Aurizon's workforce, complexity and administrative burden. 75This was demonstrated in the different shift payment regimes that applied across various groups of employees.76

Other restrictive provisions

[56] Mr Heenan gave evidence about the limited matters 77over which flexibility arrangements could be reached and said this was unnecessarily restrictive. The result is that Aurizon is limited in its capacity to deal with its employees to reach genuine agreement about terms and conditions of employment.78

[57] It must follow that flexibility arrangements between Aurizon and willing employees could not be made to respond to changing employee needs or to changing operational requirements.

[58] Mr Heenan gave evidence about the shift work swap arrangements. He said, for example, in Network Control, for one shift work roster change under the provision, the result was an average of just over 6 days additional payment per employee per year. 79 This imposed an unnecessary cost burden to Aurizon.

[59] Evidence was also given about the restrictions on Aurizon’s capacity to ensure that all hours for which train crew employees were paid could be utilised for the performance of productive work. The performance of productive work by train crew employees was described as “footplate” hours. In essence the evidence was that a number of paid hours of train crew employees were not available as “footplate” hours because of various restrictive provisions in enterprise agreements covering train crew employees and shunting employees. The Demarcation between drivers and shunters contributed to this. The evidence was that Aurizon could significantly improve the productivity of train crew employees by the removing or altering some of the restrictions and thereby increasing the number of “footplate” hours worked by train crew employees. 80

Impact of changes on employees

[60] Largely unchallenged evidence was given by witnesses for the Unions about the importance to employees of the provisions discussed above, the impact of their removal on employees and about the employees’ opposition to the termination of the enterprise agreements.

[61] The evidence dealt with the rationale for no forced redundancy and relocation, rail passes, dispute procedure, drug and alcohol testing, internal vacancies, RDOs on public holidays and RDO arrangements.

[62] The thrust of this evidence was that each of the provisions with which Aurizon takes issue, were explicable and reasonable conditions of employment having regard to the nature of Aurizon’s business, the locations at which work is carried out and the conditions under which work is performed.

[63] For example, Mr Stewart Rach, a train driver employed by Aurizon at Gladstone gave evidence about the changes sought to the shunting demarcation. He said that shunters have better training to perform the work and maintaining the demarcation reduces the workload for train drivers. Further, he said that the roster and advance notice of change were important to maintaining a work life balance, given the already unusual hours worked by Aurizon employees. He also provided evidence about the configuration of some trains and said that driver only operations can be more dangerous. 81

[64] Ultimately, it was submitted that the evidence demonstrated that the enterprise agreement provisions had been dealt with as a package in the initial negotiations. The rates of pay that employees have received for a number of years were lower because of the existence of these terms. The terms were valued by the employees and contributed to the maintenance of a work life balance. Some of the terms were also important mechanisms by which occupational health and safety issues are addressed.

[65] As to the “no forced redundancy “provisions, it was submitted that many employees have legitimate concerns about job security. When account is taken of age, length of service and location, it is clear that there is a reduced prospect of finding alternative work outside of Aurizon in the event of redundancy. Consequently the concern is reasonable. It is clear on the evidence that 69 employees’ employment will be brought to an end almost immediately, if this provision was removed. 82

[66] Aurizon argued that restrictions such as “lift up” and “lay back” of train crew, that is, the capacity to alter start and finishing times of train crew once the daily roster is set, are inflexible and an inefficient use of train crew. 83

[67] The evidence led by the Unions was to the effect that such provisions are necessary so that employees have certainty about their hours of work. This was important in an environment where employees already worked varying shifts and uncertain patterns. Accordingly, predictability of hours of work was an important consideration. It was submitted that there was no demonstrable benefit in removing restrictions on lift up and lay back and that there was no evidence about how productivity would be affected.

[68] Evidence was also given that if Aurizon sought to contact employees on short notice so as to alter their start times, compensation for the alteration of start and finish times was sought or but the clear preference of employees was to retain the restrictions.

[69] As to the maintenance of rail passes, the evidence was that this was a long-standing entitlement allowing employees to travel on the rail network free of cost, and that for some employees, particularly on the suburban train network, this represented substantial value, for which they would seek compensation if it is to be altered.

[70] As to the demarcation between driving and shunting duties, the evidence led by the Unions suggested that shunting work was dangerous, it should only be undertaken by those appropriately trained, and given the variety of arrangements between depots and the potential consequences (serious injury) if mistakes in shunting were made, train crews as well as shunters supported retaining the current restrictions.

[71] Health and safety concern was also the reason articulated as underpinning the car driving restrictions. The Unions argued these restrictions should be maintained, given the dangers associated with train crew driving motor vehicles after the performance of train driving duties.

Bargaining for new agreements

[72]  Bargaining for the new agreements commenced in April 2013.

[73] At the time this application was made, Aurizon and various of its employees were covered by 14 enterprise agreements, each of which had passed its nominal expiry date on 31 December 2013. A table was provided as part of Mr Heenan’s evidence identifying each of the expired enterprise agreements, their scope and the approximate number of employees covered by each agreement.

