Shop, Distributive and Allied Employees Association

[2014] FWC 4394

[2014] FWC 4394

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.319 - Application for an order re instruments covering new employer and non-transferring employees in agreements

Shop, Distributive and Allied Employees Association
(AG2014/1433 & AG2014/6465)

Restaurants
COMMISSIONER ROE	MELBOURNE, 2 JULY 2014

Applications for orders relating to instruments covering new employer and non-transferring employees in agreements; Red Rooster Agreement 2009 and the Chicken Treat Employees SDA Agreement 2009.

[1] The Shop, Distributive and Allied Employees’ Association (SDA or the Applicant) has made two applications under section 319(1)(b) of the Fair Work Act 2009 (the Act). The SDA is seeking orders that the transferable instruments, the Red Rooster Agreement 2009 and the Chicken Treat Employees SDA Agreement 2009 (the Agreements), that cover the new employers (franchisees of Red Rooster and Chicken Treat) in respect transferring employees (i.e. those employed at the time of the transfer) will also cover non-transferring employees who perform the transferring work for the new employers. Both businesses are controlled by Quick Service Restaurant Holdings. This means that all of the new employers’ employees who perform the transferring work (whether they are transferring employees or non-transferring employees) will be covered by the transferable instruments. Although the terms of the two Agreements have some different rates and the terms and conditions of employment under both Agreements are not identical, the circumstances affecting the employees of Red Rooster and Chicken Treat and their franchises are very similar. The nominal expiry date of both Agreements is 30 September 2013.

[2] Draft orders have been provided to this effect. Both the SDA and Quick Service Restaurant Holdings are seeking that I make the orders in the terms sought. There are approximately 128 Red Rooster franchises and 35 Chicken Treat franchises affected. SDA and Quick Service Restaurant Holdings seek that the Orders also extend to any new franchisee and their associated companies operating Red Rooster and or Chicken Treat outlet(s).

Background.

[3] Given the circumstances I decided to deal with the matters together. The circumstances, Orders sought and considerations are substantially the same as those I considered in respect to Pizza Hut and its franchises. 1 Similar issues were also considered by Commissioner Cribb in respect to Kentucky Fried Chicken (KFC).2 I have adopted a similar approach to that which I adopted in the Pizza Hut case.

[4] In the cases affecting KFC, Pizza Hut, Red Rooster and Chicken Treat the underpinning award for the purposes of the Better Off Overall Test (BOOT) is now the modern award, the Fast Food Industry Award. At the time that the relevant agreements were made enterprise awards provided the underpinning instruments in the case of KFC, Pizza Hut and Red Rooster. In the case of Chicken Treat, employees are transitioning from a WA NAPSA, the Fast Food Outlets Award 1990. The decision to not make a modern enterprise award in respect to Pizza Hut confirmed that the Fast Food Industry Award is now the relevant instrument. The Pizza Hut Award was terminated by a Full Bench 3 on 11 March 2011. This decision was the subject of judicial review and the Full Federal Court upheld the decision to terminate the Agreement.4 It is reasonably clear that the agreements affecting KFC, Pizza Hut, Red Rooster and Chicken Treat would not meet the Better Off Overall Test (BOOT) if they were being assessed today. The agreements generally do not include penalty payments for weekend and evening work or where penalty payments are provided they are not equivalent to those in the Fast Food Industry Award.

[5] The SDA has entered into a Memorandum of Understanding (MOU) with the Red Rooster Foods Pty Ltd and RR Store Co Pty Ltd, and a MOU with Australian Fast Food Pty Ltd T/A Chicken Treat in response to this situation.

[6] The MOUs in respect to Red Rooster and Chicken Treat provide that:

● A replacement enterprise agreement will be negotiated to be in place by 1 July 2017 and will be applicable to all outlets.
● Employees covered by the Agreements are to receive specified wage increases in the meantime from 1 July 2014, 2015, 2016 and 2017 so that by 1 July 2017 the rates will be 9% above the rate that will be applying at that time in the Fast Food Industry Award.
● Those employees who are covered by the Fast Food Industry Award (as opposed to the Agreement) will continue to receive those rates and pay and conditions of employment. Those employees will not be disadvantaged when compared to other employees (eg in respect to available hours of work).
● Casual loading will be 25% from 1 July 2014.

