United Firefighters' Union of Australia-Victorian Branch v Metropolitan Fire and Emergency Services Board

[2012] FWA 5330

Note: An appeal pursuant to s.604 (C2012/4779) was lodged against this decision.

[2012] FWA 5330

FAIR WORK AUSTRALIA

FURTHER DECISION

Fair Work Act 2009
s.739 - Application to deal with a dispute

United Firefighters' Union of Australia-Victorian Branch
v
Metropolitan Fire and Emergency Services Board
(C2011/781)

COMMISSIONER ROE MELBOURNE, 20 JULY 2012

Alleged dispute concerning MFBs accident and illness policy and the provision of income protection insurance to operational staff pursuant to Clause 42 Allowances and Clause 19 Dispute Resolution of Metropolitan Fire and Emergency Services Board, United Firefighters’ Union of Australia Operational Staff Agreement 2010.

[1] On 6 February 2012 I issued a decision in this matter (PR519916). The relevant part of that decision was as follows.

“The resolution of the dispute

[117] This decision shall operate until the Agreement is replaced or terminated. The matter was agreed to be determined in the context of the current Agreement therefore any determination only applies whilst the current Agreement operates.

[118] Having regard to the fact that the costs have not been included in the current MFB budget and to allow adequate time to resolve outstanding issues, any outcome should operate from 1 July 2012. In the event that the UFU concludes that it is impractical to achieve income protection within the parameters set out in this determination they may, by written notification to the MFB and FWA, defer implementation so that it would become a matter to be resolved during the bargaining for the next Agreement.

[119] I have concluded that there should be an income protection scheme available to all firefighters in respect to non-work related injuries or illnesses. Provided that it is achievable within the cost parameters I establish, the level of that protection should be consistent with that available under the current AXA Scheme; that is 75% of normal income for up to 52 weeks. Access to benefits should be subject to the following conditions:

• The benefits should not be available until or unless personal leave entitlements have been exhausted.



• The benefits should not be available where the injury has been accepted as being covered by workers compensation. Protection in these circumstances is provided for in the other relevant provisions of the Agreement.



• The benefits should not be available where the injury arises from a journey to work accident. Protection in these circumstances is provided for in the other provisions of the Agreement.



• The benefits should not be available where the employee is offered and is fit to perform alternative duties under the MFB rehabilitation and return to work policies and procedures.



• The benefits should not be available where the employee is eligible for and obtains a temporary or permanent disability pension under the ESSS Superannuation scheme.



• Other conditions as outlined below.




[120] The minimum income protection benefit should be provided by one of two methods:

• The MFB and the UFU to establish an enhanced “leave bank” scheme. Employees who wish to participate in the scheme shall contribute 0.375% of normal weekly income (excluding overtime) to the MFB leave bank. The leave bank shall pay 75% of normal weekly income for up to 52 weeks. The benefits shall only be payable in respect to an illness or injury which has led to an accumulated absence of more than 14 working days. The MFB shall make contributions to the leave bank so that all employees who contribute can receive this level of benefit. However, the cost of the MFB contributions to the leave bank shall not exceed the total cost of employee contributions in any financial year. In the first year this shall apply on a quarterly basis. Where the leave bank is likely to be exhausted there shall be consultation between the UFU and the MFB. The UFU may arrange additional employee contributions or benefits may be reduced. The parties should seek to implement the provisions of Clause 86 of the Agreement to enhance the leave bank. An employee who elects not to contribute does not have the benefit of the leave bank. The parties should commit to strongly encourage participation. Based on the history of the AXA scheme and the nature of the industry one could expect a high proportion of employees will participate; or



• An income protection insurance scheme or schemes to be introduced. Employees shall contribute a minimum of 0.375% of normal weekly income (excluding overtime). If the premium exceeds this level the employees and the MFB shall contribute equally to the premium beyond 0.375% up to 1%. The cost of any premium beyond 1% shall be met by employees. To avoid doubt, the MFB shall not contribute more than 0.3125% of the total normal weekly income (excluding overtime) for the group of employees covered. There may be an alternative structure of employee contributions provided it raises the same total contribution to overall premium cost. An employee who elects not to contribute does not have the benefit of the minimum income protection. The parties should commit to strongly encourage participation. Based on the history of the AXA scheme and the nature of the industry one could expect a high proportion of employees will participate.




[121] For a number of reasons I have not reached a conclusion on a number of other details at this stage. I believe that a range of options should be explored to ensure the most effective outcome.

[122] In achieving income protection which meets these criteria a number of matters including the following must be resolved:

• Whether leave bank or income protection insurance is to be the approach adopted and the future role of the AXA scheme, if any, under either approach?



• If the leave bank approach is adopted what is the method for its implementation/administration?



• What is the claims approval and review process under either option?



• What is the nature of any exclusions under either option?



• If an insurance scheme is adopted, whether the employer or the UFU should be the policy holder of the scheme?



• If an insurance scheme is adopted, who should provide the insurance and administration?



