SolstadFarstad Pty Ltd

[2019] FWCA 4907

[2019] FWCA 4907

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.225—Enterprise agreement

SolstadFarstad Pty Ltd
(AG2019/1489)

FARSTAD SHIPPING (SALARIED) ENTERPRISE AGREEMENT 2014

Clerical industry
COMMISSIONER WILLIAMS	PERTH, 17 JULY 2019

Application for termination of the Farstad Shipping (Salaried) Enterprise Agreement 2014.

[1] SolstadFarstad Pty Ltd (Solstad or the Applicant) have made an application under section 225 of the Fair Work Act 2009 (Cth) (the Act) to terminate the Farstad Shipping (Salaried) Enterprise Agreement 2014 (the Agreement).

Directions and Proceedings

[2] The Commission directed the Applicant to serve a copy of the application, the associated statutory declaration and a supporting witness statement that had been filed with the application on each of the employees covered by the Agreement with a covering letter from the Commission.

[3] The Commission’s covering letter explained the nature of the application and included a copy of section 226 of the Act and explained that if any employees wished to provide their view about this application to the Commission at future proceedings that they should advise the Commission by email.

[4] The Applicant subsequently confirmed that they had complied with the Commission’s direction and served the application and supporting materials on the 23 employees covered by the Agreement.

[5] Of those 23 employees three later by email notified the Commission that they had an interest in the matter. The Commission privately corresponded with each employee and provided them the option to have their views considered by the Commission when determining the matter but explaining that the employer would be made aware of their view and provided an opportunity to respond if it wished.

[6] Ultimately one employee provided their view to the Commission which was forwarded to the employer for their information.

[7] A hearing was then conducted on Monday, 15 July 2019.

Factual findings

[8] Solstad's core business is the provision of maritime services specialising in the supply of offshore tonnage to the oil and gas industry and anchor handling services.

[9] Solstad currently employs approximately 280-300 offshore employees plus an additional 31 onshore employees in Australia.

[10] Solstad has several separate enterprise agreements that cover engineers and officer classifications as well as integrated ratings and cooks, which reflects the Company's existing operational and organisational practice as well as general maritime industry practice

[11] The Agreement covers all employees engaged in duties connected with shipping, travel and training of a clerical, supervisory or administrative nature, as defined in the classifications contained in Schedule 1 of the Agreement, who are employed at Solstad's or the Simulation Centre's Australian offices in Victoria and Western Australia, or at the Offshore Simulation Centre in Bibra Lake (WA).

[12] The Agreements nominal expiry date was 26 August 2018.

[13] The Agreement appears to be unique in that it covers a range of classifications of employment that are not typically covered by an enterprise agreement in the offshore oil and gas industry, being a range of clerical and professional roles that are also typically award free. For example, the Agreement covers the following classifications:

•  Accountant

•  Accounts/Payroll Officer

•  Administration Assistant

•  AP Officer

•  AR Officer

•  Commercial Assistant

•  Commercial Coordinator

•  Crewing/Personnel Officer

•  Crewing Supervisor

•  Executive Assistant

•  HR Officer

•  HSE Officer

•  ICT- Service Desk Analyst

•  ICT Infrastructure Administrator

•  ICT Infrastructure Team Lead

•  L&D Officer

•  Learning/Recruitment & On boarding Officer

•  Liaison Officer

•  Operations Assistant

•  Payroll Officer

•  Purchasing Officer

•  QA Officer

•  Senior Accounts Officer

•  Senior AR Officer

•  Technical Officer

•  Training & Certification Coordinator

[14] Some of these roles may be covered by the Clerks- Private Sector Award 2010 or in the case of ITC the Professional Employees Award 2010

[15] Leading up to the industry downturn in offshore oil and gas in 2014, Solstad through its predecessor Farstad Shipping held the largest market share in relation to the supply of offshore maritime services, with a total of 26 vessels in operation at any one time. Consequently, Solstad was able to remunerate both offshore and onshore employees well.

[16] From 2014 to date, however, the offshore oil and gas industry experienced a significant downturn, such that the number of vessels operated by Solstad reduced to 10, and the day rates paid to Solstad for its services declined by up to 50% per vessel.

[17] Consequently, Solstad experienced a dramatic reduction in its operational revenue as a result of significantly diminished demand for its services, and a 50% reduction in its day rates charged to clients. Despite this, Solstad has continued to operate in a depressed market whereby it makes a very small margin above the actual costs associated with crewing a vessel for its services and, taking into account all of its other operational costs, has continued to operate at a loss for a number of years.

[18] In 2014 and 2015, and despite this depressed oil and gas industry, Solstad entered into several enterprise agreements which increased its labour costs and was out of step with the rest of industry, including the Agreement these enterprise agreements have significantly contributed to the loss of market share experienced by Solstad.