[74] Formal bargaining commenced at an offsite location on 29 April 2013. The Unions rejected Aurizon’s proposal to commence bargaining by negotiation which Aurizon described as “common conditions”. The Unions instead first sought to reach agreement on the number and scope of agreements that would apply to Aurizon employees.

[75] In May 2013, Aurizon provided the Unions with three documents as its proposal for bargaining. Several meetings followed but no agreement was reached on the number of enterprise agreements or their scope. The Unions subsequently provided a log of claims, which it was understood, was underpinned by a proposal that nine enterprise agreements would be made. Some further scheduled meetings were adjourned to allow the Unions final endorsement of matters in the log of claims.

[76] After a further series of meetings, Aurizon filed a bargaining dispute application pursuant to s. 240 of the Act in June 2013. A series of conferences were facilitated by the Commission and associated Statements issued. The Commission recommended a framework for discussions. Further meetings were convened and the evidence of Aurizon and the Unions in summary terms, details the series of meetings and the minimal progress that was achieved in negotiations. Evidence was provided by Aurizon and the Unions about the details of these negotiations. These matters have been carefully considered. It is of some significance that, after a number of meetings chaired by Deputy President Asbury, the following Statement of 4 March 2014 to the parties was issued. 84

“[1] On 14 June 2013 Aurizon Operations Limited (Aurizon) made applications under s.240 of the Fair Work Act 2009 (the Act) for the Fair Work Commission to deal with bargaining disputes. The Commission has conducted 14 conferences to date attempting to assist the parties to reach agreement. Conferences have involved State Officials and Delegates of the abovementioned Unions.

[2] A framework was put in place to enable provisions that are applicable to all employees to be discussed (such as leave entitlements) and to identify those clauses which were specific to particular-groups of employees (such as hours of work and rostering) so that they could be discussed with those groups of employees.

[3] The draft agreements tabled by Aurizon seek significant changes and offer wage increases in return. Aurizon has indicated that the changes are necessary for it to remain competitive in the current economic environment, and reflect provisions that are common in other agreements, including those of its competitors.

[4] Union officials and Delegates have indicated that they will not agree to changes to existing Agreement provisions and that Aurizon must justify such changes clause by clause. Negotiations have been slow and difficult. On 19 February 2014, I attended negotiations for the following proposed agreements:

• Transport Operators, Maintenance and Infrastructure Enterprise Agreement 2014; and



• Staff Enterprise Agreement 2014.”

[5] One of the issues being discussed was hours of work. Aurizon seeks flexibility in shift lengths up to twelve hours. Aurizon maintains that the current Agreements are inflexible and either place limitations on shift lengths or require levels of agreement by employees to alter shift lengths, and that these restrictions impact unfavourably on the Company's ability to respond to the needs of its customers. Union officials and Delegates responded to this issue by indicating that they would not agree to any changes to the current provisions of the Agreements.

[6] Aurizon has spelled out the change it seeks in relation to hours of work. The Company's position was rejected by officials and delegates without a counter proposal being advanced. If Aurizon now changes its position and winds back its proposal, it will in effect be betting against itself.

[7] The discussion on hours of work is typical of the way in which the negotiations have proceeded, and indicates that the likelihood of reaching agreement is virtually nil. Negotiation requires willingness to move on both sides. While some matters have been agreed, there is no agreement on significant issues such as hours of work and rosters.

[8] The Aurizon agreements expired in December 2013. Those agreements remain in operation until they are replaced or terminated. There is no capacity for employees to obtain a wage increase other than through negotiating a new agreement, because the wage rates in the current agreement exceed those in the Rail Industry Award 2010.

[9] If the parties maintain their current position, the options are that:

• The current agreements continue to operate and employees do not receive any wage increase until the wage rates in the agreements fall below those for the same classification in the Rail Industry Award 2010 and other relevant Awards.



• Employees take protected industrial action to press their claims to maintain the terms and conditions in the existing agreements and to receive wage increases.

[10] If the first option is taken, given the amount by which the agreement rates exceed those in the Awards, there will be no wage increases in the foreseeable future.

[11] If the second option is taken, provisions of the Fair Work Act 2009 will be potentially triggered allowing Aurizon to:

• Take defensive action such as locking employees out of their employment or where work bans are implemented, by reducing payments to employees.



• Apply to the Fair Work Commission to terminate or suspend protected industrial action on grounds including that it is causing significant damage to the Australian economy or an important part of it.

[12] The Act also contains provisions which allow the Commonwealth Minister for Employment or third parties such as customers of Aurizon, to also make application to terminate or suspend industrial action on the grounds that it is causing significant damage to the Australian economy or an important part of it.

[13] Where industrial action is terminated, and all matters that were in issue in bargaining for an agreement have not been settled, the Commission can make a determination, and must do so as soon as possible. A determination is made instead of an agreement. In making a determination, the Commission must take into account matters including the interests of the employer and employees who will be covered by the determination and how productivity might be improved in the enterprise concerned. These provisions were used in the case of Qantas.”