• If an insurance scheme is adopted, whether or not there should also be a minimum waiting period where employees have low levels of accumulated personal leave at a particular time and if so what should be the length of that period?



• If an insurance scheme is adopted, the nature of any additional benefits such as lump sum benefits for death or disability?



• If an insurance scheme is adopted, the possibility of differential additional benefit levels depending on different levels of employee contributions or of benefits lower than 75% for 52 for weeks if the parties agree lower premium levels are required?




[123] The parties should consider the costs and benefits of various options.

[124] The parties are required to resolve the outstanding matters within two months. In the event that there are matters which cannot be resolved then they can if necessary be arbitrated at the conclusion of the two month period or earlier with the agreement of both parties. If necessary the Tribunal can assist through conciliation during the two month negotiation period.”

[2] The applicable agreement is the Metropolitan Fire and Emergency Services Board, United Firefighters’ Union of Australia Operational Staff Agreement 2010 (the Agreement).

[3] The parties did not reach agreement on the outstanding matters within two months. I was unable to resolve the matters through further conciliation. The parties agreed that it was necessary for the outstanding matters to be resolved through arbitration. Directions were issued on 1 May 2012. Consistent with those directions the MFB provided details of its leave bank proposal and the UFU provided details of its income protection insurance proposal on 11 May 2012. 1 This was later supplemented by proposed draft orders.2

[4] The Directions required the UFU and the MFB to respond to the proposal of the other and then meet in an attempt to narrow the issues to be determined. The MFB advised that they saw no purpose in a meeting.

Submissions and Evidence.

[5] The UFU provided its comments on the MFB proposal on 18 May 2012. 3 In that correspondence they claimed that the leave bank would most likely be an insurance contract and subject to the regulations applicable to such a contract. The UFU argued that the MFB had not explained how it proposed to administer the scheme in light of these regulatory requirements. The UFU argued that the MFB scheme was unworkable and inadequate for reasons including the following:

• It is contingent on a 90% participation rate by eligible firefighters being achieved prior to its commencement. 4



• The 90% participation rate excludes approximately 5% of firefighters who have more than 12 months sick leave whom the MFB exclude from eligibility for the scheme. If those firefighters are included then the required take up rate is approximately 85%. The rationale for the exclusion of those with 12 months sick leave is not explained and there is no explanation of how a firefighter who is in the scheme who subsequently accumulates 12 months sick leave is handled or vice versa.



• There is no requirement to pay the benefits if there are insufficient funds in the scheme and the possibility that benefits may not be paid will discourage participation and also may lead to employees contributing but not receiving benefits.



• Death and disablement benefits are not available but employees in the scheme are prohibited from taking out such income protection insurance. 5



• The conflict of interest in the MFB funding the scheme and at the same time determining the eligibility for payment of claims particularly where the MFB is required to assess whether or not an employee is fit to perform alternative duties. 6



• The lack of independence in administration and the absence of an internal review process and an external review mechanism.



• Lack of clarity of the definition of ordinary time earnings.



• Lack of clarity as to what occurs when a period off work due to an illness is interrupted by a period of successful return to work.



• Lack of clarity as to whether or not the accruing of new sick leave during a period of illness reduces the period of wage maintenance under the leave bank scheme. 7



• Lack of clarity as to whether or not employee contributions are tax deductible.



• Lack of detail in respect to the management of the Trust.

[6] The MFB provided its comments on the UFU proposal on 23 May 2012. 8 The MFB argued that the UFU income protection proposal was not consistent with the requirements of my earlier decision and was inadequate for reasons including the following:

• There is inadequate detail to assess the viability of the scheme.



• There is inadequate detail about the policy and how it can operate within the parameters of the decision.



• The absence of an exemption from benefits for those who are fit to perform alternative duties under the MFB return to work policy.



• The lack of detail and consistency in the way in which the contributions required by the MFB are expressed.



• The lack of clarity about the actual policy - the UFU offer three examples or policy options.



• The costings provided are indicative and likely to be inaccurate due to the lack of any realistic estimate of the level of take up by firefighters and the impact of the level of take up on future premium levels for the insurance.



• The UFU propose that the insurer will be responsible for the administration and claims review but the insurer is not clearly identified and it is proposed that the UFU be able to nominate the insurer. The dispute resolution process is not properly defined.



• The lack of clarity about the exclusions and lump sum benefits which may be available.

[7] The UFU provided an outline of submissions 9 and a statement from Cameron McDonald from ATC, an accident and illness insurance underwriter. That Statement provided clarification and correction of some of the matters raised in the MFB comments.10

[8] The MFB provided an outline of submissions 11 and a statement from Gary Okley from Jardine Lloyd Thompson Pty Ltd insurance brokers.12 Mr Okley gave evidence that the insurance premiums under an income protection policy will be affected significantly by the level of take up of the policy after the first twelve month period.

