Smith & Nephew Pty Ltd
[2010] FWA 2465
•25 MARCH 2010
[2010] FWA 2465 |
|
DECISION |
Fair Work Act 2009
s.185 - Application for approval of a single-enterprise agreement
Smith & Nephew Pty Ltd
(AG2009/22464)
COMMISSIONER GOOLEY | MELBOURNE, 25 MARCH 2010 |
The Smith & Nephew Enterprise Agreement 2009.
[1] An application has been made for approval of an enterprise agreement known as The Smith & Nephew Enterprise Agreement 2009 (the Agreement). The application was made pursuant to section 185 of the Fair Work Act 2009 (the Act). It has been made by Smith & Nephew Pty Ltd (S&N). The agreement is a single-enterprise agreement.
[2] The Agreement was made during the bridging period 1 as defined in the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (the Transitional Act). Accordingly, when considering whether to approve the Agreement I have taken into account the provisions of Part 2–4 of Chapter 2 of the Act as modified by Schedule 7 of the Transitional Act.
[3] On 8 January 2010 I wrote to the employer asking for a response to my concerns regarding the following matters.
1. Whether I could be satisfied that the Agreement had been made in accordance with the Act. The time the employer agreed to bargain or initiated bargaining was either 22 September 2009 or at the latest 19 October 2009 when the employer provided employees with a draft enterprise agreement and requested feedback. Section 173(2) of the Act defines this as the notification time. Section 173(1) of the Act provides that the employer must take all reasonable steps to give notice of the right to be represented by a bargaining representative to each employee who will be covered by the agreement who is employed at the notification time. On the material provided to Fair Work Australia (FWA) the employees were first notified of their right to be represented by a bargaining representative on 12 November 2009 or 13 November 2009 at the same time that they were provided with a copy of the final enterprise agreement. Section 173(3) provides that this notice must be given no later than 14 days after the notification time.
2. The scope of the Agreement in particular the exclusion of existing casuals and the lack of definition of “hourly rate employees employed in S&N in its manufacturing operations”.
3. The obligation on employees to comply with all S&N’s policies and procedures which include the current editions of the codes of conduct/practice of S&N and the industry association to which S&N belongs and all related procedures and processes.
4. Whether the Agreement passed the no disadvantage test. The employer advised that payroll summaries for current actual employee salaries were attached to the application. No such summaries were provided. While an example of an employee schedule was attached the actual employee schedules do not form part of the Agreement. Further the Agreement provides that the schedule can provide additional conditions which will prevail over the Agreement if inconsistent with the Agreement.
5. As the Agreement contains no classification structure, pay rates or hours of work could S&N explain how a comparison between the reference instruments and the Agreement establishes that the No Disadvantage Test has been passed?
[4] I received no response to my correspondence so the matter was listed for hearing on 11 February 2010 and on 9 February 2010 submissions were filed in support of the application. At the hearing Ms Sweatman a solicitor from Mason Sier Turnbull appeared along with Mr Farr from S&N.
[5] As a result of that hearing I was provided with further submissions on 19 February 2010.
[6] It is clear from the information provided that the Agreement is intended to cover all salaried employees within the business of the Applicant, including employees earning in excess of the high income threshold.
[7] In response to my concern that employees were only provided with the notice of the right to be represented in the bargaining process at the same time as the employees were provided with a copy of the final agreement and not at the notification time as required by that Act, S&N submitted that employees were first advised of S&N’s intention to make a collective agreement on 22 September 2009. A draft agreement was provided on 19 October 2009 and employees were invited to provide feedback. This is said to be the “notification time” under section 173(2) of the Act. Employees were provided with a copy of the notice of employee representational rights on 12 November 2009. S&N say this was an error but the employees still had 28 days after the receipt of the notice of employee representational rights before they were requested to approve the Agreement on 9 December 2009. S&N said the failure to provide the notice was a mistake due to the failure of their solicitor to notify them of the requirement. 2
The procedural requirements
[8] Prior to approving the Agreement I must be satisfied that the Agreement was genuinely agreed to by the employees. 3
[9] Section 188 sets out the criteria to be applied to determine if there is genuine agreement.