(emphasis added)

[77] It seems clear from the statement that as at 4 March 2014, bargaining had been protracted and that there has been little or no progress made on any substantive issue. The Deputy President also set out the options under the Act available to the bargaining parties to progress the bargaining. Most telling however is that whilst the Deputy President remained ready to assist the parties, she indicated, based on her experience of the negotiations, the futility of continued negotiations between the parties whilst the current deadlock of positions of the parties was maintained. The Statement concluded by indicating that the Deputy President was “not prepared to undertake further conciliation while those positions are maintained.”

[78] Aurizon next released three proposed enterprise agreements which would replace 14 expired enterprise agreements. Mr Heenan gave evidence that in an email sent to the Unions on 12 August 2014, Aurizon was seeking a reasonable response from the Unions to address Aurizon’s proposals. It seems to us on the evidence that the proposals contained in the email and accompanying proposed agreements carried with them a rationale, that was reasoned and that explained the commercial necessity underpinning the proposals. In the context of bargaining to that point, it also seems to us that the proposals deserved a considered and constructive response.

[79] The Unions submitted that the negotiations were difficult, but that there is nothing particularly irregular about that. They submitted that to intervene at this stage by terminating the agreements would be premature and against the scheme of the statute and that a reason for the protracted bargaining was that Aurizon was seeking massive change.

[80] During the hearing of this application, Mr Reitano alerted the Full Bench to the filing by the RTBU of applications for orders for protected action ballots. He submitted that the absence to date of such applications and at any protected action strongly indicated that bargaining was proceeding in accordance with a process envisaged by the Act. 

[81] Mr Dixon referred to the evidence of bargaining and submitted that it establishes that no real effort has been made by the Unions to address the issues between the parties in any meaningful or responsive way. 

[82] Aurizon made the following submission about the relevance and evaluation of the conduct of the bargaining parties to the question whether it was appropriate to terminate the enterprise agreements:

“MR DIXON: They have two significant relevances, your Honour. The first is that there's no real prospect of agreement being reached given that type of behaviour, and the second is it is an ameliorating factor in respect of the complaint that there is massive change, which I will come to deal with. Where it has been suggested that the changes which Aurizon seeks will have adverse consequences and there has been no attempt to engage in a way to ameliorate those consequences in a constructive manner, it would be a relevant consideration in dealing with the case that is put against us.

[148] As we have already indicated, s. 3 of the Act should be read as a whole. Paragraph 3(f) is not given a particular precedence over, nor does it override or qualify, any other parts of s. 3. Each of the paragraphs can be read harmoniously. Each describes a means by which the Act’s object is to be achieved. Read together, the section describes the various means by which the object of the Act is to be achieved. There is in our view no conflict or inconsistency between the various paragraphs in s. 3 of the Act.

[149] Further there is not, in our view, any conflict or inconstancy between s. 3 (or any of its paragraphs) and s. 171 of the Act. Section 171 contains the particular objects of Part 2–4 of the Act. Its terms do not conflict with or qualify s. 3 of the Act and can be read harmoniously with s. 3 of the Act. Section 171 is relevant to the construction and application of s. 226 of the Act, but in our view, it does not operate on s. 266 in the manner suggested in Tahmoor Coal. On our reading of ss. 3 and 171, there is nothing in those provisions, when read harmoniously, that would suggest that the emphasis on promoting productivity (in s.3(a)) is primarily to be achieved through collective bargaining in good faith (in s. 3(f) and s. 171) rather than by other means, such as termination of an expired agreement. Moreover, such a construction assumes some incompatibility with terminating an enterprise agreement that has passed its nominal expiry date and collective bargaining. In our view the two are not incompatible.

[150] When read harmoniously with s. 3, s. 171 does not qualify or restrict the exercise of the power of termination under s. 226 of the Act in the manner suggested in Tahmoor Coal. Indeed the object in s. 171 (a) is directed to providing:

. . . a simple, flexible and fair framework that enables collective bargaining in good faith, particularly at an enterprise level, for enterprise agreements that deliver productivity benefits.

[151] Section 226 of the Act is part of the simple, flexible and fair framework, established by Part 2–4 to which the objects in s. 171 relate. There is nothing inherently inconsistent with the termination of an enterprise agreement that has passed its nominal expiry date and collective bargaining in good faith. There is nothing incompatible with the termination of such an agreement and the continuation of collective bargaining that has commenced in good faith at an enterprise level for an enterprise agreement that delivers productivity benefits. The framework that is established by Part 2–4 provides for applications and orders to be made for the termination of an enterprise agreement that has passed it nominal expiry date. It is not too difficult to suppose that such an agreement in particular circumstances might no longer deliver productivity benefits, or that such an agreement has never done so. It is not too difficult to suppose that the termination of such an agreement might better support good faith bargaining for an agreement that delivers productivity benefits at the enterprise level.

[152] In our view, there is no express or contextual indication that the objects in s. 3 or s. 171 operate on s. 226 in the way suggested in Tahmoor Coal. It follows that we do not propose to follow Tahmoor Coal in its construction of s.226 to the extent that the construction appears to place limits on the discretionary considerations in s. 226(b) because of that which we regard as an incorrect interpretation of the interrelationship of the objects in s. 3 and s. 171 of the Act. In our view the limitation is not justified.

