Re: BAE Systems Australia Limited - [2011] SAEOT 3

Equal Opportunity Tribunal
(District Court Administrative and Disciplinary Division)
In the Matter of AN APPLICATION FOR EXEMPTION UNDER THE EQUAL OPPORTUNITY ACT 1984
Re: BAE SYSTEMS AUSTRALIA LIMITED
[2011] SAEOT 3
Judgment of His Honour Judge Costello, Member Ms A Bachmann and Member Mr H Yapp (ex tempore)
20 July 2011
DISCRIMINATION LAW
Application for extension of exemption in order to discriminate on grounds of nationality - applicant requiring access to security sensitive material controlled by government of USA - That government insists that persons of proscribed nationalities not have access to such material - grounds exist for extension of exemption in wider public interest - Exemption granted on same terms and conditions as previous exemption.
Equal Opportunity Act (SA) 1984 , referred to.
Pulteney Grammar School v Equal Opportunity Tribunal & Ors [2007] SASC 308; BAE Systems Australia Limited (2008) SAEOT1, discussed.

RE: BAE SYSTEMS AUSTRALIA LIMITED
[2011] SAEOT 3
Introduction

BAE Systems Australia Ltd (“BAE”) has applied under s 92 of the Equal Opportunity Act 1984 (SA) (“the Act”) for an exemption from the provisions of