“188 When employees have genuinely agreed to an enterprise agreement
An enterprise agreement has been genuinely agreed to by the employees covered by the agreement if FWA is satisfied that:
(a) the employer, or each of the employers, covered by the agreement complied with the following provisions in relation to the agreement:
(i) subsections 180(2), (3) and (5) (which deal with pre-approval steps);
(ii) subsection 181(2) (which requires that employees not be to approve an enterprise agreement until 21 days after the last notice of employee representational rights is given); and
(b) the agreement was made in accordance with whichever of subsection 182(1) or (2) applies (those subsections deal with the making of different kinds of enterprise agreements by employee vote); and
(c) there are no other reasonable grounds for believing that the agreement has not been genuinely agreed to by the employees”.
[10] I find that section 180(2), (3) and (5) have been complied with.
[11] As set out above, the notice of employee representational rights was not provided in accordance with the Act. In answer to this, S&N advised that no employee raised any concerns about the Agreement or sought to appoint a bargaining agent after notified of their right to do so. I do not find this surprising as, having been provided with a final agreement, employees may have seen little point in appointing a bargaining representative after receiving the notice. A memo to employees provided on 12 November 2010 refers to the final EA and advises that employees will receive a “mandatory 1 page notice that S&N must provide to voting employees called “Notice of employee representational rights”. This memo advises that the negotiation process is over and that all that needs to occur is employees would be asked to vote on the agreement and if the agreement is approved FWA must consider the agreement. There is nothing in this notice to suggest that bargaining is ongoing.
[12] S&N contend that because the employees had more than 21 days after they received the notice of employee representational rights before the employees were requested to approve the Agreement I can be satisfied that section 181(2) has been complied with.
They also submit that the bargaining was open and transparent. I make it clear that I do not impugn the motives of S&N in this matter.
[13] I accept that it is possible under the Act for an employer to develop an agreement and initiate bargaining or commence bargaining by presenting that agreement to employees at the same time as the employees are given the notice of employee representational rights and provided the employees are not requested to vote until 21 days have elapsed, section 182(2) of the Act will be satisfied.
[14] I do not, however, accept that an employer can initiate bargaining and not provide the employees with the notice of employee representational rights within 14 days of that date. Even if I accept S&N’s submissions that the initiation of bargaining commenced on 19 October 2010, the employer was required to provide the employees with the notice by 3 November 2010 and S&N did not do so until 12 November 2010.
[15] It is clear that the Act requires that employees know of their rights to be represented during the bargaining process and not after bargaining has been completed.
[16] Section 181(2) refers to the notice of employee representational rights that is given to employees pursuant to section 173(1) of the Act. For a notice to be a section 173(1) notice there must have been compliance with section 173(3). That section 173(3) would have no utility if it was only necessary for the notice of employee representational rights to be given to employees 21 days before the employees were asked to approve the agreement, supports this construction of the Act.
[17] As I find that section 173(3) has not been complied with, I find that no notice of employee representational rights as required by the Act has been given to employees. The pre-approval requirements of the Act are mandatory and cannot be waived by FWA and therefore I do not approve the Agreement.
The Scope of the Agreement
[18] The Agreement does not cover all of the employees of S&N as it does not apply to casual employees employed prior to the commencement date of the Agreement nor does it apply to hourly rate employees employed by S&N in its manufacturing operations.
[19] Section 183(3) and (3A) provides as follows:
“(3) FWA must be satisfied that the group of employees covered by the agreement was fairly chosen.
(3A) If the agreement does not cover all of the employees of the employer or employers covered by the agreement, FWA must, in deciding whether the group of employees covered was fairly chosen, take into account whether the group is geographically, operationally or organisationally distinct.”