4. Is termination of the enterprise agreements contrary to the public interest?

[153] As we have said above, we approach this question by applying the Full Bench decision in Kellogg Brown.

[154] Aurizon submits that where significant endeavours have been made to negotiate a replacement agreement and there is, nonetheless, little prospect of reaching agreement, it will not be contrary to the public interest to terminate a nominally expired enterprise agreement. It submits that when all of the circumstances are considered the Commission should be satisfied that it is not contrary to the public interest to terminate the Enterprise Agreements.

[155] The RTBU submits that the reduction or loss of entitlements as a result of termination of the enterprise agreements compels the conclusion that it is contrary to the public interest to terminate the enterprise agreements. It says that it is a significant matter to remove entitlements that were freely negotiated in the scheme of the Act that has as one of its objects the provision of a fair framework for collective bargaining and good faith bargaining. It submits the following matters are relevant to the public interest:

• the Act places an emphasis upon enterprise level collective bargaining. Removing an enterprise agreement in favour of a modem award does not, in the circumstances, promote enterprise bargaining;



• the Act also places an emphasis upon proving a fair framework for collective bargaining and the facilitation of good faith bargaining. Terminating the agreements will disturb the current bargaining position of the parties and thus be counter to the achievement of that object;



• there will, in the event the agreements are terminated, be little or no incentive for Aurizon to bargain for a collective agreement in circumstances where it enjoys a significant competitive advantage over its main competitor in relation to employee costs;



• the Commission will become the effective arbiter of terms and conditions of employment for Aurizon employees in circumstances where the scheme of the Act lays the principle focus on the parties for determining what terms and conditions will apply at the enterprise. The Commission's role under the Act is confined in so far as it determines terms and conditions of employment. It is noteworthy that s.226 does not focus upon the terms and conditions of employment as being contrary to the public interest or being inappropriate, but rather focuses upon whether termination of the agreement is not contrary to the public interest or appropriate;



• there will, in the event that the agreements are terminated, inevitably be a significant short term and longer term reduction in wage levels and of conditions of employment for employees of Aurizon, and ultimately for employees of its competitor (because of the duopoly that exists for rail haulage services);



• in the event that the agreements are terminated there will be an oversupply of labour in the coal haulage labour market in Queensland, which will create unemployment (concentrated in regional Queensland) and exert downward pressure on wages and conditions in the industry;



• contrary to Aurizon's submissions given that most of its longer term contracts are already in place termination of the agreements will have little effect upon productivity in the industry and will more likely than not simply result in profit taking by Aurizon; and



• the loss in employment and the consequent increase in unemployment that will occur in parts of Queensland where the labour market is already weak, where unemployment is rising, where the effect of job losses in the mining industry is already being felt, where the effects of severe drought are already being felt and where the effects of the weaker Australian dollar are already taking effect are significant matters that will follow in the event of termination of the agreements and that suggest termination of the agreements is not in the public interest. These effects do not take into account the knock on effect in these rural communities of lower spending in the retail and services industries. The sheer economic and social impact of unemployment is regional Queensland is a strong matter that would prevent the Commission from forming the opinion that termination of the agreements is not contrary to the public interest.

[156] The other Unions make similar submissions. They submit that termination would undermine bargaining and deliver a tremendous advantage to Aurizon in their negotiations because Aurizon would be able to negotiate from a very low base and be very likely to achieve significant advantages in its operations over those of its competitors covered by enterprise agreements. The Unions submit that granting the application would lead to a race to the bottom, not the maintenance of proper standards in terms and conditions of employment in the industry.

[157] We have considered all of the circumstances of this matter and have formed the view that it is not contrary to the public interest to terminate each of the 12 agreements earlier identified.

[158] As we have earlier indicated, there is nothing inherently inconsistent with the termination of an enterprise agreement that has passed its nominal expiry date and the continuation of collective bargaining in good faith for an agreement. Neither the Unions nor Aurizon have suggested that bargaining will stop if the agreements are terminated. Neither have suggested that they will not pursue new agreements or that they will cease bargaining if the agreements are terminated.

[159] While we accept that a termination of the agreements will disturb the current bargaining positions, we do not accept, as the Unions submit, that this is counter to the object of a fair framework for collective bargaining and facilitating good faith bargaining. Collective bargaining will remain available to the bargaining parties. The bargaining parties in their bargaining will continue to be required to meet the good faith bargaining requirements. The disturbance of the bargaining position does not result in the disappearance of collective bargaining or the rules by which the bargaining parties must abide.

[160] Moreover the Unions and employees will have available to them the full arsenal of tools under the Act to exert legitimate industrial pressure on Aurizon to bargain and to reach agreement. It is therefore not correct that the termination of the agreements results in little or no incentive on Aurizon to bargain.

[161] We also do not accept that by terminating the agreements, the Commission becomes the effective arbiter of terms and conditions of employment of the employees of Aurizon, because the effect is to alter the terms and conditions of employment of the employees. The Act sets out the safety net terms and conditions of employment. They comprise the relevant modern award and the NES. Whether an agreement passes the better off overall test is also measured by reference to these instruments, not the antecedent enterprise agreement.