[19] To remain viable, from on or about November 2016, Solstad implemented various cost-saving measures across its business, including:

(a) Implementing approximately 65 redundancies in its then head-office

located in Melbourne;

(b) Relocating its head-office to Perth;

(c) Significantly reducing the number of personnel engaged in the new Perth headoffice to approximately half the number of employees who were engaged in

Melbourne;

(d) In February 2016, Solstad employees agreed to an EBA Variation for the Deck

and Engine officers which consisted of the following:

(i) Annualised salary decreased by 6.1% and 3.1% to 1.5%, 1.5% and 2%,

(ii) Wage instalments of $4000 per person removed.

(iii) PAB removed

(e) Engaging a restructured management team on substantially reduced salaries in

line with industry benchmarks, as compared to their former Melbourne

counterparts; and

(f) On 15 March 2018, successfully terminating the Ratings Agreement which provided for rates of pay and conditions of employment in excess of industry standard and replacing it with a new enterprise agreement, the SolstadFarstad (Integrated Ratings, Cooks and Caterers) Offshore Oil and Gas Enterprise Agreement 2018 [2018] FWCA 1533 which has assisted in enabling Solstad to continue its offshore operations.

[20] In addition from on or about September 2016, Solstad implemented a job share model for its approximately 480 offshore employees which enabled Solstad to retain such employees in employment through the downturn in the oil and gas industry.

[21] Despite attempts to retain employees, however, Solstad's financial and operational outlook was such that it was required to conduct two rounds of redundancies in the 12 month period from November 2016 - November 2017, during which 200 employees were terminated through redundancy.

[22] As a result, the number of offshore employees engaged by Solstad reduced from

approximately 480 to approximately 280. Since this time, the number of offshore employees

has remained relatively constant, being between 280 - 300 offshore employees at any one time.

[23] In addition, the downturn in the offshore oil and gas sector has resulted in a reduction in the amount of training offered by vessel operators, including Solstad. This has resulted in the demand for services of the Simulation Centre being decreased such that it is unable to sustain itself and it, similarly, runs at a loss.

[24] In September 2017, Solstad Offshore Pty Ltd merged with Farstad Shipping (Indian Pacific Pty Ltd) to become SolstadFarstad Pty Ltd.

[25] Following the merger, Solstad implemented stringent cost-saving actions.

[26] Whilst, as a result of the above, the costs associated with Solstad's operations have been reduced as far as possible, Solstad remains in a difficult financial position and is required to look to other areas of its operation to reduce its overall operating costs.

[27] Other than the cost-saving initiative that occurred when Solstad's head office moved to Perth and the corresponding reduction in employee numbers, no other significant cost-saving measures have been implemented in relation to Solstad's onshore employees. As a result, Solstad now seeks to reconcile costs associated with its onshore operations.

[28] One significant area of financial exposure for Solstad is in relation to the Agreement.

[29] Some of the terms and conditions of employment contained within the Agreement significantly exceed the statutory minimums and industry standards. These are detailed below.

1. Clause 7.6, which provides that employees so covered, other than casual employees, are entitled to six weeks' paid parental leave where the employee is the primary carer of the child, or two weeks' paid parental leave in circumstances where the employee is not the primary carer of the child.

2. Clause 3.4.2, which provides that employees so covered are entitled to redundancy

pay entitlements as follows:

(a) An employee who qualifies for a redundancy payment shall be paid three weeks' pay per completed year of continuous service and pro rata for a part of a

year.

(b) Employees who are 50 years of age and over at the time of redundancy are

entitled to an extra one-off 2-week pay.

(c) A Maximum cap of 78 weeks redundancy pay shall apply in all circumstances.

(d) Redundancy shall be paid at the employee's base weekly rate of pay.; and

3. Clause 5.6 of the Agreement, which provides that all employees are entitled to a $1,500 per annum reimbursement, paid on a pro-rata monthly basis, for the costs associated with a private health fund, health club, gym or sporting club where the employee is a direct participant.

[30] New common-law contracts were entered into with all of the employees covered by the Agreement on 1 March 2018, which provide for salaries at least equivalent to the Agreement but generally significantly higher.

[31] Despite the Agreement providing favourable terms and conditions of employment to employees so covered, there are few employees currently employed by Solstad who benefit from these in a significant way.

[32] For example, as a result of corporate head office relocating from Melbourne to Perth, only those longer-term employees who transferred from Melbourne benefit from the additional redundancy entitlements in any significant way.

[33] Only three employees have been employed by Solstad for greater than three years.