[20] S&N submitted that “hourly rate” is a term that is commonly understood in the business and “applies to any employee that is not paid a fixed amount on a weekly, fortnightly or monthly basis irrespective of the hours of work performed by the employee.” The Applicant proposed a written undertaking to clarify this exclusion. The Applicant advises that all employees, save for “management employees” at the manufacturing operations, are hourly rate employees who are paid in accordance with the modern Textile, Clothing, Footwear and Associated Industries Award 2010 (the 2010 Award) with minimum rates of pay derived from the Textile Industry Award 2000. S&N advised that it was their intention to preserve award entitlements for these employees and for the Agreement to cover only salaried and hourly paid professional employees.
[21] Unfortunately the proposed undertaking does not deal with the issue I raised. The definition in the Agreement means that any employee of S&N could move from being an hourly rate employee to an employee paid a fixed amount on weekly, fortnightly or monthly basis irrespective of the work performed, albeit with their agreement, and be brought within the scope of the Agreement. For example an employee in the manufacturing operations could be offered a change of position or a supervisory role within the scope of the Award as a “salaried position”. On making this transition, the employee would be within the scope of the Agreement and in accordance with section 57 of the Act the 2010 Award would no longer apply to the employee.
[22] I do not consider that employees who are paid a salary as opposed to an hourly rate of pay are operationally or organisationally distinct.
[23] If I had been minded to approve the Agreement I would have sought an undertaking that the scope clause read that the Agreement did not apply to employees within the scope of the 2010 Award who were employed in the S&N’s manufacturing operations as I accept that these employees are operationally distinct.
[24] S&N advised that the reference to casual employees in the statutory declaration of Mr Farr was in error and that there were no current casual employees employed at the time the agreement was made. However during the hearing Ms Sweatman said “there were some casual employees employed at the time the application was made. As indicated in my submissions, a substantial proportion of those employees would not be considered current employees for the purposes of eligibility for voting”. 4 However she went on to say that there were casual employees working when the voting was undertaken.5
[25] S&N explained that casual employees who had been previously employed by S&N are excluded from the scope so as to preserve existing arrangements with current casual employees. As the Agreement only prevails over the existing contractual arrangements if it provides for better entitlements, and, given that most of the clauses in the Agreement that entitle the employees to benefits do not apply to casuals, it is difficult to see how the Agreement could disturb the existing contractual arrangements. No examples were provided of how the Agreement would effect such arrangements.
[26] Given my conclusions in this application it is not necessary for me to determine if the exclusion of these casual employees would have caused me to determine that the group of employees covered by the agreement was not fairly chosen.
The No Disadvantage Test
[27] Schedule 7 Part 2 Division 2 section 4 of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 provides as follows:
“An enterprise agreement passes the no-disadvantage test if FWA is satisfied that the agreement does not, or would not result, on balance, in a reduction in the overall terms and conditions of employment of the employees who are covered by the agreement under any reference instrument relating to one or more of the employees.”
The Terms of the Agreement
[28] The Agreement provides for no rates of pay, no classification definitions or structure, no overtime payments, no penalty payments, no span of hours, no penalty for working on public holidays (though employees who do work on a public holiday will be given a day in lieu), no accident make up pay and imposes additional obligations on employees. Individual employee rates of pay and hours of work are set out in a schedule provided to the employee but the schedules do not form part of the Agreement.
Additional conditions
[29] Clause 6 of the Agreement provides that employees will be provided with a schedule dealing amongst other things with the position, hours of work and total package value. Critically the Agreement provides that the schedule can contain additional conditions and it provides that to the extent of any inconsistency between the additional conditions and the remaining terms of the Agreement the additional conditions apply.
[30] I was advised that additional conditions include matters such as relocation support, retention bonuses etc. However the validity of a provision that permits the schedule to override the Agreement was not addressed in the written or oral submissions of S&N.
[31] While the FWA mandates at section 203 that agreements permit individual flexibility arrangements, those flexibility arrangements must result in the employee being better off over all. It is clear that this provision would permit S&N to override the terms of the Agreement without such a protection. In my view it is not possible for an Agreement which includes such a provision to satisfy the no disadvantage test. An undertaking that provided that the additional terms could not override the minimum entitlements in the Agreement would have overcome the concerns I raised.