[162] Whilst a nominally expired agreement applies to any employee, the termination of it will result in an alteration of terms and conditions of employment. The effect of the Unions’ submission is that it will always be contrary to the public interest to terminate an agreement in such circumstances. This simply cannot be correct. If it were, it would have been a simple matter for the parliament to have made clear that termination of an agreement that has passed its nominal expiry date must only occur if it no longer applies to any employee. Clearly s. 226 is not so confined.

[163] We are also not persuaded that the termination of the agreements will result in the oversupply of labour, profit taking by Aurizon and significant loss of employment as suggested by the unions. It is to be borne in mind that Aurizon has not suggested it intends to reduce its workforce in any significant way. Its real complaint is that the current constraints in the agreements preclude effective utilisation of labour, and unreasonably constrain its capacity to deploy and redeploy labour so as to coincide with its need and demand for its services. Indeed it says that by freeing itself from some of the restrictive provisions of the current agreement, job security will be enhanced rather than diminished because its competitive position will improve. We accept, other things being equal, that this is so.

[164] The circumstances in which the agreements were made is a significant factor. As part of the privatisation processes the Queensland government required Aurizon to provide a three year employment guarantee and formalise that in the enterprise agreements. The pressure exerted by the government led to other concessions to claims that Aurizon would not have otherwise agreed on. The three year period expired some 18 months ago, yet they continue to apply, and to restrain Aurizon’s capacity to conduct its business more effectively and productively.

[165] Many of the provisions sought to be removed or varied are not common in most enterprise agreements. They restrict Aurizon in making business changes that it wishes to make in response to a competitive market situation. The restrictive provisions restrain Aurizon’s capacity to effectively manage its labour resource needs. Aurizon has endeavoured to negotiate changes to those provisions but the lengthy and comprehensive negotiations have not led to an agreement. Many of the changes sought by Aurizon in the negotiations seem to us to be rationally based. We readily understand its desire that its now private sector business no longer be restrained by provisions that were effectively imposed through the privatisation process. We do not think the changes proposed, objectively viewed, involve exploitation or unfairness in the terms and conditions of employment of Aurizon employees.

[166] The question of whether it is contrary to the public interest needs to be considered against all of the circumstances and for the reasons given we are satisfied that it is not contrary to the public interest to terminate each of the agreements.

5. Is it appropriate to terminate the enterprise agreements?

[167] All of the circumstances also need to be taken into account in considering whether termination of the agreements is appropriate. In particular the views of employers and employees 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. 148 In assessing appropriateness by taking into account all of the circumstances, we approached the task by reference to the construction of s. 226 and the contextual matters that bear upon that construction dealt with earlier as well as giving specific consideration to the matters identified in s . 226(b)(i) and (ii).

[168] Aurizon accepts that the Unions and a number of employees do not support termination but cautions against over generalisation of employee views as reflected in submissions by the unions. It submits that termination is likely to have the following effects on employees:

(a) They will be entitled to the maintenance of proper industrial standards as they will be covered by the Modern Award and the NES, which will ensure the maintenance of such standards;

(b) All employees will further have the benefit of extensive undertakings from the Applicants as to their wages, allowances and other defined benefits to operate in the event that the Enterprise Agreements are terminated by the Commission;

(c) The employees will not be prevented from making a new enterprise agreement with their employer appropriate to their interests and the interests of their employer, consistent with minimum standards, and will remain free to pursue their preferred outcome in accordance with the processes set out in the FW Act;

(d) The termination of the Enterprise Agreements will enhance the prospect of longer-term sustainable employment for the vast majority of the employees of the Applicants.

[169] Aurizon submits that termination is likely to have the following effects on itself:

(a) It will remove constraints, restrictions and inefficiencies imposed on them by a range of terms in the Enterprise Agreements and will allow them to operate their businesses without such constraints;

(b) It will enable it to utilise their workforces to much greater benefit during working and paid hours;

(c) It will enable it to more readily and reasonably reorganise their businesses so as to meet the demands, including the changing demands, of their customers in a competitive environment;

(d) It will relieve it of being forced or required to employ more employees than are reasonably needed, or more employees than are reasonably needed in a particular location or locations, than it can presently achieve;

(e) It will allow it, over time, to reduce their operating costs which will allow them to be competitive in a very competitive market;

(f) It will enable the Applicants to provide longer term sustainable employment for the majority of employees of the Applicants;

(g) The Applicants will remain free to negotiate for the making of new enterprise agreements if that can be achieved within the processes set out in the FW Act to best secure an efficient and productive workplace for it and its employees.

