Sunnyhaven Limited
[2012] FWA 6664
•16 AUGUST 2012
Note: An appeal pursuant to s.604 (C2012/5059) was lodged against this decision - refer to Full Bench decision dated 1 November 2012 [[2012] FWAFB 9399] for result of appeal.
[2012] FWA 6664 |
|
DECISION |
Fair Work Act 2009
s.185 - Application for approval of a single-enterprise agreement
Sunnyhaven Limited
(AG2012/9982)
COMMISSIONER MCKENNA | SYDNEY, 16 AUGUST 2012 |
Sunnyhaven Limited Non-Award Covered Enterprise Agreement 2012.
[1] Sunnyhaven Limited (“the applicant”) has made an application, pursuant to s.185 of the Fair Work Act 2009 (“the Act”), for the approval of a single-enterprise agreement titled the Sunnyhaven Limited Non-Award Covered Enterprise Agreement 2012 (“the Agreement”). The Form F17, that is the Employer’s Declaration in Support of Application for Approval of Enterprise Agreement (“the employer’s declaration”), indicated that the Agreement is intended to cover and apply only to employees not covered by a modern award, described as being “essentially senior executives”.
[2] Two employees are presently intended to be covered by the Agreement, namely the applicant’s accountant and chief executive officer, although persons other than the current employees are envisaged in the Agreement. That is, the Agreement, at cl.2, is expressed to have operation in relation to all employees who are not covered by a modern award:
“2 COVERAGE & APPLICATION
This Agreement shall cover and apply to Sunnyhaven Limited (ACN insert) [sic] (the Company) and all employees of the Company who are not covered by a modern award.
Any employee covered by a modern award shall not be covered by this Agreement, nor shall it apply to them.
To remove any doubt, this Agreement shall cover and apply to employees of the Company in the positions of Chief Executive Officer and/or Account [sic].”
[3] The employer’s declaration did not identify any reference instruments, on the basis that the employees proposed to be covered by the Agreement were covered by neither a modern award nor formerly by any pre-reform award or notional agreement preserving a State award.
[4] The Agreement does not contain any terms or conditions of employment, such as rates of pay, hours of work or any other similar matters. Instead, the Agreement provides as follows:
“RELATIONSHIP TO EMPLOYMENT CONTRACTS
This Agreement shall be read in conjunction with an employee’s individual contract of employment (the latter as varied from time to time).
The terms of this Agreement shall prevail over an employee’s individual contract of employment to the extent of any inconsistency.”
[5] The Agreement deals substantively with three matters:
- cashing-out of paid annual leave at cl.5 in terms compliant with the requirements of s.93(2) of the Act, although the Agreement does not specify what annual leave entitlements would otherwise operate;
- cashing-out of paid personal/carer’s leave at cl.6 in terms compliant with s.101(2) of the Act, although the Agreement does not specify what personal/carer’s leave entitlements would otherwise apply; and
- cashing-out of long service leave, although this is a matter which would be illegal under the Long Service Leave Act 1955 (NSW): see Armacell Australia Pty Ltd and Others [2010] FWAFB 9985, 202 IR 38 and St Marys Rugby League Club Ltd [2010] FWA 9314, 206 IR 143.
[6] The Agreement provides at cl.8 that: “The model terms under the Fair Work Regulations 2009 shall be incorporated into this Agreement”. However, the Agreement specifies a dispute resolution provision at cl.9 which is not the model term specified in the Regulations for dealing with disputes for enterprise agreements and, moreover, the provision in the Agreement otherwise does not meet the requirements of s.186(6) of the Act. Clause 10, the final clause in the Agreement, is a no extra claims provision.
[7] At the initial listing of the application for the approval of the Agreement on 27 July 2012, I canvassed with counsel for the applicant a number of preliminary concerns about the application.
[8] On 6 August 2012, the application was listed for hearing. The following matters, drawn from the applicant’s written outline of submissions, were relied upon in support of the application for the approval of the Agreement:
- There is no requirement in the Act to specify pay rates in an enterprise agreement having regard to the floor specified in s.206(3) of the Act. Further, the statutory declarations of the employees indicated their current gross annual salaries.