[9] The parties agreed, and I concur, that the expression in my decision “The benefits should not be available until or unless personal leave entitlements have been exhausted” is a reference to sick leave and carers leave entitlements and not to annual leave entitlements. 13

[10] The MFB argued that I must be satisfied that the proposals advanced satisfy the conditions I set down in my earlier decision and then I must evaluate the merits of the proposal. I agree that the parties were required to consider certain defined matters. To the extent it is necessary these maters will need to be determined in any final scheme.

[11] The MFB argue that if neither proposal adequately achieves the outcome contemplated by the decision then the correct approach is to dismiss the UFU application and direct the parties to negotiate the matter in the context of bargaining for the new agreement which can commence in April 2013. I accept that this is an option open to me. However, it is also open to me to modify the various proposals of the parties to ensure consistency with the decision and to resolve the dispute.

[12] The MFB raised some jurisdictional matters including that FWA has no power to make an order that the UFU hold the income protection policy as this is not a matter which pertains to the relationship between the MFB and its employees. I deal with this matter later.

[13] The MFB argue that it would not be appropriate to require the MFB to enter into a relationship with a particular income protection provider against its will. The UFU argue that provisions requiring employers to pay superannuation contributions to a particular provider are commonplace in Awards and that there is no problem with such an order.

[14] The MFB argue that FWA does not have the power to make an Order in the terms sought by the UFU. The MFB accept that I can deal with a dispute in respect to income protection pursuant to Clause 19 Disputes Settlement and Section 739 of the Act.

[15] The MFB expressed doubts concerning the tax deductibility of premium payments.

[16] The MFB put forward criteria I should consider in evaluation of the merits of the particular proposals and in particular that the criteria in Section 275 of the Act which apply to workplace determinations are relevant.

[17] The MFB provided some indicative costings for its proposed leave bank scheme 14 which suggested that annual contributions of $540,000 would be received and annual claims costs of $600,000 could be expected. In their final submissions, the MFB suggested that these costings were based on an assumption of a higher cost per claim than was evident from the experience in the AXA scheme and that therefore a lower annual claims cost could be expected.

[18] The matter was listed for hearing on 12 June 2012. At that hearing it became clear that in respect of the UFU income protection insurance proposal there were unresolved issues of detail about a number of aspects of the proposed policy and costings of that proposed policy. I agreed to issue a summons to require AXA to produce certain documents concerning the claims history of their policy which the UFU said would enable binding quotations to be obtained for the UFU proposals. I agreed that revised documentation and submissions would be presented at a further hearing on 27 June 2012.

[19] The revised policy proposal and draft order more clearly define the insurer and policy and that the UFU and the MFB would need to agree to any change to the insurer or policy. 15 The UFU also provided further evidence of the nature of the disputes resolution processes available in respect to the policy and claims.

[20] At the time of the hearing on 27 June 2012 the UFU stated that it was expecting a confirmation of a binding quotation from the insurers ATC by Friday 29 June 2012. The UFU expected that would confirm the premium rate of 0.8% of wages for ordinary time work including all purpose allowances but excluding overtime and any other allowances. That quotation was to be provided to the MFB and FWA. In the event that the quotation exceeds 0.8% the MFB was at liberty to make further submission.

[21] In final submissions the MFB accepted that, subject to the binding quotation being received and not exceeding 0.8%, the revised policy and schedule satisfied its objections to the order sought by the UFU raised in its earlier outline of submissions except for:

• The jurisdictional objection that the claim is not a matter pertaining to the employment relationship. This objection relates to the UFU being nominated as the insurer in respect of both members and non-members and to the insurer being a provider nominated by the union.



• The jurisdictional objection to the provision in the proposed order which allows for variation to the policy by agreement (although it was conceded that renewal of the policy on the same terms or known terms was possible).



• The concern about the possible effect of lump sum death and disablement benefits on the tax deductibility of premiums.



• The arguments in support of the merits of the MFB proposal and in support of the approach for determining the matter advanced by the MFB.



• The general argument in support of the matter being left to future bargaining in light of the delays in finalising the matter. 16

[22] Subsequent to the final hearing the UFU advised that there was a delay in finalising the binding quotation. Confirmation was eventually received in correspondence from Peter Marshall dated 18 July 2012 of the binding quotation with a premium rate of 0.75% of wages. This is less than the indicative quotation provided during proceedings of 0.8% of wages.

[23] It is not intended that the above be a comprehensive summary of the evidence and the submissions, all of which I have carefully considered.

Is the UFU claim a matter pertaining?

[24] The MFB argue that FWA has no power to make an order that the UFU hold the income protection policy as this is not a matter which pertains to the relationship between the MFB and its employees. The MFB referred to the Financial Clinic decision. 17 The MFB argue as a supplementary argument that Rules 5(1), 5(2) and 54(15) of the UFU rules do not allow the Branch to prosecute a claim unless the claim affects the interests of members of the Union. The MFB argues that the issue of which income protection insurance fund applies to non-members does not affect the interests of members.