[170] The Unions submit that termination will have a drastic effect on employees and this is recognised by Aurizon in making its Undertakings. However the Unions contend that enforcement issues and the ability of Aurizon to change its mind means that the meaning and intent of the undertakings are totally in the hands of Aurizon and cannot be judged until after the event. The Unions submit that the following factors are relevant to the issue as to whether it is appropriate to terminate the enterprise agreements:

(a) substantially all of the employees of Aurizon oppose termination of the enterprise agreements, as do all of the industrial organisations covered by the enterprise agreements;

(b) the basis for opposing termination of the enterprise agreements, as reflected in the evidence, is for sound and good reason (that is, it is not for some arbitrary or capricious reason);

(c) one circumstance relevant to the employees is that they were, for the most part, all employed at the time that they and Aurizon bargained for, negotiated, voted upon and had the Commission approve each the enterprise agreements;

(d) all employees will lose significant benefits associated with their employment as a result of termination of the enterprise agreements;

(e) termination of the enterprise agreements is unlikely to have any material effect on the business of Aurizon - its coal haulage business is, and is likely to remain, profitable, it has in place significant long term haulage contracts entered into when the enterprise agreements were in place and it has sound prospects of obtaining a substantial share of higher coal haulage volumes;

(f) termination of the enterprise agreements and default to the minimum modem award and NES standards is likely only to reflect itself in significant profit taking by Aurizon rather than anything else - the benefits would be taken from employees and given back to Aurizon;

(g) the bargaining position in respect of the current negotiations for a new agreement should not be disturbed, especially where it is Aurizon and not the industrial organisations that have called off the bargaining which, on the evidence, was proceeding in a productive way, and where disturbing that bargaining position will operate substantially to the benefit of the party who has called off the negotiations;

(h) the ‘contested provisions,’ which Aurizon describes as ‘legacy’ conditions (including but not limited to redundancy or relocation, collaborative rostering, dispute settling provisions and consultative provisions) all have a sensible and rational basis for their existence - whatever a ‘legacy’ condition means, none of the conditions referred to can be regarded as exceptional or unusual, or even unnecessary;

(i) the evidence does not support the suggestion that the present provisions have a significant adverse effect on Aurizon's capacity to operate its business - the evidence suggests that the business is doing well and is very profitable; and

(j) the fact that terminating the enterprise agreement will deliver to Aurizon everything it wants will operate so as to remove any incentive on its part to bargain for a new enterprise agreement.

[171] As is clear from the chronology of bargaining outlined above, termination of the twelve enterprise agreements is sought in the context of a stalemate in the current enterprise bargaining negotiations. Those negotiations, from Aurizon’s perspective, have sought to remove some restrictive provisions which impeded productivity and efficiency. Aurizon does not propose to reduce wages, indeed it has proposed real wage increases. In those negotiations the Unions are seeking enhanced benefits such as wage increases. Aurizon is seeking the removal of restrictions on workplace change and other flexibilities so as to enhance its competitive position and improve productivity. Save for that which we have earlier said about the restrictive provisions in the current agreements, it is not appropriate that we form a particular view as to the respective merit of the bargaining parties’ positions on such matters.

[172] However it is important to note that many aspects of the agreements sought to be changed have a peculiar history arising from the privatisation of Aurizon, from Aurizon’s public sector past and from directions issued to it from its previous owner, the Queensland government. It is also relevant to note that provisions sought to be changed such as the no forced redundancy provisions relate to an employment guarantee that was intended to expire some 18 months ago. Other changes relate to work practices that seem to us to be clearly inefficient and out of step with the needs of a flexibile and productive enterprise that can adopt to changing economic and competitive environments.

[173] Termination of the enterprise agreements does not mandate any particular outcome to the ensuing enterprise bargaining. Bargaining for new agreements will continue. Protected action would still be available. The assistance of the Commission would still be available. Unless the circumstances give rise to an industrial action workplace determination or a bargaining related workplace determination, bargaining can be expected to continue until there is agreement. The bargaining dynamics will necessarily change. Currently the Unions are reluctant to agree on changes in conditions to which employees have an ongoing entitlement - including the no forced redundancy provision that has been locked in by operation of the Act well beyond its intended life. Aurizon can be expected to make use of the powers it will obtain by the elimination of workplace restrictions, either through negotiations or unilaterally. But the change in bargaining dynamics that would result following a termination must be viewed in context. A number of the “legacy provisions” (and specifically the no forced redundancy provision) about which Aurizon complains did not find their way into the enterprise agreements through collective bargaining in the traditional sense. They were in effect imposed on Aurizon by the Queensland government as a cost of the privatisation transaction.

[174] If termination occurs it is likely that 69 employees who do not currently have a productive role in the organisation and are in transition, will have their employment terminated by reason of redundancy—unless other redeployment options are taken up. As unfortunate as this may be for the employees concerned, termination of employment because of redundancy is not an unusual circumstance. Indeed it is a usual element of any restructuring in enterprises that operate in a competitive market. Even those that do not operate in a competitive market cannot justify the continued employment of persons who are not productively utilised.

[175] We accept that the preponderance of the employees who are covered by the twelve agreements oppose the termination of those agreements. It is also clear that the employee organisations that are covered by those agreements opposed their termination. We also accept that there is a sound basis for these parties to oppose the termination of the agreements. Employees are understandably concerned that termination of the agreements which currently apply to their employment will result in a diminution of the terms and conditions of employment that they currently enjoy. This is not an insignificant matter. However, the Undertaking given by Aurizon for the maintenance of the core terms and conditions of employment applicable to employees, including wages and allowances, for a period after any termination of the enterprise agreements, should that occur, goes some way to assuage that concern.