- The common law employment contracts of employees covered by the Agreement do not arise for consideration in relation to the approval of the Agreement. The Agreement does not seek to regulate an employee’s employment contract, other than to the extent that such employment contract is inconsistent with the Agreement - in which case the Agreement shall apply to the extent of any inconsistency. Like the Agreement itself, such employment contracts must comply with the general law, including the requirements of the Act in relation to minimum wages and the National Employment Standards.
- The non-specification of annual leave and personal/carer’s leave entitlements in an enterprise agreement is not a barrier to approval having regard to Div 3 of Pt 2-1 and Pt 2-2 of the Act.
- The non-specification of specific “model terms” in the Agreement is not a barrier to its approval having regard to the statutory declarations of the employees, indicating they were given the model provisions concerning flexibility and consultation. In this regard, there can be no issue as to “genuine agreement”. The applicant further noted the operation of s.202(4) and s.205(2) of the Act, as to model terms being taken to be terms of an agreement.
- The inclusion of a long service leave cashing-out term in an enterprise agreement is not a barrier to its approval: Armacell Australia Pty Ltd [2010] FWAFB 9985 at [33].
- The deficient dispute settlement procedure contained in the Agreement, once supplemented by the employer’s undertaking, is not a barrier to approval: Woolworths Ltd trading as Produce and Recycling Distribution Centre [2010] FWAFB 1464.
[9] As to the better off overall test, the applicant submitted that even if there are no “award covered” or “prospective award covered” employees covered by the Agreement, or to whom the Agreement will ever apply, Fair Work Australia can be satisfied that employees will be better off overall if the Agreement applied to the employees than if they were employed under a non-existent modern award, i.e., on the basis that if there is no modern award, the employees will always be better off than with such non-existent modern award. The submissions continued that, to determine otherwise than as the applicant contended, would be to make a finding that either: (a) an enterprise agreement can never be approved if it seeks to cover or apply to an employee who is not an “award covered” or “prospective award covered” employee; or (b) for an enterprise agreement that is proposed to apply to a non-award employee to be approved by Fair Work Australia, the enterprise agreement must provide terms and conditions, in relation to non-award employees, akin to terms and conditions that are likely to be found in a modern award so that a notional better off overall test may be applied.
[10] The applicant submitted there is no provision in the Act equivalent to s.346H of the Workplace Relations Act 1996, being a provision which dealt with the designation of awards. Further, there is no express provision in the Act excluding non-award employees from making enterprise agreements, or prohibiting enterprise agreements that apply (or also apply) to non-award employees from being approved. To this end, it was submitted that any construction of the Act (by reference to s.186(2)(d) or s.193, or otherwise) that prohibits approving an enterprise agreement because it seeks to apply to non-award employees would be contrary to the legislative scheme, including s.3 (Objects) and s.171 (Objects of Pt-2-4) of the Act.
[11] The applicant proposed the following undertakings:
“AG2012/9982 Application by Sunnyhaven Limited for approval of Sunnyhaven Limited Non-Award Covered Enterprise Agreement 2012
Sunnyhaven Limited makes the following undertakings in accordance with s 190 of the Fair Work Act 2009 (the FW Act) with respect to the Sunnyhaven Limited Non-Award Covered Enterprise Agreement 2012 (the agreement):
Relationship to employment contracts (Clause 3)
1. Sunnyhaven Limited will pay any employee covered by the agreement or to whom the agreement applies at least 20 percent above the base rate of pay required to be paid in s 206(3) of the FW Act. For example, the full time adult minimum wage under the agreement in 2012 will be, as a minimum, $19.15 (being 20 percent above the 2012 full time adult minimum wage of $15.96).
Annual Leave and Personal Carer’s Leave (Clauses 5 and 6)
2. Sunnyhaven Limited will apply annual leave and personal carer’s leave entitlements to employees covered by the agreement or to whom the agreement applies in accordance with Part 2-2 of the FW Act.
Long Service Leave (Clause 7)
3. Sunnyhaven Limited will not accept, or agree to, any request by an employee to cash out any of their paid long service leave other than in accordance with the terms of the Long Service Leave Act 1955 (NSW).