Policies and Procedures
[32] Clause 10 of the Agreement obliged employees to comply with all S&N’s policies and procedures which include current editions of the codes of conduct/practices of S &N and the industry association to which S&N belongs and all related procedures and processes. I sought copies of the documents and asked whether employees had access to the material during the access period.
[33] I was advised that all the policies and procedures were available during the access period. I was further advised that it was not S&N’s intention to incorporate these policies and procedures into the Agreement.
[34] S&N provided an undertaking that the clause would only require employees to read and be aware of the S&N policies and procedures and to advise S&N if any part was not understood.
Current Salaries and Hourly Rates of Pay
[35] I was provided with a document which set out the position, title and current rates of pay for all employees to be covered by the Agreement. Subsequently I was provided a document which set out whether each employee was covered by a reference instrument and, if so covered, what classification would apply under the reference instrument and the nominal hours per week of each employee, their span of hours and the typical additional hours (averaged over one month) that the employees would work.
[36] I was also provided with an undertaking which provides that no employee to whom a reference instrument would otherwise apply would get paid less than the amounts provided in the undertaking.
[37] These rates of pay exceed the amounts in the applicable reference award. The rates would compensate employees for the loss of annual leave loading and the additional hours worked, as set out in the table.
[38] However while the undertaking guarantees the minimum rates of pay it does not limit the hours of work required to be worked. Had I not determined to not approve the agreement I would have sought additional undertakings about the hours of work of employees.
[39] Casual employees are paid an hourly rate of pay for each hour worked. This hourly rate includes compensation for the use of their own vehicle if required for the performance of their duties. It is not clear without specific information about vehicle use whether the amount paid to casual employees in fact provides adequate compensation for the use of the vehicle.
Common Law Obligations
[40] The Agreement at clauses 9, 10, 47, 48, 49 and 50 contains a number of additional obligations not normally found in collective agreements and which are not contained in any of the reference instruments. Many of these obligations may be included in an employment contract and may be the subject of negotiations between a prospective employee and the prospective employer. Some may be implied by operation of law.
[41] S&N submit that because the reference instruments do not prevent an employer and employee reaching contractual arrangements with respect to confidentiality, intellectual property and non solicitation and given that such arrangements often operate concurrently with a reference instrument, the inclusion of such clauses in the Agreement does not result in a reduction in the overall terms and conditions of employment of employees under the reference instruments.
[42] This however misses the point. An enterprise agreement is not subject to individual negotiations between an employer and employee, it is imposed by operation of law on employees, both existing and new employees, whether they agree with the terms or not. While breach of such contractual obligations may give rise to a claim for damages and injunctive relief, their inclusion in an enterprise agreement would expose employees who breach the obligation to civil penalties.
[43] In my view the inclusion of such obligations in enterprise agreements are inappropriate as the codified obligations go beyond the obligations imposed on employees at common law, impose obligations not imposed on employees by the reference instruments and expose employees to penalties in the event of breach.
[44] S&N submitted that they sought in the enterprise agreement to “effectively communicate to current and prospective employees the expectations of the Applicant and the key terms and conditions of employment to which employees are subject. In doing so, S&N sought to codify common law obligations which would otherwise operate in conjunction with the Agreement. It is not the intention of the Applicant that such obligations are elevated to civil penalty provisions.”
[45] Whatever S&N’s intentions were, a breach of an enterprise agreement is a civil penalty provision and the right to take proceedings for enforcement of enterprise agreements is not limited to S&N.
[46] S&N provided an undertaking in relation to clauses 9, 10, 47, 48, 49 and 50.
[47] I would have been prepared to accept the undertakings for clauses 10, 47 and 49. I find that clauses 9, 48 and 50 continue to impose obligations beyond the common law obligations and expose employees to penalties in the event of breach.