[25] The UFU argue that the Financial Clinic decision does not support the MFB contention. They argue that the decision found that a claim for superannuation contributions to be made on behalf of members and non-members to a particular fund was a matter pertaining provided that the employee was a member of that particular fund. The UFU proposal allows employees to choose whether or not they wish to be covered by the insurance scheme. Therefore the claim is consistent with the claim which was found in Financial Clinic to be pertaining to the employment relationship. I accept this argument.

[26] The UFU argue that in the Financial Clinic decision the selection of a particular superannuation fund for non-members who were not members of the particular fund and did not have a choice about joining that particular fund was found in Financial Clinic to have no bearing on their employment position relative to union members and that there was therefore no legitimate industrial interest in nomination of a particular fund. The UFU argue that there is a further distinction which can be made in the circumstances of this case if their primary argument that the claim rejected in the Financial Clinic case can be distinguished from this case because non-members are not compelled to join the fund. They argue that in the present circumstances the selection of a specific insurer affects the type of benefits which are available to both union and non-union members. The level of uptake by employees generally affects the protection offered to union members.

[27] The MFB counters this argument by referring to the following evidence of Mr McDonald for the UFU.

“Who has calculated the premium, Mr McDonald? Has that been calculated by a Lloyds of London underwriter?---The premium rate?

Yes?---Lloyds provided us with a non-binding indication.

What assumptions if any as to take up rate underpin that premium?---The assumptions were that there were potentially 945 people who were eligible to join, these were people who aren't in AXA. It was made very clear to Lloyds that it was a voluntary scheme. Ideally we would be looking for hopefully a 50 per cent take up in the first year, but apart from that there are no other assumptions. Lloyds looked at the policy.

Do I take it from that, or are you not able to say, but do I take it from your answer that the .75 per cent premium assumes a take up of 50 per cent?---No, it doesn't assume it.

Makes no assumptions at all?---It doesn't.

Let's go back to the example you gave before. If only a handful of employees, say for an extreme example only a handful of employees took up the policy and a number of those made claims on the policy, that would inevitably translate at the time of renewal into a need for a very substantial increase in premiums?---Can't say substantial but it would necessitate a review of the premium and a quite possible increase, subject to what those claims were.” 18

[28] I also consider that the evidence of Mr Okley for the MFB is relevant.

“Referring to paragraphs 28 and 29 of Mr McDonald’s statement, I note that Mr McDonald asserts that he has no reason to believe the indicative costings in the IP Insurance Proposal will change and that the costings are based upon participation rates ranging from one employee to 945 employees. That is, the premium will remain as indicated, regardless of whether one employee joins the scheme or 945 employees join the scheme. In my opinion, this assertion is too narrow, too short term, may therefore be inaccurate and does not reflect the commercial reality of the premiums provided by insurance companies beyond a 12 month period.

Contrary to Mr McDonald’s assertion, there is a direct link between the number of employees participating in an income protection insurance scheme and the premium rate paid in respect of the insurance payments paid by those employees. As such, if there was a low take-up rate amongst employees of the MFB of the voluntary scheme, this would inevitably have the consequence that premium payable would be higher than would be the case if a significant proportion of employees took up the insurance.

Therefore, in my experience, where participation rates in voluntary schemes are towards the lower end of that scale of participation, I believe the insurance company that is ultimately selected, and enters into a contract of insurance covering MFB employees, is highly likely to review and increase its premiums after the initial 12 month period of the policy and onwards as claims and administration costs will most likely exceed any premiums that are collected.” 19

[29] I prefer the evidence of Mr Okley on this point. I am not convinced that a group insurance policy would be entered into without some estimate of the expected take up rate. Mr McDonald indicated that he communicated an expectation of a 50% take up rate in the first year but gave evidence that the premium did not assume that take up rate. I understand Mr McDonald’s evidence to mean that the provider is prepared to offer the premium during the first twelve months regardless of the take up. However, given the evidence of Mr Okley I do not find it believable that a group insurance offer would be made without some estimate of the likely take up rate. The breadth of those to be included would clearly affect such an estimate. Even if I am wrong about this there is no doubt that Mr Okley and Mr McDonald both agree that the take up rate in the first year is likely to affect premiums beyond the first year. Thus it is clear that the UFU and its members have an interest in the take up rate and hence the inclusion or non-inclusion of non-members affects their interests.

[30] If I am wrong that this matter is analogous to the claim found to be a matter pertaining in Financial Clinic then I consider that it is distinguishable from the matter found to be not pertaining because the UFU and its members have an interest in the take up rate and hence the inclusion or non-inclusion of non-members affects their interests.

[31] The UFU also refers to a 2005 Full Bench decision of Justice Giudice, Deputy President McCarthy and Commissioner Mansfield in Re Excel (Australia) Logistics Pty Ltd 20 which found that a provision in an agreement which provided for an employer to pay income protection insurance premiums to the NUWs nominated insurance brokers was a matter pertaining to the relationship between the employer and employees. DP McCarthy dissented from some aspects of the decision but agreed with this aspect. The MFB correctly argue that the issue of whether or not the nomination of the union provider was a matter pertaining is not explicitly dealt with in the decision. However, I note that the Full Bench decision that the particular clause was a matter pertaining was made after the Financial Clinic decision.