1. Transfer of business and of the transferable instrument

[7] The SDA’s application is premised on the basis that the new employers named in the draft order are already covered by the transferable instruments. This in turn relies on the proposition that there has been a transfer of business and that the Agreements have transmitted along with the transferring employees as a result of the operation of the Act.

[8] I will deal firstly with the issue of a transfer of business.

1(a) Transfer of business

[9] The Act provides as follows in relation to a transfer of business:

“311 When does a transfer of business occur

Meanings of transfer of business, old employer, new employer and transferring work

(1) There is a transfer of business from an employer (the old employer) to another employer (the new employer) if the following requirements are satisfied:

(a) the employment of an employee of the old employer has terminated;

(b) within 3 months after the termination, the employee becomes employed by the new employer;

(c) the work (the transferring work) the employee performs for the new employer is the same, or substantially the same, as the work the employee performed for the old employer;

(d) there is a connection between the old employer and the new employer as described in any of subsections (3) to (6).

Meaning of transferring employee

(2) An employee in relation to whom the requirements in paragraphs (1)(a), (b) and (c) are satisfied is a transferring employee in relation to the transfer of business.

Transfer of assets from old employer to new employer

(3) There is a connection between the old employer and the new employer if, in accordance with an arrangement between:

(a) the old employer or an associated entity of the old employer; and

(b) the new employer or an associated entity of the new employer;

the new employer, or the associated entity of the new employer, owns or has the beneficial use of some or all of the assets (whether tangible or intangible):

(c) that the old employer, or the associated entity of the old employer, owned or had the beneficial use of; and

(d) that relate to, or are used in connection with, the transferring work.

Old employer outsources work to new employer

(4) There is a connection between the old employer and the new employer if the transferring work is performed by one or more transferring employees, as employees of the new employer, because the old employer, or an associated entity of the old employer, has outsourced the transferring work to the new employer or an associated entity of the new employer.

New employer ceases to outsource work to old employer

(5) There is a connection between the old employer and the new employer if:

(a) the transferring work had been performed by one or more transferring employees, as employees of the old employer, because the new employer, or an associated entity of the new employer, had outsourced the transferring work to the old employer or an associated entity of the old employer; and

(b) the transferring work is performed by those transferring employees, as employees of the new employer, because the new employer, or the associated entity of the new employer, has ceased to outsource the work to the old employer or the associated entity of the old employer.

New employer is associated entity of old employer

(6) There is a connection between the old employer and the new employer if the new employer is an associated entity of the old employer when the transferring employee becomes employed by the new employer.”

[10] It was contended by the SDA and Quick Service Restaurant Holdings that the provisions of section 311(1)(a), (b), (c) and (d) of the Act are met with respect to all of the new employers listed in the draft orders. This was because at least some of the employees of the old employer were employed by the new employer and they continued to work in the same Red Rooster or Chicken Treat outlet performing the same or similar work. In addition, there is a connection between the old employer and the new employer as the new employer owns or has the beneficial use of the outlet previously operated by the old employer or of the Red Rooster or Chicken Treat brand and system. In terms of the transfers of business that are proposed but which have not been concluded, and any future transfers, SDA argued that section 317 of the Act does not require that a transfer of business has to actually have occurred for a transfer of business order to be made. It was stated that the requirement is that it is likely that a transfer of business from an old employer to a new employer will occur. As well, it was submitted that any future transfers of business are predictable as they will involve a transfer of business that is within a common enterprise. Further, SDA contended that the circumstances of these future new employers and employees will be very similar if not the same.

[11] On the basis of the submissions made by the SDA, I am satisfied that, pursuant to section 311 of the Act, there is, or is likely to be, a transfer of business from an old employer to a new employer, with respect to the new employers, together with the proposed or likely transfers in the future, as set out in the draft Orders. In this respect, I accept the submissions that the Fair Work Commission (FWC) is able to make an order where there is, or is likely to be, a transfer of business from an old employer to a new employer.

1(b) The Agreements

[12] The Agreements are transferable instruments by virtue of section 312(1)(a) of the Act. Section 313 of the Act provides for the transferable instruments to, in effect, transfer to the new employer(s) as identified in the draft Orders, along with the employees who transferred.

[13] Therefore, the new employers set out in the draft Orders and the transferring employees, are covered by the Agreements.

