Stratco (NSW) Pty Ltd

[2010] FWA 7036

[2010] FWA 7036

FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.318 - Application for an order relating to instruments covering new employer and transferring employees in agreements

Stratco (NSW) Pty Ltd
(AG2010/11445)

HUNTER TIMBER AND BUILDING SUPPLIES PTY LTD COLLECTIVE GREEMENT 2008
[AC317346]

Retail industry
COMMISSIONER HAMPTON	ADELAIDE, 17 SEPTEMBER 2010

Transfer of business - application for an order that collective agreement applying to former business not cover the new employer - application made after transfer - whether valid application - whether discretion should be exercised to have the modern award apply in lieu of the Collective Agreement - application granted.

BACKGROUND

[1] This is an application pursuant to s.318 of the Fair Work Act 2009 (the Act) by Stratco (NSW) Pty Ltd (Stratco). Stratco has recently acquired the business assets of Hunter Timber and Building Supplies Pty Ltd (Hunter Timber), which is a retail hardware business operating in the Hunter Valley of New South Wales. There was a transfer of business as contemplated by s.311 of the Act.

[2] Stratco is part of the national business operating (amongst other aspects) hardware and building supplies stores. It is covered by and applies the General Retail Industry Award 2010 (the modern award) at all of its existing stores throughout New South Wales, and nationally.

[3] Hunter Timber is a party to the Hunter Timber and Building Supplies Pty Ltd Collective Workplace Agreement 2008 (the Collective Agreement) which was approved by the Workplace Authority in April 2009 pursuant to the Workplace Relations Act 1996 and has a nominal expiry date of 16 April 2012.

[4] The Collective Agreement became a transferrable instrument for the purposes of s.312 and s.313 of the Act when Hunter Timber was purchased by Stratco in late May 2010 and the employees of Hunter Timber accepted employment with the new employer. That is, by virtue of sub item 2(3), Schedule 3 of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (the TPCA Act) the Collective Agreement is a transitional instrument for purposes of the Act itself. Pursuant to Item 8, Part 3 of Schedule 11 of the TPCA Act, the Collective Agreement is also a transferable instrument for the purposes of s.312(1) and consequently, s.313 of the Act.

[5] Section 313 of the Act provides for the transferrable instrument (in this case the Collective Agreement) to in effect transfer to the new employer (Stratco) along with the employees who are “transferred”.

[6] There are some 28 employees who have transferred from Hunter Timber to Stratco.

[7] The application seeks that the Collective Agreement not cover Stratco and any of its employees formerly engaged by Hunter Timber.

[8] In the lead up to the hearing of this matter, directions were issued requiring the fact of the application and the details of the hearing to be communicated to all of the relevant employees. Further, these employees were invited to contact Fair Work Australia in person or in writing should they wish to express any views or concerns about the application. No contact was made with Fair Work Australia.

[9] This matter was heard on 27 August 2010 and I have now considered the evidence and submissions, including a series of formal undertakings subsequently provided to Fair Work Australia on behalf of the employer.

THE IMMEDIATE STATUTORY PROVISIONS

[10] Section 318 of the Act provides as follows:

“318 Orders relating to instruments covering new employer and transferring employees

Orders that FWA may make

(1) FWA 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 transferring employee because of paragraph 313(1)(a) does not, or will not, cover the new employer and the transferring employee;

(b) an order that an enterprise agreement or a named employer award that covers the new employer covers, or will cover, the transferring employee.

Who may apply for an order

(2) FWA 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 transferring employee, or an employee who is likely to be a transferring employee;

(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 FWA must take into account

(3) In deciding whether to make the order, FWA 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 transferring employee before the later of the following:

(a) the time when the transferring employee becomes employed by the new employer;

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

[11] I also note that the exercise of the discretion given to Fair Work Australia in this regard is also undertaken within the objects of this Part of the Act, which state as follows:

“309 Object of this Part

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 employer.”

IS THERE A VALID APPLICATION IN THIS MATTER?

[12] This application was filed on 5 July 2010, being some weeks after the transfer of business took place. I have considered whether the terms of s.318 of the Act are intended to only apply where the application is made prior to the transfer. The manner of expression adopted in elements of s.318(1) concerning the nature of the orders is perhaps more consistent with that approach.

[13] However, s.318(2) of the Act clearly provides for both the new employer and a person who is likely to become a new employer. This dichotomy is also reflected in other elements of s.318. I also note that the example provided in the Explanatory Memorandum 1 involves a scenario where the business has already been purchased and the employees employed in the (new) business.

[14] Given the objects of the Act, I can see not warrant to read the provisions narrowly so as to prevent an application being made in a case such as now before me. I would though add that where the matter is considered after the transfer has taken place, the considerations cited in s.318(3) of the Act must be approached having regard to the fact the transferrable instrument (in this case the Collective Agreement) is already applying to the parties concerned.

[15] Stratco is the new employer for the purposes of s.318(2)(a) of the Act and I find that the application is validly before Fair Work Australia.