[32] I am satisfied that the claim is a matter pertaining to the relationship between the employer and employees. I am also satisfied that the claim is a mater pertaining to the relationship between the employer and the UFU.

Can an order in this matter provide for the MFB and the UFU to agree subsequent alterations to the insurance policy?

[33] The MFB argue that any order which provides for the parties to agree to its variation would be void due to its uncertainty and would involve an impermissible delegation of the powers of FWA. The MFB accepted that the order could provide for the renewal of the policy on the same terms or variation of the policy on defined terms. The MFB referred to the decision of Justice Ryan in Kilpatrick Green Pty Ltd v CEPU. 21 Justice Ryan took the view that a provision of the Agreement could not provide for the parties to vary the agreement, perhaps very substantially, without a requirement for the variation to be certified in accordance with the then legislation. In the circumstances before Justice Ryan there were no limits on the extent of the variation which the parties might potentially agree in respect of a particular category of employees. I doubt that the MFB is correct that the circumstances of this case are similar. I do not consider that the decision of Justice Ryan prevents clauses in Agreements which provide for certain matters to be finalised or changed during the life of the Agreement provided that the parameters of such matters are appropriately defined. The same applies to decisions in settlement of disputes under Agreements through private arbitration.

[34] However, it is not necessary to determine the matter as I consider that it is appropriate that any decision I might make should clearly define the policy and any permissible variation to that policy. I consider this appropriate having regard to paragraph 118 of my earlier decision in this matter and given that the nominal expiry date of the Agreement is 30 September 2013.

Consideration.

[35] I do not change the general conclusions I reached about the proper approach to resolving this dispute that I set out in my earlier decision. 22

[36] In that decision I accepted that I should have regard for the objects of the Act in determining this matter and in particular the objective to achieve productivity and fairness. However, I noted that the decision the parties made in reaching the Agreement that this matter should be privately arbitrated was an outcome of collective bargaining and was consistent with the promotion of collective bargaining under the Act.

[37] I accept that there are some similarities between my task in resolving a “reserved matter” in a collective agreement and the task that the Tribunal faces in dealing with a workplace determination. The similarity is that the Tribunal is being asked to determine matters which have been raised in bargaining but not finally determined through the bargaining. However, there is an important difference in the two circumstances. In the case of a workplace determination the parties have not consented to arbitration or the timing of it. A consequence of this is that the bargaining position of a party may be that a particular claim should under no circumstances be included in the agreement. In fact that party may have expended considerable resources in prosecuting or resisting a particular claim through protected industrial action or lockout. In the case of a “reserved matter” the nature of the party’s position in respect to a particular claim will vary from “agreement in principle subject to resolution of the details” to “opposition but acceptance that the matter may be determined by arbitration and that the outcome from private arbitration may be the granting of the claim”. In this particular case it is the latter which best summarises the situation of the MFB but even that situation is quite different from the “not under any circumstances” bargaining position which often applies in the case of a workplace determination.

[38] Section 275 of the Act provides that:

“The factors that FWA must take into account in deciding which terms to include in a workplace determination include the following:

(a) the merits of the case;

(b) for a low-paid workplace determination—the interests of the employers and employees who will be covered by the determination, including ensuring that the employers are able to remain competitive;

(c) for a workplace determination other than a low-paid workplace determination—the interests of the employers and employees who will be covered by the determination;

(d) the public interest;

(e) how productivity might be improved in the enterprise or enterprises concerned;

(f) the extent to which the conduct of the bargaining representatives for the proposed enterprise agreement concerned was reasonable during bargaining for the agreement;

(g) the extent to which the bargaining representatives for the proposed enterprise agreement concerned have complied with the good faith bargaining requirements;

(h) incentives to continue to bargain at a later time.”

[39] The factors in (a), (c) and (e) are clearly relevant in a private arbitration in respect to a reserved matter and I have taken them into consideration. The issues associated with productivity and in particular the affect on absenteeism, employee well being, and facilitation of return to work were all matters that I took into account in the original decision in this matter. I do not regard the difference between income protection insurance and the leave bank as having significant productivity consequences. Certainly there is no evidence before me in respect to that matter. The issues of cost to the employer and employees and the questions of certainty and independence are matters which I consider to be relevant and deal with in this decision. These matters concern the merits and the interests of the employers and the employees. There are a number of other matters which go to the merits of the rival proposals which I deal with in this decision.