Consultation Clause
[48] The consultation clause initially provided that S&N advise employees of any decision to introduce major change but created no obligation for S&N to consult employees.
[49] S&N gave an undertaking to consult with relevant employees.
Additional Benefits
[50] S&N submit that there are additional benefits provided to employees:
1. Higher minimum rates of pay;
2. An additional 1% superannuation – this benefit is contingent on the employees having their superannuation contribution paid to a fund chose by S&N;
3. An annual bonus – this is a non guaranteed component of remuneration;
4. An employee assistance program – this provision is subject to S&N indentifying a suitable specialist professional organisation that is well credentialed to provide such services to S&N on suitable terms;
5. An additional 3 days compassionate leave;
6. Up to 15 weeks paid parental leave; and
7. Additional severance pay.
[51] I have had regard to these benefits in reaching my decision.
Conclusion on the No Disadvantage Test
[52] For the above reasons I am not satisfied that the agreement does not, or would not result, on balance, result in a reduction in the overall terms and conditions of employment of the employees who are covered by the agreement under any reference instrument relating to one or more of the employees.
Undertakings
[53] Section 190 of the Act provides that I may approve an agreement, if I reach the conclusion that the agreement does not pass the no disadvantage test, if the employer provides undertakings which satisfy my concerns.
“S190 FWA may approve an enterprise agreement with undertakings
Application of this section
(1) This section applies if:
(a) an application for the approval of an enterprise agreement has been made under section 185; and
(b) FWA has a concern that the agreement does not meet the requirements set out in sections 186 and 187.
Approval of agreement with undertakings
(2) FWA may approve the agreement under section 186 if FWA is satisfied that an undertaking accepted by FWA under subsection (3) of this section meets the concern.
Undertakings
(3) FWA may only accept a written undertaking from one or more employers covered by the agreement if FWA is satisfied that the effect of accepting the undertaking is not likely to:
(a) cause financial detriment to any employee covered by the agreement; or
(b) result in substantial changes to the agreement.
FWA must seek views of bargaining representatives
(4) FWA must not accept an undertaking under subsection (3) unless FWA has sought the views of each person who FWA knows is a bargaining representative for the agreement.
Signature requirements
(5) The undertaking must meet any requirements relating to the signing of undertakings that are prescribed by the regulations.”
[54] As set out above S&N have provided a number of undertakings.
[55] Given I have found that the mandatory pre-approval requirements of the Act have not been complied with, it is not necessary for me to reach a final conclusion about the undertakings.
[56] Even if the mandatory pre-approval requirements of the Act had been complied with, even with the undertakings proffered by S&N, I would not be prepared to approve the Agreement as the undertakings do not satisfy all my concerns, in particular, the Agreement permits the employer and the employee to reach an agreement which is inconsistent with the Agreement and overrides the Agreement and it does not contain any restriction on the hours that may be worked by employees.
[57] If S&N had given the additional undertakings as I have outlined in this decision it would be necessary to determine if the undertakings result in substantial changes to the Agreement. It is clear that the undertakings do not cause financial detriment to any employee covered by the agreement. However section 190 clearly contemplates that an agreement may not be approved even if the undertakings improve the outcome for employees if the changes are substantial.
[58] Clearly the Agreement with undertakings is a very different agreement to the agreement voted on. This would be more so if the additional undertakings sought be me were provided.
[59] It is unnecessary for me to reach a conclusion on whether the changes are substantial as I have determined not to approve the Agreement.
Conclusion
[60] The application for approval of the Agreement is refused because the Agreement does not comply with the requirements of section 186(2) and does not pass the no disadvantage test and the undertakings proffered do not meet my concerns about the no disadvantage test.
COMMISSIONER
Appearances:
K Sweatman and N Farr for Smith & Nephew Pty Ltd.
Hearing details:
2010.
Melbourne:
February 11.
1 Item 2, Part 1, of Schedule 2
2 Transcript PN 4
3 Section 186
4 Transcript PN 39
5 Ibid PN 41
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