THE CONSIDERATIONS REQUIRED BY SECTION 318(3) OF THE ACT

[16] It is convenient to assess these considerations using the relevant subsections of the Act as applied to the circumstances of this case.

Section 318(3)(a)(i): the views of Stratco as the new employer

[17] Stratco have made this application on a number of grounds as set out in the affidavit of Mr Stephen Lochert, Group Manufacturing Manager for Stratco (Australia) Pty Ltd and in the submissions of Mr Smith who appeared with permission for Stratco.

[18] These grounds relate to the cost of maintaining an outsourced payroll system or modifying its own system to establish payment arrangements that are significantly different to those operating to administer the modern award. Further, the cost and inconvenience of ensuring compliance with the different classifications and working hours arrangements for a group of employees as part of its own broader business was also relied upon. This included modifying standardised employment processes and procedures that otherwise applied throughout the company.

[19] More fundamentally, Stratco cited the “cultural” implications of having a fundamentally different employment model within its operations. These were said to include the fact that employees, both within its broader New South Wales operations and over time, in the Hunter store, would be engaged on different employment conditions. This was not considered to be appropriate, particularly given the prospect of employee and management transfers between stores.

Section 318(3)(a)(ii): the views of the former Hunter employees who would be affected by any order

[20] I have earlier outlined the process adopted by Fair Work Australia to facilitate any concerns amongst the employee group being raised. Stratco also provided evidence, in the form of an affidavit from Mr Donald Woods, State Manager, regarding the consultation process adopted by it in the lead up to this application.

[21] This included the provision of comprehensive advice to all employees as to the differences between the Collective Agreement and the modern award, detailed consultation with a representative committee formed by the employees comprising a representative of full-time, part-time and casual employees, and a subsequent ballot of employees.

[22] All 28 employees voted, and all but one of the employees supported the application of the modern award to the Hunter site.

[23] Given the evidence of the process leading to that point, including advice to the employees that an application would subsequently be made to Fair Work Australia to seek that outcome, I am satisfied that the ballot result represents the genuine views of the former Hunter Timber employees in this matter.

Section 318(3)(b): any disadvantage to the employees in relation of their terms and conditions of employment

[24] Considerable material has been provided both to the employees and to Fair Work Australia analysing the differences between the Collective Agreement and the modern award.

[25] This consideration was discussed in the Supplementary Memorandum to the TPCA Act 2 Applying that approach, it is intended that while the terms and conditions of employment between an employer’s own industrial instrument and the transferable instrument may be different, Fair Work Australia should satisfy itself whether “overall, the employees would not be disadvantaged”. This of itself may not prevent the granting of the application but in my view would represent a significant hurdle as part of the wider considerations which must be taken into account for the purposes of s.318(3) of the Act.

[26] Without discussing each of the differences between the two instruments, the following represent the most significant considerations in this regard:

• The Collective Agreement provides a consolidated or loaded rate that applies to all ordinary hours worked across the seven days of the week whereas the modern award provides additional payments for work on weekends and late trading nights (amongst other times)



• The consolidated rate is higher for some employees than the modern award rate and the relative benefit of the two packages depends to some degree on the extent of weekend work that is performed



• The span of ordinary hours under the modern award is less than under the Collective Agreement and as result more hours would be treated as being overtime under the modern award



• Overtime under the Collective Agreement applies time and a half for the first two hours, as opposed to three hours under the modern award, however the time off in lieu arrangements are more beneficial under the modern award and little overtime applies in practice under the Collective Agreement



• The part-time provisions under the modern award are more beneficial for employees



• The casual loading is higher under the modern award



• There are minor differences in terms of breaks and rest periods



• A higher laundry allowance is provided by the Collective Agreement



• A higher motor vehicle allowance is provided by the modern award, and



• The Collective Agreement provides for a day off for an employee’s birthday and whilst paid or unpaid leave would remain available, this is not matched under the modern award.

[27] Stratco committed to the transferring employees through their contracts of employment that there would be no financial disadvantage as a result of the proposed conversion to the modern award. As outlined earlier, the modern award package may be less beneficial for some employees but in general terms only where particular patterns of hours are worked involving a low proportion of Sunday employment. Based upon the material before Fair Work Australia, this scenario is not common at the Hunter store.

[28] However the interests of all employees must be considered and I therefore invited Stratco to identify these circumstances and to confirm how it would intend to ensure that its commitment to the employees would be applied in practice without creating the same sort of administrative and “cultural” complications that it was seeking to avoid by this application.

[29] Stratco subsequently confirmed formal undertakings to Fair Work Australia in the following terms: 3

“Formal undertakings

Based on the above, our client provides the following undertakings:

1. Transferred casual employees will be paid at the rate of:

Monday to Friday - $21.09 per hour ($16.87 plus 25%);

Saturday - $22.77 per hour ($16.87 plus 35%);

Sunday - $33.74 per hour ($16.87 plus 100%).