[40] The factors in (b), (f), (g) and (h) are of particular relevance in a situation where the actions of the bargaining parties have led to the termination of bargaining and the commencement of a process of workplace determination. They will not always be of relevance to a private arbitration in respect to a reserved matter. They are not particularly relevant in the circumstances of this matter. The factor in (h) has some linkage to the Object in the Act related to the encouragement of bargaining and I do consider that to be of some limited relevance in this case and I have taken that into consideration in reaching my conclusions. The public interest, factor (d), has some limited relevance although what it means may be different in the circumstances of a particular private arbitration from what it means in the circumstances of a particular workplace determination. In the circumstances of the matters to be determined at this stage of the resolution of the dispute I doubt that it is a separate consideration from the merits of the case.

[41] I am satisfied that the design features of the income protection insurance proposal as outlined in the UFU proposed policy and schedule are sufficiently consistent with the requirements of my earlier decision. I am satisfied that with the exception of the absence of clear arrangements in respect to appeals the MFB leave bank proposal is sufficiently consistent with the requirements of my earlier decision.

[42] After evaluating the various submissions and the evidence I consider the main strengths of the leave bank proposal to be:

• Virtually all of the contributions by the MFB and firefighters go directly to the provision of benefits. None of the contributions go to support the costs of external administration or the profits of the insurer. There may be some costs associated with the proposed Trust but these are likely to be small when compared to an insurer’s costs.



• The scheme is able to be closely linked to other employee support mechanisms operated by the MFB and the UFU and to promote employee health and return to work.



• The scheme builds on the existing culture of mutual help amongst firefighters. The UFU and the MFB both contribute to the maintenance of this culture.

[43] I consider the main weaknesses of the leave bank proposal to be:

• The degree of MFB control of the scheme and employee entitlements under it despite the fact that employees would make the majority contribution. The perception of employer control may have an effect on take up.



• It is possible that there will be insufficient funds in the leave bank to support all claims that meet the eligibility criteria. If there is a risk of this occurring then it is unlikely that there will be significant take up in the scheme by firefighters. It is unlikely that firefighters will contribute if they are not guaranteed of receiving the benefit if they meet the eligibility criteria. The data produced by the MFB showed a likely shortfall. 23 Revised data on duration of claims suggests that this may not be the case and this reduces the risk, but it does not eliminate the possibility that there may be insufficient funds to meet all claims.



• The requirement that there be 90% take up amongst eligible firefighters before the scheme is able to function is likely to result in significant delays and apprehension amongst eligible firefighters that there is a risk or uncertainty associated with joining the scheme.



• The anticipated lack of support from the UFU and its membership for the leave bank proposal may reduce the level of participation and the viability of the scheme.

[44] I consider the main strengths of the income protection proposal to be:

• Decisions about access and administration are independent of the MFB and the UFU.



• Contributors are guaranteed protection if they meet the eligibility criteria.



• The scheme can be up and running quickly as the level of take up amongst eligible firefighters builds.

[45] I consider the main weaknesses of the income protection proposal to be:

• The MFB concerns about the issue of who holds the policy and the selection of an appropriate provider. However, I note that the MFB have not proposed any alternative provider, have not expressed a desire to hold the policy and have not proposed any speedy mechanism to resolve these questions to their satisfaction.



• The significant administrative costs, the risk premium that needs to be paid to the provider and the cost of the profit share to the provider.



• The possibility that premiums may increase in the future particularly if take up by eligible firefighters is low. My earlier decision ensures that this risk is borne primarily by the employees as the MFB contribution is capped at 0.3125% of the total normal weekly income (excluding overtime) for the group of employees covered.

[46] Some but not all of the identified weaknesses in both schemes can potentially be overcome by decisions I might make to modify the proposals. For example, I could decide that MFB contributions to the premiums cannot increase during the life of the Agreement in the income protection scheme and I could require an independent appeals and assessment process for the leave bank scheme.

[47] The fact that benefits do not have to be paid if there are insufficient funds in the leave bank is an essential feature to regulate the costs to employees and the MFB. However, this feature will affect the attractiveness of the scheme to employees and the likely level of take up.

[48] I consider that the extra certainty may justify some extra cost in the income protection insurance. I accept that the extra cost may be negligible depending upon the resolution of the taxation issues and the issue of possible regulatory and administrative costs associated with the leave bank proposal. In any case the risk associated with the extra cost is primarily with the employees given that the MFB contribution is capped.

[49] The MFB contribution rate to the income protection insurance scheme proposed by the UFU will be significantly less than the proposed MFB contribution rate to the leave bank scheme. The design of the scheme means that the MFB contribution to the insurance scheme will always be less than the contribution rate required to the leave bank scheme.

[50] I am satisfied that premiums in the short term may not be affected by the level of take up but I accept the evidence of Mr Okley that after the first year premiums will rise if the take up levels are low. However, I agree with the UFU that a high level of take up is likely given the high take up amongst those eligible for the AXA scheme. Furthermore, the UFU have a high level of membership in the MFB and I am satisfied that the UFU will strongly promote the scheme and consider that promotion is likely to be effective. That said, I have no clear evidence before me which would enable me to determine the probable level of take up of the scheme with any confidence and hence I am not in a position to determine the likelihood of future increases in premium levels. As I mentioned earlier it is possible to remove this problem by preventing any increase in premiums paid by the MFB during the life of the Agreement.