[176] Although there has been doubt expressed about the enforceability of the Undertakings, it is to be expected, if the application is granted, that Aurizon as a publicly listed company, will make good on the undertakings given during the public hearings of this application. Moreover we are satisfied that the safety net terms and conditions of employment will not be disturbed. Ultimately, it cannot be expected that terms and conditions of employment contained in an enterprise agreement with continue unaltered in perpetuity after the agreement has passed its nominal expiry date. Terms and conditions may be altered by making a new agreement or by terminating the existing agreement. The statute guarantees the continuation of the safety net, not the terms and conditions contained in a nominally expired enterprise agreement.

[177] Given the matters earlier discussed we are not satisfied that the prospect of a reduction in the terms and conditions of employment of the employees covered by the 12 agreements at some time in the future (assuming new enterprise agreements are not made) is so significant a factor as to outweigh these other matters.

[178] The Unions have not persuaded us that other workplace changes that may be implemented by Aurizon are undesirable or unnecessary for Aurizon to implement, oppressive on employees, or in some way inappropriate. Aurizon, like any employer, needs to improve its efficiency and productivity and consider how inefficient work practices can be modified. In our view it is entirely appropriate that it do so and insofar as restrictive work practices relate to terms and conditions of employment that they be dealt with by the parties in enterprise bargaining negotiations.

[179] We are satisfied that the rail freight industry is in a dynamic state of transition following the privatisation of major employers and the efforts of customers to reduce costs. In our view the economic imperative in such a situation is for employers to look for improvements and efficiencies that can be implemented and which do not impose unfairness on employees. Ultimately it will be in the interests of employees as well as the employer if the business can enhance its competitive position, retain its market share and compete more effectively for new market opportunities.

[180] In all of the circumstances we are satisfied that it is appropriate to terminate each of the 12 enterprise agreements that remain the subject of this application.

6. Conclusion

[181] We have concluded that it is not contrary to the public interest to terminate the 12 agreements that remain the subject of this application. We have also concluded, after taking into account the views of employees, the employers and the employee organisations, their circumstances, and the impact of termination of the agreements, that it is appropriate to terminate the agreements. The bargaining parties now need to set their attention on the appropriate terms and conditions of employment that focus, not on the past, but on the circumstances that prevail in 2015 and those which are foreseeable beyond. It is in the interests of Aurizon and its employees that bargaining continue in a constructive and cooperative manner having primary regard to the contemporary needs of the business and its employees. As the termination will likely give rise to some reconsideration by the parties of their circumstances, we propose a prospective date on which the 12 enterprise agreements will terminate. The orders we will issue will provide that termination will occur on 18 May 2015.

VICE PRESIDENT WATSON

Appearances:

Mr HJ Dixon SC and Mr S Meehan of counsel for Aurizon.

Mr W Friend QC for AFULE, QSU, CEPU, AMWU and Together Queensland.

Mr R Reitano of counsel for RTBU.

Ms M Anthony for APESMA.

Hearing details:

2014.

Brisbane.

November 5, 6, 7, 10, 11, 12.

2015.

Brisbane.

February 10.

