Shop, Distributive and Allied Employees Association

[2013] FWC 3859

[2013] FWC 3859

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.319—Transferable instrument

Fair Work Act 2009
s.602 - Application to correct obvious error(s) etc. in relation to FWC’s decision

Shop, Distributive and Allied Employees Association
(AG2013/7010)

Fast food industry
COMMISSIONER CRIBB	MELBOURNE, 18 JUNE 2013

Application for order relating to instruments covering new employer and non-transferring employees in agreements; application for correction to KFC National Enterprise Agreement 2009.

[1] The Shop, Distributive and Allied Employees’ Association (the applicant, the union) has made an application under section 319(1)(b) of the Fair Work Act 2009 (the Act). The union is seeking an order that the transferable instrument (the KFC National Enterprise Agreement 2009) (the National Enterprise Agreement) that covers the new employers (franchisees of KFC) will also cover the non-transferring employees who perform the transferring work for the new employers. 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 instrument. An amended draft order has been provided to this effect. Both the union and KFC consent to the making of this order in the terms sought.

[2] Further, as part of the amended draft order, the Union and KFC are also seeking a correction, under section 602 of the Act, to the KFC National Enterprise Agreement 2009, approved by the decision 1 of Commissioner Raffaelli on 9 December 2009. This is on the basis that three KFC franchises were inadvertently omitted from the National Enterprise Agreement at the time it was approved.

1. Transfer of business and of the transferable instrument

[3] The union’s application is premised on the basis that all of the new employers listed in the amended draft order are already covered by the transferable instrument - the KFC National Enterprise Agreement 2009. This in turn relies on the proposition that there has been a transfer of business and that the National Enterprise Agreement has transmitted along with the transferring employees as a result of the operation of the Act.

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

1(a) Transfer of business

[5] 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.”

[6] In the statement of Ms Bernal, Employee Relations Director of KFC, the transfers of business that had occurred between the old employers and the new employers were listed. 2 These are set out at 1.1 to 1.19, 1.21 to 1.22 and 1.25 of the amended draft order. It was stated that, in each of these transfers, at least some of the employees of the old employer are employed by the new employer and continue to work in the same KFC outlet performing the same or similar work.3

[7] It was explained by KFC that, in addition, three transfers of business (1.20, 1.23 and 1.24 of the amended draft order) involved the building of a new outlet by these franchisees. In these cases, Kentucky Fried Chicken Pty Ltd (which is also an employer in the outlets it operates) grants the franchisee, for a fee, the beneficial use of its assets - the KFC brand and system. KFC argued that there is still a connection between the old employer and the new employer when a new outlet is built as the new employer will have the beneficial use of the KFC brand and system. 4 In addition, when these three outlets (and any other new outlets) commenced, Kentucky Fried Chicken Pty Ltd seconds some of its employees to help establish the outlet. These employees act as if they are employees of the franchisee during their secondment and the franchisees reimburse Kentucky Fried Chicken Pty Ltd for their wages.5

[8] Further, Ms Bernal indicated that there are two transfers of business that are proposed but have not been concluded. 6 These transfers are contained in the list of new employers in the amended draft order at 1.26 and 1.27.

[9] In addition, KFC argued that transfers of business are typical in a dynamic franchising model. Therefore, it was said to be likely that there will be numerous transfers of business over the next few years. 7 The amended draft order contemplates coverage of such future transfers at 1.28.8

[10] It was contended by the union and KFC 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 amended draft order. 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 KFC 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 KFC outlet previously operated by the old employer or of the KFC brand and system. In terms of the two transfers of business that are proposed but which have not been concluded, and any future transfers, KFC 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. 9 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, KFC contended that the circumstances of these future new employers and employees will be very similar if not the same.10

[11] On the basis of the submissions made by the union and KFC, 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, namely 1.1 to 1.28 (inclusive) of the amended draft order. In this respect, I accept the submissions of KFC 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) Enterprise Agreement

[12] The KFC National Enterprise Agreement 2009 is a transferable instrument by virtue of section 312(1)(a) of the Act. Section 313 of the Act provides for the transferable instrument, the National Enterprise Agreement, to, in effect, transfer to the new employer (s) as identified in the amended draft order, along with the employees who transferred.

[13] Therefore, the new employers set out in the amended draft order and the transferring employees, are covered by the National Enterprise Agreement.