[51] For the reasons outlined earlier I do not consider that the issue of uncertainty about the cost of income protection insurance premiums into the future is a significant argument against the adoption of this option.

[52] The MFB proposal does not operate until the 90% participation level is achieved. My decision implied that it would operate immediately to the extent that funds were available on a quarterly basis. However, I did allow for additional conditions to be put forward and discussed. Although this condition may be financially prudent for the MFB it does create significant uncertainty as to whether the scheme will ever pay benefits and this in itself may affect take up in the scheme. The uncertainty would be reduced but not removed if the 90% threshold was reduced. However, I would be reluctant to interfere with the MFBs decision to require a threshold participation before the scheme commences. If I were to do so it could increase the chances that claims would be denied because of insufficient funds in the scheme to pay for them and this increased uncertainty would be likely to decrease the take up further.

[53] Given all the circumstances of this contested matter I consider it most unlikely that 90% participation will be achieved in the MFB’s leave bank scheme. I doubt that the threshold would be reached even if the participation threshold was significantly lowered.

[54] The UFU concerns about the lack of independence in the claims approval process are legitimate and could affect take up in the scheme. The MFB proposal also does not have adequate details of an appeal or review process. I could rectify these problems in any decision should I consider that the leave bank proposal should be preferred. I do not regard the UFU concerns about MFB controlling the trust fund and manager as particularly significant.

[55] I accept that the most common practice in respect to income protection provisions in collective agreements is that the employer is the policy holder. The electrical contracting industry is an exception to this practice but it is not the only such exception. The provisions in collective agreements which provide for this approach have been agreed to by both parties. I am determining this matter by private arbitration. Most income protection provisions in collective agreements provide that 100% of the premium is paid by the employer whilst in this case the majority of the premium is paid by the employee.

[56] I would prefer that if income protection insurance was selected that I could determine the issue of appropriate provider and who should hold the policy with the benefit of a proposal or process which the MFB had indicated it could accept. Similarly, I would prefer that if the leave bank scheme was selected that I could determine the issues of management and appeals structure with the benefit of a proposal or process which the UFU had indicated it could accept. When the parties failed to reach agreement on this matter during the period I allocated following my decision in February I directed them to exchange proposals and to comment on those proposals. I was hopeful that each party would provide comments on how they would like the option they did not prefer modified. However, neither party was prepared to do this.

[57] I have concerns about the impact of the delays in this process. I consider that further delay would be unfair and inappropriate. I do not consider it appropriate to require a further lengthy process to determine the appropriate insurer in the event that I consider the income protection proposal should be preferred. Over the past four months the MFB have not put forward an alternative policy or provider or raised any specific concerns about the provider proposed by the UFU. The employees will be the major contributors to the cost of the premiums. Similarly, given the failure of the UFU to put forward any alternative proposals, I do not consider it appropriate to require a further lengthy process to determine the trust and appeal arrangements in the event that I consider the leave bank proposal should be preferred.

[58] The MFB argue that it would not be appropriate to require the MFB to enter into a relationship with a particular income protection provider against its will. The UFU argue that provisions requiring employers to pay superannuation contributions to a particular provider are commonplace in Awards and that there is no problem with such an order. In the circumstances of this case I regard it as appropriate to accept the policy and insurer proposed by the UFU if I adopt the income protection insurance option. I accept the evidence that ATC has significant experience in the provision of group income protection insurance.

Conclusion

[59] Firefighters should not be denied the benefit of the decision because the parties could not agree on the implementation details. The dispute over the implementation details is a part of the original dispute and can be resolved by arbitration.

[60] Weighing up all of the factors I consider that income protection insurance is the best option in the circumstances of this case.

[61] There is some uncertainty about the tax deductibility of contributions and the effect of FBT on either scheme. The UFU submitted that premiums paid to the income protection scheme are likely to be tax deductable and exempt from FBT. The MFB claim that to the extent that there is a death and disability lump sum component the insurance scheme is subject to FBT. I have some doubts about this submission particularly given that death and disability benefits are a common feature in income protection schemes. The UFU submitted that there was some uncertainty about the regulation and taxes associated with a leave bank scheme if it is deemed to be a contract of insurance. The MFB did not accept this submission. However, it is not necessary to determine these matters. Even if I accept the submissions of the MFB this would not change my evaluation that income protection insurance is the best option in all the circumstances. The premium cost to the MFB at between 0.1875% and 0.2125% is signficantly less than the maximum set in my decision at 0.3125% and than the contribution level in the leave bank scheme of up to 0.375%.

[62] I accept that in relationship to both schemes there are some uncertainties about taxation and regulatory costs. My decision about costings was based upon a fair sharing of cost and the appropriateness of retaining the current level of employee contribution. The amounts in my earlier decision do not include any taxation or incidental internal administrative costs. I do not intend to change the amounts in my decision notwithstanding the fact that there is some uncertainty about whether additional taxation and incidental internal administrative costs might apply. The potential incidental internal administrative costs are not likely to be significant in relation to income protection insurance but might be more significant in the case of the leave bank. The potential taxation costs are FBT which, in the event that it applies, is a known quantity.