[34] In relation to the parental leave benefit provided by clause 7.6 of the Agreement, only one employee has taken up this entitlement since head office has been in Perth. That employee is currently on maternity leave (due to return to work in July 2019) and has already received the full benefit of the paid period under the Agreement. A second employee is eligible under the agreement to take paid parental leave effective from June 2019.

[35] Clause 5.6 of the Agreement provides for the reimbursement of a health, gym or sporting subscription or membership up to $1,500 per annum. Current employees have retained this benefit through commensurate remuneration increases reflected in their new common law contracts issued on 1 March 2018. As a result, current employees will not experience any detriment in relation to this entitlement as a result of terminating the Agreement.

[36] All employees covered by the Agreement earn under $145,400 per annum. Therefore, if the Commission does terminate the Agreement, the covered employees will still have access to the unfair dismissal remedy provisions of the Act.
[37] The evidence is the employees covered by the Agreement are not required to do overtime or weekend work nor are they required to use their own vehicles.

[38] One employee who does object to the application is employed in a role which under the Agreement has a salary of $55,000. His common-law contract of employment from 2018, provides that his annual base salary is significantly higher at $79,500 1.

[39] There is no employee organisation covered by the Agreement.

Submissions

[40] Solstad seeks to terminate the Agreement on the basis that the continued operation of the Agreement:

(a) Provides for a disparity of terms and conditions of onshore employees who are not

covered by the Agreement and those who are covered by the Agreement;

(b) Places Solstad at a commercial disadvantage compared to its competitors as a result of increased operational costs; and

(c) Exacerbates the impact of the market downturn on Solstad by providing terms and

conditions of employment well above industry standards.

[41] In addition, the Agreement was made by Farstad Shipping (Indian Pacific) Pty Ltd, a company that no longer exists. The Agreement is no longer consistent with the operational objectives of Solstad's current business.

[42] On the facts the termination of the Agreement is not contrary to the public interest as it will not have any effect on persons other than the parties immediately involved.

[43] By terminating the Agreement at most three employees, out of 23 currently covered by the Agreement, would experience a reduction in their terms and conditions of employment. This detriment is a potential only and arises only if in the future they are made redundant or seek to take a period of parental leave. These employees, if the Agreement is terminated, will however continue to enjoy being paid above the salaries prescribed in the Agreement by virtue of their common law contracts.

[44] In short despite the Agreement having some favourable terms and conditions of employment there are few employees who benefit from these in a significant way. As a result the Applicant submits that the termination of the Agreement will not have wide reaching consequences with a few employees only potentially suffering some detriment but only in particular future circumstances that may or may not occur.

Consideration

[45] The matters the Commission must be satisfied about before granting an application to terminate an enterprise agreement under section 225 are prescribed in section 226, which is set out below.

“226 When the FWC must terminate an enterprise agreement

If an application for the termination of an enterprise agreement is made under section 225, the FWC must terminate the agreement if:

(a) the FWC is satisfied that it is not contrary to the public interest to do so; and

(b) the FWC considers that it is appropriate to terminate the agreement taking into account all the circumstances including:

(i) the views of the employees, each employer, and each employee organisation (if any), covered by the agreement; and

(ii) the circumstances of those employees, employers and organisations including the likely effect that the termination will have on each of them.”

[46] The public interest as referred to in section 226 is different from the interests of the employees or the employer covered by the Agreement. Commonly in such matters as this the public interest concerns the maintenance or achievement of the objects of the Act, matters such as the level of employment in an industry or industry sector and the maintenance of proper industrial standards.

[47] In this case there is nothing before the Commission to suggest that termination of this particular Agreement will have some significant effects on parties or persons other than the employer and the employees covered by the Agreement such that the termination might be considered to be contrary to the public interest

[48] Therefore considering the evidence before the Commission I am satisfied that it is not contrary to the public interest to terminate the Agreement.

[49] With respect to the views of the employer it is clear the employer wants the Commission to terminate the Agreement and has sound business reasons as explained above for this.

[50] With respect to the views of the employees the vast majority of the employees covered by the Agreement have not expressed a view about the application to terminate the Agreement.

[51] Three employees have raised concerns about terminating the Agreement. In each case their concern is a consequence of their particular personal circumstances which may be affected if particular clauses in the Agreement no longer apply to them. However, some of these concerns will only ever involve a real impact on them if future particular events occur, such as they are dismissed because their position is made redundant. These employees are quite entitled to hold the view that they would prefer, for their own reasons, that the Agreement not be terminated.

[52] Taking into account the views of the employees and the employer and the circumstances of both the employees and the Applicant employer, including the likely effects on each of them if the Agreement is terminated, I do consider that it is appropriate to terminate the Agreement.

[53] Accordingly, the Commission will terminate the Agreement operative from Thursday, 25 July 2019, an order to that effect will now be issued.

COMMISSIONER

 1   Exhibit A2.

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