2. Whether the Enterprise agreement should also cover the non-transferring employees

[14] With respect to whether the National Enterprise Agreement 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.

[15] 2(a) 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 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 KFC National Enterprise Agreement 2009 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 will deal with each of the requirements of section 319 in turn.

2(c) Considerations

(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 union and KFC that the new employers listed in the amended draft order supported the union’s application. 11

[21] In addition, it was stated by the union that it was the party making the application and that it represents the employees who would be affected by the order. 12

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

[22] The union 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 Fast Food Industry Award 2010. In this case, their wages and conditions would remain the same. 13

[23] Further, both the union and KFC stated that the vast majority of KFC employees are advantaged as they will receive phased-in increases of 9% on top of the existing enterprise agreement. Any transferring or new employees subject to the order were said to also receive these benefits. Both parties also indicated that they were committed to making a new enterprise agreement in 2016 which will reflect these higher rates for all employees. 14

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

[24] The KFC National Enterprise Agreement 2009 was approved on 9 December 2009 15 and has a nominal expiry date of 11 September 2012.

[25] Both the union and KFC 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 (the KFC Enterprise Award) to the Fast Food Industry Award 2010. The parties stated that agreement had been reached that a 9% increase on the rates contained in the Fast Food Industry Award 2010 will be phased in by January 2016. This is despite the nominal expiry date having passed. 16

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

[26] The union, with the support of KFC, stated that the transferable instrument (the KFC National Enterprise Agreement 2009) would not have a negative impact on productivity. It was argued that the National Enterprise Agreement is tailored to the specific circumstances of KFC and its employees and is more flexible for KFC’s operations than the Fast Food Industry Award 2010. In addition, it was said that the National Enterprise Agreement has the advantage that it covers other KFC operations so that employers can leverage off the benefits of being part of the franchised operation and from being in a common enterprise with the other KFC operations, e.g. for training, human resources and payroll etc. 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. 17

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

[27] It was stated by the union that the new employer would not incur significant economic disadvantage as they would simply be providing the same wages and conditions to those paid in other KFC operations. 18

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

[28] The union and KFC submitted that there are questions regarding the degree of business synergy between the National Enterprise Agreement and the Fast Food Industry Award 2010. It was stated that it was for this reason that there is a transitional phase between the order sought and the making of a new enterprise agreement in January 2016. The parties indicated that the effect of seeking the order shortly before or soon after transfers occur is that the number of employees in KFC, who would be covered by the Fast Food Industry Award 2010, would be much smaller in number. Therefore, any impact from a lack of business synergy would also be smaller. 19

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

[29] It was contended by the union that the public interest is served by providing a common platform which would facilitate bargaining for a new enterprise agreement. Further, the union argued that it would acknowledge the benefits of parties resolving difficult issues together and would promote ongoing constructive approaches to collective bargaining. 20

[30] In addition, KFC made extensive submissions as to the manner in which the public interest would be served if the amended order sought was granted. Firstly, it was explained that KFC is a combination of franchise and company ownership with about 74% of outlets owned by franchisees. KFC operates as a common enterprise with its franchisees with KFC outlets operating in a virtually identical way which enables them to obtain maximum benefit from the KFC brand and system. This was said to be particularly so with respect to employment issues e.g. recruitment, training, pay etc. KFC stated that, having pay and conditions negotiated through an enterprise agreement ensures that a franchisee is fully able to participate in the KFC brand and system and leverage the maximum benefit from it. This in turn adds to the value and attractiveness of KFC franchises. As a common enterprise, the effect of non-transferral of the National Enterprise Agreement upon a transfer of business can also undermine the effectiveness of that agreement for existing franchisees as it creates differences in terms and conditions of employment. 21

[31] Secondly, it was contended that certainty regarding employment terms and conditions should assist to encourage further investment in franchises and the purchase of new franchises. It was stated that increased investment in KFC creates employment opportunities and that the industrial arrangements between KFC and the SDA have provided a solid platform for growth and employment. 22

[32] Thirdly, KFC submitted that the public interest would be served because, making the order sought would deliver productivity and efficiency benefits through such enterprise specific provisions as flat rates of pay and more flexible part-time provisions. These provisions were said to have developed over the long-term and had enabled KFC to focus on such matters as providing superior training programs and the development of future leaders. This was rather than concentrating on micro managing labour around set hours and restrictive labour provisions. 23

[33] Finally, it was argued that the making of the order sought would facilitate bargaining for a new enterprise agreement. This was because, 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 practically impossible. 24

3. Conclusions

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

[35] An order 25, in the terms of the consent amended draft order provided by KFC, will be issued to provide that the KFC National Enterprise Agreement 2009 will also cover the non-transferring employees of the new employers, listed in the amended proposed draft order, who perform similar or the same work as the transferring employees (Item 1 of order).