Model Terms (Clause 8)
4. By reference to clause 8 of the agreement, the applicable “model terms” shall be the model flexibility and consultation terms set out in Schedules 2.2 and 2.3 of the Fair Work Regulations 2009. To be clear, these model terms shall be the only model terms incorporated into the agreement.
Disputes Procedure (Clause 9)
5. By reference to clause 9 of the agreement, the disputes procedure shall also apply to the settlement of disputes in relation to the National Employment Standards, ie to the extent permitted by the FW Act.
6. By reference to clause 9 of the agreement, an employee utilising the disputes procedure shall be entitled to be represented by a representative of the employee’s choice (including an industrial organisation of employees) throughout the disputes procedure.”
[12] Counsel for the applicant submitted that, having regard to the submissions, the employer’s undertakings, and s.186(1) of the Act, it is the statutory duty of Fair Work Australia to approve the agreement.
[13] Counsel submitted, in the alternative, that if the Agreement could not be considered to pass the better off overall test then the Agreement should otherwise be approved pursuant to s.189 of the Act.
Consideration
[14] As to general requirements for approval, s.186(2)(d) of the Act provides that Fair Work Australia must be satisfied that “the agreement passes the better off overall test”. As passing the better off overall test, s.193 of the Act provides as follows:
“193 Passing the better off overall test
When a non-greenfields agreement passes the better off overall test
(1) An enterprise agreement that is not a greenfields agreement passes the better off overall test under this section if FWA is satisfied, as at the test time, that each award covered employee, and each prospective award covered employee, for the agreement would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee.
...
Award covered employee
(4) An award covered employee for an enterprise agreement is an employee who:
(a) is covered by the agreement; and
(b) at the test time, is covered by a modern award (the relevant modern award) that:
(i) is in operation; and
(ii) covers the employee in relation to the work that he or she is to perform under the agreement; and
(iii) covers his or her employer.
Prospective award covered employee
(5) A prospective award covered employee for an enterprise agreement is a person who, if he or she were an employee at the test time of an employer covered by the agreement:
(a) would be covered by the agreement; and
(b) would be covered by a modern award (the relevant modern award) that:
(i) is in operation; and
(ii) would cover the person in relation to the work that he or she would perform under the agreement; and
(iii) covers the employer.
Test time
(6) The test time is the time the application for approval of the agreement by FWA was made under section 185.
FWA may assume employee better off overall in certain circumstances
(7) For the purposes of determining whether an enterprise agreement passes the better off overall test, if a class of employees to which a particular employee belongs would be better off if the agreement applied to that class than if the relevant modern award applied to that class, FWA is entitled to assume, in the absence of evidence to the contrary, that the employee would be better off overall if the agreement applied to the employee.”
[15] If, as the applicant contended, the employees who would be covered by the Agreement are exclusively non-award-covered employees, then statutory tests for the approval of an enterprise agreement, including those in s.186(2)(d) of the Act, cannot appositely arise for consideration. In view of the statutory criteria for the approval of an enterprise agreement, the Agreement is, thereby, effectively incapable of assessment in terms of the better off overall test. As a corollary, this application cannot be approved because Fair Work Australia must be satisfied an agreement passes the better off overall test as one of the conditions-precedent to approval. Despite the submissions of counsel for the applicant, including reference to authority concerning approval of agreements which do not pass the better off overall test, I do not consider that s.189 of the Act would form any proper basis on which to approve the Agreement given the operation and intent of that provision. That is, s.189 of the Act provides as follows as to matters including the better off overall test, exceptional circumstances and the public interest:
“189 FWA may approve an enterprise agreement that does not pass better off overall test—public interest test
Application of this section
(1) This section applies if:
(a) FWA is not required to approve an enterprise agreement under section 186; and
(b) the only reason for this is that FWA is not satisfied that the agreement passes the better off overall test.
Approval of agreement if not contrary to the public interest
(2) FWA may approve the agreement under this section if FWA is satisfied that, because of exceptional circumstances, the approval of the agreement would not be contrary to the public interest.