2. Whether the Agreements should also cover the non-transferring employees

[14] With respect to whether the Agreements should also cover the non-transferring employees, section 314 of the Act makes provision for a transferable instrument to cover other employees in certain circumstances.

2(a) Section 314 of the Act

[15] Section 314 of the Act provides as follows:

“314 New non-transferring employees of new employer may be covered by transferable instrument

(1) If:

(a) a transferable instrument covers the new employer because of paragraph 313(1)(a); and

(b) after the transferable instrument starts to cover the new employer, the new employer employs a non-transferring employee; and

(c) the non-transferring employee performs the transferring work; and

(d) at the time the non-transferring employee is employed, no other enterprise agreement or modern award covers the new employer and the non-transferring employee in relation to that work;

then the transferable instrument covers the new employer and the non-transferring employee in relation to that work.

(2) A non-transferring employee of a new employer, in relation to a transfer of business, is an employee of the new employer who is not a transferring employee.

(3) This section has effect subject to any FWC order under subsection 319(1).”

[16] The new employers and the non-transferring employees are covered by the Fast Food Industry Award 2010 (the Award) which is a modern award within the meaning of section 314(1)(d) of the Act. Section 314 of the Act has the effect of not permitting the Agreements to apply to non-transferring employees.

[17] However, section 314(3) of the Act provides that this can be altered by an order made by the FWC under section 319(1).

2(b) Section 319 of the Act

[18] Section 319 of the Act provides as follows:

“319 Orders relating to instruments covering new employer and non-transferring employees

Orders that the FWC may make

(1) The FWC may make the following orders:

(a) an order that a transferable instrument that would, or would be likely to, cover the new employer and a non-transferring employee because of subsection 314(1) does not, or will not, cover the non-transferring employee;

(b) an order that a transferable instrument that covers, or is likely to cover, the new employer, because of a provision of this Part, covers, or will cover, a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer;

(c) an order that an enterprise agreement or a modern award that covers the new employer does not, or will not, cover a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer.

Note: Orders may be made under paragraphs (1)(b) and (c) in relation to a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer, whether or not the non-transferring employee became employed by the new employer before or after the transferable instrument referred to in paragraph (1)(b) started to cover the new employer.

Who may apply for an order

(2) The FWC may make the order only on application by any of the following:

(a) the new employer or a person who is likely to be the new employer;

(b) a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer;

(c) if the application relates to an enterprise agreement—an employee organisation that is, or is likely to be, covered by the agreement;

(d) if the application relates to a named employer award—an employee organisation that is entitled to represent the industrial interests of an employee referred to in paragraph (b).

Matters that the FWC must take into account

(3) In deciding whether to make the order, the FWC must take into account the following:

(a) the views of:

(i) the new employer or a person who is likely to be the new employer; and

(ii) the employees who would be affected by the order;

(b) whether any employees would be disadvantaged by the order in relation to their terms and conditions of employment;

(c) if the order relates to an enterprise agreement—the nominal expiry date of the agreement;

(d) whether the transferable instrument would have a negative impact on the productivity of the new employer’s workplace;

(e) whether the new employer would incur significant economic disadvantage as a result of the transferable instrument covering the new employer;

(f) the degree of business synergy between the transferable instrument and any workplace instrument that already covers the new employer;

(g) the public interest.

Restriction on when order may come into operation

(4) The order must not come into operation in relation to a particular non-transferring employee before the later of the following:

(a) the time when the non-transferring employee starts to perform the transferring work for the new employer;

(b) the day on which the order is made.”

[19] I am satisfied that the SDA can make the Application pursuant to Section 319(2)(c) of the Act. I am also satisfied that the Orders sought are of the type permitted by Section 319(1)(b) of the Act. I will deal with each of the requirements of section 319(3) in turn.

2(c) Submissions concerning the considerations in s.319(3)

(i) Section 319(3)(a)(i) and (ii) - the views of the new employer and the employees who would be affected by the order

[20] It was submitted by the SDA and Quick Service Restaurant Holdings that the new employers listed in the draft Orders supported the Applications.

[21] It was submitted that the SDA as a representative of employees and the organisation which is covered by the Agreements supports the Application.

[22] I requested that all the employers listed in the draft Orders be advised of the hearing of this matter so that they could raise any concerns. Lorraine Boswell on behalf of Quick Service Restaurant Holdings Pty Ltd provided copies of correspondence sent to the employers in response to this request.