[36] 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 this order, 18 June 2013, or the date from which the employment commences, whichever is the later.

4. Request to correct error pursuant to s.602 of the Act

[37] KFC, with the consent of the union, has also requested that the Commission correct the inadvertent omission of three KFC franchisees from the KFC National Enterprise Agreement 2009. Ms Bernal, in her statement, outlined the reasons for these omissions. These included confusion about the company name and a transfer of business occurring at the time the National Enterprise Agreement was being finalised. 26

[38] It was submitted that the employees of these three franchisees, as well as all of the employees of the other franchisees, were issued with notices of representational rights, were informed by the SDA about the content of the proposed agreement, voted in a secret ballot as to whether or not the proposed enterprise agreement should be made and had their votes counted as part of the overall vote for the approval of the enterprise agreement. 27

[39] The amended draft order seeks to correct this omission by adding to schedule A to the KFC National Enterprise Agreement 2009 the names of the three franchisees. The date of operation of the correction is sought to be from 16 December 2009. 28

[40] KFC stated that, whilst a formal application is not before the FWC, section 602(2) of the Act provides that the FWC may correct or amend the error, defect or irregularity on its own initiative. It was argued that making such a correction is appropriate in the circumstances and that it is also appropriate that the correction be made from the date that the KFC National Enterprise Agreement 2009 commenced to operate - 16 December 2009.

[41] I have considered the request from KFC to make the correction sought. In all of the circumstances, I am prepared, pursuant to section 602(2)(a) of the Act, to correct the error of omission in terms of the KFC National Enterprise Agreement 2009, by adding the names of the three franchisees, with effect from the date of operation of the Agreement.

[42] An order 29 to this effect will be issued - Item 2 of the order.

COMMISSIONER

 1   [2009] FWAA 1639

 2   Statement of Ines Bernal, dated 7 June 2013, at paragraph 17

 3   Ibid at paragraph 18

 4   Ibid at paragraph 19 and KFC’s outline of submissions, dated 7 June 2013, at paragraph 9

 5   Ibid at paragraph 20 and ibid at paragraph 10

 6   Statement of Ines Bernal, dated 7 June 2013, at paragraph 21 and KFC’s outline of submissions, dated 7 June 2013, at

paragraph 26.4

 7   Ibid at paragraph 22 and ibid at paragraph 26

 8   Ibid

 9   KFC’s outline of submissions, dated 7 June 2013, at paragraphs 7 - 8 and 10

 10   Ibid at paragraph 27

 11   Application by the SDA at paragraph 13(a) and Statement of Ines Bernal, dated 7 June 2013, at paragraph 25

 12   Ibid and ibid at paragraph 26

 13   Ibid at paragraphs 13(b) and ibid at paragraph 28.1.1 - 28.1.2

 14   Ibid and ibid at paragraph 28.1.3

 15   [2009] FWAA 1639

 16   Application by the SDA at paragraph 13 (c) and Statement of Ines Bernal, dated 7 June 2013, at paragraph 30

 17   Ibid at paragraph 13(d) and ibid at paragraphs 32 - 34

 18   Ibid at paragraph 13(e) and ibid at paragraph 35

 19   Ibid at paragraph 13(f) and ibid at paragraph 36

 20   Ibid at paragraph 13(g)

 21   KFC’s outline of submissions, dated 7 June 2013, at paragraphs 37 and 39 - 43

 22   Ibid at paragraphs 44 - 46

 23   Ibid at paragraphs 47 - 66

 24   Ibid at paragraphs 67 - 69

 25   PR537932

 26   Ibid at paragraphs 70 - 72

 27   Ibid at paragraphs 73 - 76

 28   KFC’s Outline of submissions, dated 7 June 2013, at paragraph 29

 29   PR537932

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<Price code C, AE872706  PR537913 >