Note: FWA may approve an enterprise agreement under this section with undertakings (see section 190).
(3) An example of a case in which FWA may be satisfied of the matter referred to in subsection (2) is where the agreement is part of a reasonable strategy to deal with a short-term crisis in, and to assist in the revival of, the enterprise of an employer covered by the agreement. ...”
[16] If I am wrong in relation to the conclusion the Agreement is incapable of assessment in terms of the statutory criteria, then it seems to me there are further difficulties with the Agreement.
[17] Assuming the better off overall test could be applied by some means or another, then it may be noted the Agreement does not specify any remuneration or conditions of employment other than those, essentially the cashing-out provisions, I have identified earlier in the decision. Instead, cl.3 provides that the Agreement is to be read “in conjunction” with individual employees’ contracts of employment. The current employees’ contracts of employment were not before Fair Work Australia, albeit there was evidence as to the employees’ gross annual salaries. The chief executive officer’s six-figure remuneration could be considered to be comfortably above the upper range of remuneration for employees who would be covered by any modern award; the applicant’s contention that the person presently employed as its accountant would be award-free was, however, less clear. That is, it seems to me a person employed to undertake accounts work for a disability services provider such as the applicant may well be subject to modern award even considering the remuneration paid to the employee presently employed to undertake such work.
[18] If the better off overall test could be applied, I could not be satisfied that the Agreement passes the test for two reasons. First, the employment contracts to which reference is made in cl.3 of the Agreement are not before Fair Work Australia; the contracts do not appear to be incorporated by reference into the Agreement (i.e. the Agreement is to be “read in conjunction” with such contracts); and the contracts may be “varied from time to time”. Second, I do not know what contractual arrangements may be offered to prospective employees who purportedly would be award-free and then otherwise be covered by the Agreement. In this respect, it may be noted the proposed undertakings contemplate the employment of employees under rates of pay which are substantially lower than the remuneration paid to the two existing employees. That is, the applicant has provided an undertaking that it will pay any employee covered by the Agreement or to whom the Agreement applies at least 20 per cent above the base rate of pay required to be paid in s.206(3) of the Act. By way of illustration, the undertakings indicate the full-time adult minimum wage under the Agreement in 2012 will be, as a minimum, $19.15 an hour, which is described as being “20 percent above the 2012 full time adult minimum wage of $15.96”.
[19] Given the absence of rates of pay in the Agreement, and considering the minimum rate of pay identified in the undertakings, I am far from satisfied as to the Agreement (notionally) passing the better off overall test. The undertakings provide a flat minimum hourly rate in 2012 of $19.15 an hour, but without any other terms or conditions concerning matters such as ordinary hours of work and rostering; rest and meal breaks; weekend work; overtime rates; allowances; annual leave loading; minimum engagements; casual rates; job search entitlements; and so forth. When I queried the rate of pay identified in the undertakings, counsel for the applicant emphasised the rate should be considered only to constitute the minimum payment under the Agreement. It seems to me that if a prospective employee was engaged on these rates to relieve for the employee who presently performs the accounts work for the applicant, or to replace that employee, then that prospective employee would (almost assuredly) be worse off under the Agreement than if employed pursuant to a modern award, such as, hypothetically, the Clerks-Private Sector Award 2010 or the Social, Community, Home Care and Disability Services Industry Award 2010.
Conclusion
[20] I do not consider the Agreement is capable of assessment considering the terms of the Act and, as a corollary, is incapable of approval. If the Agreement is capable of assessment, then I am otherwise far from satisfied the better off overall test could be considered, even notionally, to be satisfied. In view of my conclusions in this regard, it is unnecessary to consider the other matters relied upon by the applicant in support of the application for the approval of the Agreement. Lastly, I note that of the three key cashing-out aspects of the Agreement, the long service leave cashing-out would be illegal and the cashing-out of annual leave by agreement is otherwise available to award/agreement free employees pursuant to s.94 of the Act.
[21] The application is dismissed.
COMMISSIONER
Appearances:
G. Boyce of counsel for Sunnyhaven Limited.
Hearing details:
2012.
Sydney:
August 6.
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