 1   AE884420

 2   AE880759

 3   AE880768

 4   AE880766

 5   AE880769

 6   AE880772

 7   AE880774

 8   AE880775

 9   AE880763

 10   AE880765

 11   AE880761

 12   AE880770

 13   AE880771

 14   AE880773

 15  [2015] FWCA 550

 16   Exhibit D8, D9 and D10, PN277 - PN632

 17   Exhibit D11 and D12, PN633 - PN749

 18   Exhibit D13 and D14, PN750 - PN965

 19   Exhibit D16 and D17, PN975 - PN1088

 20   Exhibit D19 and D20, PN1092 - PN1387

 21   Exhibit D21 and D22, PN1389 - PN1426

 22   Exhibit D23, PN1429 - PN1539

 23   Exhibit D24 and D25, PN1550 - PN1978

 24   Exhibit D28 and D29, PN3387 - PN3609

 25   Exhibit R2, PN2474 - PN2548

 26   Exhibit R3, PN2553 - PN2606

 27   Exhibit R5, PN2945 - PN3291

 28  Exhibit R7, PN3814 - PN3938

 29   Exhibit F9, PN2112 - PN2279

 30   Exhibit F10, PN2280 - PN2416

 31   Exhibit F11, PN2618 - PN2943

 32   Exhibit F12, PN3301 - PN3383

 33   Exhibit F16, PN3622 - PN3665

 34   Exhibit F17, PN3666 - PN3742

 35   Exhibit F18, PN3743 - PN3794

 36   Exhibit F2

 37   Exhibit F3

 38   Exhibit F4

 39   Exhibit F5

 40   Exhibit F6

 41   Exhibit F7

 42   Exhibit R4

 43   Exhibit R6

 44   Exhibit A1

 45   Exhibit D24 at [40]-[42], [77]-[80], [102]-[107], [125]-[126], [142]-[144] and [153]-[155]

 46   Note the revised figure at PN299 is 69

 47   Exhibit D8 at [144]-[148]

 48   Exhibit F11, Attachment “CH3” page 4-5

 49   Exhibit R5- at [19]-[23], [31] [36]-[38] and [43]-[44]

 50   Exhibit F12, Attachment “OM3” pages 14-15

 51   Exhibit D28, Annexure “EM-2” pages 26-27

 52   Exhibit D29, Annexure “EM-2” page 29

 53   Exhibit D8 at [19] - [20]

 54   Exhibit D11

 55   Exhibit D8 at [22]

 56   Ibid at [22]

 57   Ibid at [23]

 58   Ibid at [24]-[25]

 59   PN3957 - PN3960

 60   Exhibit D8 at [22], [144]-[169]

 61   PN298

 62   Exhibit D8 at [144] - [145]

 63   Ibid at [147]

 64   PN299 - PN303

 65   PN301

 66   Exhibit D8 at [146]

 67   Ibid at [149]

 68   Ibid at [151]

 69   Ibid at [151]

 70   Ibid at [152]

 71   Ibid at [153]

 72   Ibid at [162]

 73   Ibid at [163]

 74   Ibid at [164]

 75   Ibid at [165]

 76   Ibid at Tab 11

 77   In seven of the enterprise agreements only the matter of annual leave loading may be the subject of such an arrangement

 78   Exhibit D8 at [158] - [159]

 79   Ibid at [168]

 80   Exhibit D24

 81   Exhibit F18

 82   PN590

 83   Aurizon’s outline of submissions at [102(f)]; see also Exhibit D13 at [109] - [111]; Exhibit D19 at [81] - [85] and Exhibit D24 at [153] - [164]

 84   Matters B2013/955 and B2013/956

 85   PN3975 - PN3995

 86   Exhibit R8

 87   Exhibit D33; PN33-PN130 (10 February 2015)

 88   PN61(10 February 2015)

 89   PN68 (10 February 2015)

 90   PN75 (10 February 2015)

 91   PN105 (10 February 2015)

 92   PN145 (10 February 2015)

 93   PN150 (10 February 2015)

 94   Exhibit D8 at Tab 12

 95   PN4047

 96   (2001) 53 NSWLR 153

 97   (1981) 36 ALR 567; 54 FLR 439

 98   (1993) 5 VIR 551

 99   RTBU’s final submissions at [35]

 100   PN2460

 101   PN4046

 102   PN4048

 103  Construction, Forestry, Mining and Energy Union v Hamberger and Another (2011) 195 FCR 74 at [70]; Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) (2009) 239 CLR 27 at [14]; CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408.

 104  Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69].

 105  [2010] FWAFB 9963

 106   Ibid at [29]

 107   (2012) 201 FCR 297

 108   Ibid at 310-311, [50]-[52]

 109  Project Blue Sky Inc & Others v Australian Broadcasting Authority (1998) 194 CLR 355 at 381 – 382

 110   ss. 172, 181, 182; 207 - 212 and 220 - 227

 111  s. 228

 112   ss. 229-233

 113   ss. 234-235

 114   s. 269 (which appears in Part 2 – 5 of the Act)

 115   s. 236 – 237

 116   ss. 238 – 1039

 117   s. 240

 118   For Low Paid Bargaining see ss. 241 – 246 and for Single Interest Employer Authorisation see ss. 247 – 252

 119   ss. 408-410

 120   ss. 408 and 411

 121   s. 415

 122   WR Act ss. 435 – 448

 123   s. 228 (2)

 124   s. 186 (5)

 125   s. 54 (1)

 126   s. 54 (2) (a)

 127   s. 54 (2) (c) and s.58

 128   s. 15AA of the Acts Interpretation Act 1901 as in force on 25 June 2009; see s. 40A of the Act

 129   (2005) 139 IR 34

 130   Ibid at 40

 131   (1987) 61 ALJR 393

 132   (2005) 139 IR 34 at 41

 133   s. 226(b)

 134   s. 226(2)

 135  [2010] FWA 2434

 136   Ibid at [24] – [27]

 137   (2010) 204 IR 243; [2010] FWA 6468

 138   Ibid at 255, [49] – [51]

 139   Ibid at 256 – 257, [53] – [55]

 140   For example see Royal Automotive Club of Victoria [2010] FWA 3483 (per Roe C) Victorian Canine Association Trading as Dogs Victoria [2013] FWC 4260 (per Lee C); SDV (Australia) Pty Ltd [2013] FWC 5385 (per Sam DP); Country Club Ltd [2013] FWCA 2005 (per Sams DP); Badman v Altus Traffic Pty Ltd [2013] FWC 4409 (per O’Callaghan SDP).

 141  [2010] FWA 3483

 142   Ibid at [21] – [24]

 143  [2013] FWC 5385

 144   Ibid at [38] – [41]

 145  [2014] FWC 7776

 146   Ibid at [148]

 147  Purcell v Electricity Commission of New South Wales [1985] HCA 54 at [16]; (1985) 60 ALR 652 at 657

 148   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]

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