(ii) Section 319 (3)(b) - whether any employees would be disadvantaged by the order

[23] The SDA contended that no employee would be disadvantaged by the order in relation to their terms and conditions of employment. This was because transferring employees would continue to be paid their current wages and conditions. Secondly, it was stated that non-transferring employees would be paid the same wages and conditions as transferring employees unless they had been paid under the Award. In this case, their wages and conditions would remain the same. Essentially employees will fall into three categories. Those who were employed at the time of transfer who are already covered by the Agreements and who will continue to be paid under the Agreements until they are terminated or replaced by another Agreement. Those who have been employed since the time of the transfer and before the making of the proposed order who are covered by the Award and who will continue to be paid under the Award until there is a new Agreement. Those who are employed after the making of the proposed order who will be paid under the Agreements until they are terminated or replaced by another Agreement. It is only the third category of employees who could be disadvantaged by the proposed order.

[24] Further, both the SDA stated that the vast majority of employees are advantaged as they will receive phased-in increases of 9% on top of the Award by 2017 and will also receive phased in increases on top of the provisions of the Agreements. Any transferring or new employees subject to the order were said to also receive these benefits. SDA submit that this will mean that any disadvantage to persons employed after the date of making the Order when compared to the Fast Food Industry Award will be mitigated and will be only transitional. Both parties also indicated that they were committed to making a new enterprise agreement in 2017 which will reflect these higher rates for all employees.

[25] The SDA submitted that if the enterprise agreement did not eventuate contrary to the Memoranda of Understanding entered into the SDA would apply for the Agreements to be terminated.

(iii) Section 319 (3)(c) - expiry date of the enterprise agreement

[26] The Agreements have a nominal expiry date of 30 September 2013.

[27] The SDA and Quick Service Restaurant Holdings submitted that, while the nominal expiry date has passed, this does not indicate a lack of preparedness by either party to bargain. Rather, it was explained that the enterprise agreement had not yet been replaced due to a short-term difficulty of transitioning from a different underpinning safety net to the Fast Food Industry Award 2010 (the Award). The parties stated that agreement had been reached that a 9% increase on the rates contained in the Award will through annual adjustments be phased in by 1 July 2017. This is despite the nominal expiry date having passed.

(iv) Section 319(3)(d) - any negative impact on the productivity of the new employer’s workplace

[28] The SDA, with the support of Quick Service Restaurant Holdings, stated that the broader application of the Agreements would not have a negative impact on productivity. It was argued that the Agreements are better tailored to the specific circumstances of Red Rooster and Chicken Treat than the Award. Further, it was stated that there would be productivity issues if employers had to apply different industrial instruments to team members working alongside each other or if there were inconsistencies between franchises.

(v) Section 319 (3)(e) - any significant economic disadvantage to the new employer

[29] It was stated by the SDA that the new employer would not incur significant economic disadvantage as they would simply be providing the same wages and conditions as currently provided and as provided by other Red Rooster or Chicken Treat operations.

(vi) Section 319(3)(f) - degree of business synergy

[30] The SDA submitted that there are questions regarding the degree of business synergy between the Agreements and the Award. The new employer will be operating a nearly identical operation to those employers currently covered by the Agreements. The terms and conditions in the Agreements are those which are suited to Red Rooster and Chicken Treat operations.

(vii) Section 319(3)(g) - the public interest

[31] It was contended by the SDA that the public interest is served by providing a common platform which would facilitate bargaining for a new enterprise agreement.

[32] If there is a splintering of terms and conditions of employment, the absence of a common platform of wages and conditions would make the negotiation of future enterprise agreements across the brand difficult.

3. Conclusions

[33] I accept the submissions of the parties in respect to Section 319(3) (a) (d) (e) and (f). I consider the implications of the matters raised in respect to disadvantage to employees, nominal expiry date of the Agreements and public interest below.

[34] In respect to disadvantage to employees I am satisfied that employees are disadvantaged on the Agreement compared to on the Award. Penalty rates for weekend and evening work which are provided for in the Award are not adequately compensated for in the Agreements. I consider that Section 319(3)(b): “whether any employees would be disadvantaged by the order in relation to their terms and conditions of employment” requires consideration of the situation of the employee if the order was made when compared to the situation of the employee if the order was not made. In these circumstances this requires a comparison of the Award and the Agreements. I consider that this is a significant consideration standing against the granting of the applications.