s 52 and 54 of the Act to enable it to discriminate in its employment practices on the grounds of race which, relevantly here, is with respect to persons of specified nationalities.
In particular it seeks the exemption for a further period of three years from today’s date, on the same terms and conditions as set out in paragraphs 64 to 66 inclusive in the judgment of the Tribunal dated 21 January 2008, bearing Judgment No (2008) SAEOT1.
The Acting Commissioner for Equal Opportunity has appeared on the application through her counsel, Mr Love. Although she does not oppose the application, neither does she consent to it.
S 52 and 54 of the Act provide as follows:
52—Discrimination against applicants and employees
(1)     It is unlawful for an employer to discriminate against a person on the ground of race—
(a)     in determining, or in the course of determining, who should be offered employment; or
(b)     in the terms or conditions on which employment is offered.
(2)     It is unlawful for an employer to discriminate against an employee on the ground of race—
(a)     in the terms or conditions of employment; or
(b)     by denying or limiting access to opportunities for promotion, transfer or training, or to other benefits connected with employment; or
(c)     by dismissing the employee; or
(d)     by segregating the employee from persons of other races; or
(e)     by subjecting the employee to other detriment.
54—Discrimination against contract workers
(1)     This section applies to a principal for whom work is done by persons (contract workers) under a contract between the principal and another where the contract workers are employed or engaged by a person other than the principal.
(2)     It is unlawful for a principal to enter into a contract or arrangement with another for work to be performed by contract workers under which a person is to discriminate against a contract worker on the ground of race.
(3)     It is unlawful for the principal to discriminate against a contract worker on the ground of race—
(a)     in the terms or conditions on which the contract worker is allowed to work; or
(b)     by not allowing the contract worker to work; or
(c)     by denying or limiting access to a benefit connected with the employment or position concerned; or
(d)     by subjecting the contract worker to other detriment.
S 5 of the Act defines race as follows:
race of a person means the nationality, country of origin, colour or ancestry of the person or persons or of any other person with whom he or she resides or associates.
S 92 of the Act is relevantly, expressed in these terms:
(1)     The Tribunal may, on application under this section, grant exemptions from a provision of this Act in relation to—
(a)     a person, or class of persons; or
(b)     an activity, or class of activity; or
(c)     circumstances of a specified nature.
(2)     An exemption under this section—
(a)     may be granted unconditionally or on conditions; and
(b)     may be revoked by the Tribunal on breach of a condition; and
(c)     subject to revocation, remains in force for a period, not exceeding three years, determined by the Tribunal, but may be renewed from time to time for a further period, not exceeding three years, determined by the Tribunal.
(2)     An exemption under this section—
(a)     may be granted unconditionally or on conditions; and
(b)     may be revoked by the Tribunal on breach of a condition; and
(c)     subject to revocation, remains in force for a period, not exceeding three years, determined by the Tribunal, but may be renewed from time to time for a further period, not exceeding three years, determined by the Tribunal.
…
(6)     In determining an application under this section, the Tribunal may—
(a)     have regard (where relevant) to the desirability of certain discriminatory actions being permitted for the purpose of redressing the effect of past discrimination; and
(b)     have regard to other factors that the Tribunal considers relevant.
Whilst we do not regard it as essential (in circumstances where a previously granted exemption is sought to be extended) to go into the background of the application exhaustively, some reference to it is necessary in order to give context to the application. In so doing, we adopt, in large measure, the observations of the Tribunal in the previous BAE matter.
Background
BAE is the Australian subsidiary of an international company based in the United Kingdom, which is engaged in the development, delivery and support of advanced defence aerospace systems in the air, on land, at sea and in space.
The BAE Group employs approximately 107,000 people worldwide and over 6,000 in 70 locations across Australia.
In South Australia it has a total of 1,664 employees together with a further 49 contractors. In addition, it is involved in contracts, in this State alone, which involve tens of millions of dollars.
Its clients include the Australian Defence Force (“the ADF”) and at any one time it is party to numerous contracts with that entity relating to the provision of highly sophisticated military and support systems and involving very substantial sums of money.
It also performs subcontract work of a similar kind to third parties who are themselves principal contractors with the ADF or the Australian Government.
It competes for such work with local and overseas corporations.
BAE says (and we accept) that the services it provides, to the ADF in particular, are important to Australia’s defence capabilities.
BAE further contends (which we also accept) that it is a major employer in South Australia, that the defence industry is a vital contributor to this State’s economy and that it plays a key role in that industry.
By its very nature, the work undertaken by BAE is security sensitive and it is not in dispute that its performance requires it to have access to information, materials and technology carrying secrecy classifications, both in Australia and in the United States of America (“USA”).
In consequence, employees engaged on particular projects for BAE are, with respect to such material, subject to strict security requirements imposed by the Government of the Commonwealth of Australia.
These include physical security, personal security clearances, restrictions on the release of classified information to non-citizens or foreign contractors and careful recording and supply of employee information. Compliance is regularly audited but can be achieved in this country without the need for the applicant to obtain any exemptions under the Act.
The government of the USA imposes stricter limitations on third party access to such material, however, and it was the impact of that country’s control regime which led to the original application.
In its dealings with the USA, BAE gains access to such material (“controlled material”) through contractual licensing arrangements with government, or semi-government institutions in that country, or with entities approved by that government. Generally, these take the form of export licences, technical assistance, and manufacturing licences and warehouse distribution agreements. These contracts bind the applicant to observe a raft of security measures which themselves reflect the laws of the USA relating to the export of sensitive materials. These laws are contained in the Arms Export Control Act (USA) and regulations thereunder, described as the ‘International Traffic in Arms Regulations’ (“ITAR”).
The original application before the Tribunal came about because, in recent years, in particular since the events of 11 September 2001 in the USA, ITAR requirements had become increasingly focussed on excluding nationals of “proscribed” countries from access to controlled material; indeed, in administering ITAR, the USA State Department insisted upon being fully informed as to the proposed location of all exported controlled material and as to the identities, including nationalities, of all persons who may have access to it. It forbade any access to it whatsoever by proscribed nationals and obliged importers, such as BAE, to put in place a range of protective security measures aimed at preventing the transmission of that material to any outside parties. In consequence, BAE’s ability to continue to comply with the Act, in its employment practices was severely compromised.
Nationals of specified countries, including the United Kingdom, New Zealand and Australia, who ‘need to know’ and who are otherwise security cleared would be allowed access, but not proscribed nationals, even if they carried dual Australian citizenship.
Although obligations of this kind were in force from 2005 and BAE was able to achieve substantial compliance by employing a system of voluntary employee disclosure and careful workforce placement, the point was reached whereby it was no longer possible. Proper compliance obliged it to discriminate in its employment practices in ways otherwise prohibited by s 52 and 54 of the Act. In particular, BAE submitted to the previous Tribunal (which largely accepted it) that an exemption was necessary to enable it:
(1)to complete existing contracts without being in substantial breach and at risk of termination and consequential damages suits;
(2)to compete for, and indeed gain, future work in its principal operating area on an equal footing with others operating in the field;
(3)to survive in this State and indeed, this Country as a major defence contractor;
(4)to preclude it from being exposed to very significant criminal and civil penalties for breach of USA law;
(5)to avoid losing its Australian security status;
(6)to ensure that the interests of its local community, of the State and of the Commonwealth were properly served.
There is nothing before us to suggest that this situation has materially altered since those submissions were made in 2008.
The Previous Exemption Period
Since the grant of the exemption in 2008 we are satisfied that BAE has complied with the conditions attached to that exemption in the following manner:
A new Business Rule which established the company’s Equal Opportunity Exemption Procedure was issued in June 2009. The Business Rule sets out requirements which must be met whenever a person’s nationality is taken into account in making work- related decisions. In particular it requires:
(a)current and prospective employees and contractors to be notified about the company’s exemption from the Act and given a