[63] I consider that the UFU proposal should be adopted with two modifications.

[64] The first modification is that the UFU propose that it should be the “Insured” or in other words the holder of the policy. I consider that in the context of a private arbitration as opposed to an agreement the MFB should have the option to be a joint holder of the policy given that it is being required to make premium contributions and provide payroll support. I consider it appropriate for the UFU to be a joint policy holder given that employees are making the majority of the contributions to the premiums. I do not intend to require that the MFB be a joint holder of the policy with the UFU should they prefer that the UFU be the holder of the policy.

[65] The second modification is that I consider that it is appropriate that the arrangements that are to apply during the life of the Agreement should be clear and that the scope of any permitted modification to those arrangements should be clear and defined. I do not consider it appropriate in these particular circumstances that the parties should be able to vary the arrangements in an unfettered manner.

[66] Further to my decision in United Firefighters’ Union of Australia - Victorian Branch v Metropolitan Fire and Emergency Services Board[2012] FWA 1085 24 and pursuant to Clause 19 Disputes Resolution of the Agreement I therefore determine that the following shall apply as the appropriate resolution to the dispute:

1. Commencing, within 30 days of the making of this determination and continuing thereafter every operational employee whose employment is subject to the Agreement shall be offered an option to elect to take out insurance cover in accordance with the terms of the policy and schedule set out in Exhibit UFU 18 in C2011/781. (Policy). This shall also apply if the Insurer elects to renew the Policy after its first anniversary. The terms of the Policy may be varied pursuant to Clause 5.

2. Notwithstanding clause 1, insurance cover shall not be offered to those employees who retain cover under the United Firefighters’ Union Sick & Accident Plan, Group Number: VJ3737 AXA scheme (AXA).

3. An employee who makes an election under clause 1 will have deducted from his or her wages a sum equivalent to 0.5625% of wages for ordinary time work including all purpose allowances but excluding overtime and any other allowances (Insurable Income) if the premium is 0.75% and 0.5875% of Insurable Income if the premium is 0.80%; or such sum as is necessary to pay the premium under the Policy,

PROVIDED THAT the relevant employee has agreed in advance to such deduction.

4. The MFB shall pay in accordance with the Policy, on behalf of the Insured under the Policy in respect of each employee who elects to take out insurance cover under clause 1, the premium specified in the Policy comprised in the following proportions:

a. The amount deducted under clause 3 from the employee’s Insurable Income; and

b. A sum equivalent to 0.1875% of Insurable Income as defined in clause 3 if the premium is 0.75% and 0.2125% of Insurable Income as defined in clause 3 if the premium is 0.80%.

5. The “Insured” as defined in the Policy shall be varied to be the UFU and the MFB should the MFB advise the UFU and FWA in writing of its support for this variation by 26 July 2012. The “Premium” as defined in the Policy may be 0.75% in lieu of 0.80% and the “Premium” as defined in the Policy upon renewal shall be no more than 0.80%.

6. The Metropolitan Fire and Emergency Services Board (MFB) and/or the United Firefighters’ Union (UFU) are at liberty to apply for variation to resolve any implementation issues.

COMMISSIONER

Appearances:

Mr W Friend for the UFU.

Mr M McDonald for the MFB.

Hearing details:

2012
Melbourne
June 12 & 27

 1   Exhibits UFU 13 and MFB 6.

 2   Exhibits UFU 19 and MFB 10.

 3   Exhibit UFU 14.

 4   Exhibit MFB 6, point 1.2.

 5   Exhibit MFB 6, point 4.1(d).

 6   Exhibit MFB 6, point 4.1(i) and 4.7.

 7   Exhibit MFB 6, point 4.1(c).

 8   Exhibit MFB 7.

 9   Exhibit UFU 15.

 10   Exhibit MFB 7.

 11   Exhibit MFB 8.

 12   Exhibit MFB 9.

 13   PN60 to PN62.

 14   Exhibit MFB 8, Attachment A.

 15   Exhibit UFU 18 and Exhibit UFU 19.

 16   The MFB referred to paragraph 118 of Print 519916.

 17   Re Finance Sector Union of Australia; Ex Parte Financial Clinic (Vic) Pty Ltd and others (1993) 114 ALR 321 at 328 and 329.

 18   PN124 to PN126.

 19   Exhibit MFB 9 at paras 13 to 15.

 20   Re National Union of Workers; Re Agreement with Excel (Australia) Logistics Pty Ltd (2005) 146 IR 334.

 21 (1998) FCA 559 at pages 8 and 9.

 22   Print 519916 at paras 37 to 44.

 23   Exhibit MFB 8, Attachment A.

 24   Exhibit UFU 19.

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