[35] The fact that an Agreement has passed its nominal expiry date would generally stand as a factor against granting an application for non-transferring employees to be covered by the Agreement. Rejection of an application in those circumstances would often be consistent with the object of the legislation to encourage collective bargaining. However, in the circumstances of this case Quick Service Restaurant Holdings and SDA have reached an agreement that they will enter into a new enterprise agreement and that enterprise agreement will contain rates at least 9% above the rates in the Award at the time the agreement is reached. The applications before me are a part of that agreement. The SDA therefore argues that it is consistent with the object of facilitating collective bargaining to grant the application as it is consistent with an agreement between Quick Service Restaurant Holdings and SDA which will lead to a new agreement being reached.

[36] Generally I consider that it would be in the public interest for employees to be receiving wages and conditions at least in line with what is now the Award safety net. This would be in keeping with the objects of the Act and the Modern Award objectives. Conversely, given the objects of the Act and those which specifically relate to bargaining, it would generally be contrary to the public interest to move employees, even if as in this case it is a minority of employees, onto an instrument which provides for wages and conditions where a class of employees would not be Better Off Overall when compared to the Award safety net.

[37] The object of this part of the Act is found in Section 309:

“The object of this Part is to provide a balance between:

(a) the protection of employees’ terms and conditions of employment under enterprise agreements, certain modern awards and certain other instruments; and

(b) the interests of employers in running their enterprises efficiently;

if there is a transfer of business from one employer to another.”

[38] It is obvious that in the circumstances of this case the benefit to employers in granting the applications is significant but equally the lack of protection of the terms and conditions available to some employees under the Award if the application is granted is significant.

[39] I consider that it is appropriate to take into account matters which will reduce the disadvantage which would otherwise apply to the employees affected by the applications. The agreement reached between Quick Service Restaurant Holdings and SDA to increase the rates applicable to transferring and non-transferring employees in stages between now and the finalisation of a new agreement in 2017 will significantly reduce the disadvantage which would otherwise apply to the employees affected by the applications. Quick Service Restaurant Holdings and SDA argue that any disadvantage will be eliminated by 2017 as they will put forward a new agreement which must pass the BOOT. It is only employees engaged after the date of the Order who will be affected.

[40] SDA and the relevant employer have signed Memoranda of Understanding which have been provided to FWC and have been placed on the FWC file. This increases my confidence that the agreement will be implemented and that it is appropriate for me to rely upon it in making my decision.

[41] I consider that it is generally contrary to the public interest to move employees onto an instrument which provides for wages and conditions where a class of employees would not be Better Off Overall when compared to the Award safety net. However, in the particular circumstances of transfer of business the Act requires me to balance these considerations against the interests of employers in running their enterprises efficiently. There is no similar requirement when it comes to the approval of Agreements or their variation or termination. I would dismiss the application if it were not for the following considerations:

• I have confidence that any disadvantage to employees when compared to the Award is a transitional matter affecting a minority of employees. It is only those who are employed by the listed franchises after the     date of the Order who may be disadvantaged; and
• I have confidence that the amount of disadvantage will be systematically reduced and maybe eliminated within a defined period as a consequence of the MOU; and
• In the unlikely event that the MOU is not implemented the SDA have advised that they will apply to terminate the Agreements; and
• I am satisfied that approving the application is consistent with the objective of encouraging collective bargaining; and
• There is strong support from the union on behalf of affected employees; and
• The efficient operation of the businesses will be enhanced.

[42] Taking into account each of the matters set out in section 319(3) of the Act, I am satisfied on balance that the orders sought should be made.

[43] Orders in the terms provided will be issued to provide that the Agreements will also cover the non-transferring employees of the new employers, listed in the proposed draft orders, who perform similar or the same work as the transferring employees.

[44] In accordance with section 319(4) of the Act, the order takes effect in respect of each of the non-transferring employees on and from the date of the Orders, or the date from which the employment commences, whichever is the later..

COMMISSIONER

Appearances:

S. Burnley and S. Taliana appeared for the SDA.

D.Pearson appeared for Quick Service Restaurant Holdings.

Hearing details:

2014

Melbourne

June 27

 1   [2013] FWC 6310, 4 September 2013

 2   [2013] FWC 3859, 18 June 2013

 3   [2011] FWAFB 1077.

 4 [2012] FCAFC 114.

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