2. In the event that a transferred casual employee elects only to work on Saturdays, the employee will be paid at the rate of $24.36 per hour.

3. Transferred part-time team members will be paid at the rate of $17.13 per hour plus an over Award component to ensure that their earnings for their current roster pattern are maintained. The over Award component will be established such that it incorporates the additional laundry allowance of $1.90 per shift that would have been payable under the Agreement. As part-time members work a variety of shifts, this calculation will be undertaken for each part-time team member for each pay period.

4. Transferred full time employees will be paid at the following rates:

Monday to Friday Roster - $19.11 per hour;

Saturday Roster Pattern - $18.21 per hour;

Sunday Roster Pattern - $17.13 per hour.”

[30] It is intended that these undertakings will be applied to each relevant employee until such time as the modern award package clearly exceeds these arrangements.

[31] In reaching my conclusions in this matter, I have had regard to these undertakings. I have done so as the focus of s.317(3)(b) of the Act is upon the consequences of the proposed orders. This by implication requires that the primary focus in this regard is upon the two industrial instruments involved. However, this subsection is not expressly restricted to the effect of those instruments and in this case the undertakings have been formally made to Fair Work Australia and now recorded in this decision. Further, these undertakings give effect to legally enforceable undertakings given as part of the relevant employment contracts.

[32] Having regard to these undertakings and to the operation of the two instruments more broadly, I am satisfied that the employees will not be disadvantaged.

Section 318(3)(c): the nominal expiry date of the Collective Agreement

[33] The Collective Agreement expires on 16 April 2012.

[34] The fact that the Collective Agreement has almost two years to run is in my view a relevant consideration in two respects. It is clearly not an instrument that has passed or is even close to the time when the parties who made it considered that it should be revisited.

[35] On the other hand, in terms of the impact of the Collective Agreement within the new environment, subject to this application, it will operate for a further two years before it reaches the point where it would otherwise be renegotiated.

Section 318(3)(d): any negative impact on Stratco’s workplace

[36] These considerations have been outlined in discussing the employer’s position under s.318(3)(a)(i) above.

[37] It is generally desirable that, subject to considerations of overall fairness, common conditions of employment operate amongst like employees in the same workplace.

[38] The nature of the undertakings is that they can be given effect to without maintaining a separate payroll or significantly different employment arrangements. They will also become less relevant over time and ultimately lead to a common set of modern award conditions.

Section 318(3)(e): any significant economic disadvantage to Stratco as a result of the Collective Agreement

[39] There are some costs associated with the need to run and maintain separate payrolls and to modify standardised employment matters. I do not however consider this factor to be significant in its own right.

[40] Given the nature of two instruments, the different costs structure are also not significant in this context.

Section 318(3)(f): business synergy between the Collective Agreement and the modern award

[41] “Business synergy” may have wide connotations however for present purposes the business is capable of operating under either instrument. To the extent that the loaded rate concept of the Collective Agreement is different to the way in which Stratco employs and otherwise conducts its business, this may be said to be a factor favouring the granting of the application.

Section 318(3)(g): the public interest

[42] The public interest in this context is influenced by the objects of this Part of the Act in s.309 and those adopted by the Act more broadly.

[43] There is public interest in ensuring that agreed and statutorily approved arrangements are not put aside lightly and where they are to no longer apply, the interests of the employees concerned are safeguarded. The absence of disadvantage, and the evident employee support for the change in this case, are important considerations.

[44] Further, and particularly given the above context, there is also public interest in ensuring that the business of Stratco in the Hunter and more broadly, is able to efficiently operate without unnecessary complications in its employment arrangements.

[45] It is also the case that the public interest in this matter is served by facilitating arrangements that permit and encourage the maintenance of employment for the former Hunter Timber employees through the transfer of business process.

CONCLUSIONS AND ORDERS

[46] Having regard to all of the considerations raised by s.318 of the Act, I am satisfied that I should exercise my discretion to grant the application and to make an order.

[47] The order to be issued in conjunction with the decision (PR501693) is to the effect that the Collective Agreement will not cover Stratco or its employees who have transferred from Hunter Timber. In that light, the modern award will apply to all employees of Stratco, subject to the undertakings outlined in this decision.

[48] The order will apply on and from 5 October 2010 as sought by Stratco and this timeframe will permit the implementation of the minor modifications to the payroll system and to ensure that the employees are fully informed prior to the change.

COMMISSIONER

Appearances:

L Smith of counsel (with permission) with S Lochert for Stratco (NSW) Pty Ltd

Hearing details:

2010

Adelaide

27 August

Final written submissions:

2010

7 September

 1   Explanatory Memorandum to the Fair Work Bill 2008 at pars 1254 to 1260.

 2   Revised Explanatory Memorandum to the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009.

 3   As provided in writing to Fair Work Australia on behalf of the employer on 7 September 2010.

Printed by authority of the Commonwealth Government Printer

<Price code C, AC317346  PR501517>