plain-English explanation about the potential effects of the exemptions on them;
(b)employees and contractors to be provided with an explanation if they need to be transferred between projects, areas or facilities on the grounds of nationality;
(c)all reasonable steps to be taken to avoid harm or loss as a result of such a transfer;
(d)the nationality-coding on company badges and security passes to be done in a way which does not reveal a person’s nationality or reasons for their level of access to a person unfamiliar with the codes;
(e)information concerning security passes or badges, security clearance levels and access to ITAR - controlled material to be restricted to the Company Secretary, Human Resources Manager and Manager of Security on a strictly ‘need to know’ basis, and
(f) the Company’s Human Resources Managers to report on compliance with the Business Rule at 6 monthly intervals.
s 4 of the Company’s “Respect at Work” handbook has also been amended to refer specifically to the Equal Opportunity Exemption Procedure.
Since the commencement of ITAR regulation 124.16, the company has endeavoured to have this clause written into all ITAR related agreements. However, even where this is agreed it does not remove the requirement for the company to verify a person’s nationality before they can perform work which requires access to ITAR controlled material.
If an employee or contractor’s nationality does not meet the requirements of the contract applying to their particular work, the company undertakes an internal assessment to determine whether it is possible for the employee or contractor to keep working on the project without accessing or being privy to ITAR controlled information and/or information which requires an Australian personal security clearance. If this is not feasible the company always endeavours to provide alternative work of equal skill and responsibility on a different project which does not carry restrictions that conflict with the employee’s or contractor’s nationality.
The company endeavours to minimise any adverse impact on its employees and subcontractors if it needs to make work-related decisions based on a person’s nationality.
The Tribunal was given an example of a situation where a senior employee, who was not able to access ITAR-controlled material, was transferred to different employment but not in a way whereby he suffered any reduction in status or pay as a consequence of the changes.
Furthermore, we were informed that the Company’s Import and Export Compliance Manager also represents BAE Systems Australia in its capacity at the Australia Industry Group’s Defence Export Controls forum. One of the objectives of this forum is to maintain strong government-industry dialogue on the development and implementation of Australian and overseas laws and procedures concerning export controls for strategic, military and dual use export goods. Members of that forum have been active in seeking improvements to the ITAR including recommendations which contributed to amendments to ITAR which are to come into force in the near future.
It is submitted that if BAE’s exemption from the Act is not renewed it could have the following consequences:
(a) its membership of the Australian Department of Defence’s defence industry security program could be cancelled;
(b) it could be barred by the Australian Government from receiving controlled material;
(c) it may be prevented from working on the Australian Defence Force contracts which are already in place or under tender;
(d) it could be barred from competing for future Australian Defence Force
contracts which involve controlled material;
(e) it could be barred from receiving ITAR-controlled material which, in turn, would prevent it from being able to conduct business with customers, suppliers and subcontractors in the US as well as exposing it to the risk of material financial penalties and damages for breach of its current contracts and;
(f) the company could lose its security clearances and related defence contracts.
Like the previous Tribunal, we have no reason to doubt the veracity of the claimed consequences.
Finally, we have been informed and accept that, in August of 2011, the ITAR are to be amended, so that, with respect to future licences and agreements, the need for BAE to seek an exemption will likely be obviated. However BAE still requires the exemption sought in order to comply with its existing obligations in accordance with pre 15 August 2011 ITAR as they continue to apply to its current licences and agreements and will still apply after 15 August 2011.

Conclusion

In summary, on the information presented to us and to the previous Tribunal, we are satisfied that the grant of a further exemption will serve the wider public interest referred to by the Supreme Court in Pulteney Grammar School v Equal Opportunity Tribunal and Ors (2007) SASC 308.
We are further satisfied that to oblige BAE to comply, in all its employment practices, with s 52 and 54 of the Act, is to impose on it obligations which are much more than merely ‘inconvenient’ or ‘irksome’ in the sense that there are no reasonably alternative means by which it can comply with the Act and still satisfy ITAR requirements.
Accordingly we make an order pursuant to s 92 of the Act exempting BAE from the provisions of s 52 and 54 of the Act to enable it to discriminate in its employment practices with respect to persons of particular nationalities on the same terms and conditions as set out in paragraphs 64 to 66 inclusive of the judgment of the Tribunal dated 21 January 2008, bearing Judgment No (2008) SAEOT1. The exemption is granted for a period of three years from the date of this Order.
In addition BAE is to report to the Equal Opportunity Commissioner commencing from 31 December 2011 and annually thereafter for the duration of the exemption period on its compliance with the exemption requirements, and changes in its procedure reflecting amendments to the ITAR and how employees and contractors are affected in the context of the protections afforded by the Act.