Viva Energy Refining Pty Ltd v The Australian Workers' Union

[2014] FWC 6184

[2014] FWC 6184

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.240 - Application to deal with a bargaining dispute

Viva Energy Refining Pty Ltd
v
The Australian Workers' Union
(B2014/774)

VICE PRESIDENT WATSON MELBOURNE, 11 SEPTEMBER 2014

Application by Viva Energy Refining Pty Ltd - Alleged dispute concerning enterprise bargaining claims generally - Fair Work Act 2009, s.240, s.275.

Introduction

[1] In May 2014, Viva Energy Refining Pty Ltd (Viva), then named Shell Refining (Australia) Pty Ltd, made an application under s.240 of the Fair Work Act 2009 (the Act) for the Commission to deal with a dispute about the negotiation of an enterprise agreement to replace the Shell Geelong Refinery Operations Enterprise Agreement 2011. Eleven conciliation conferences were convened over the period May to August 2014.

[2] On 30 July 2014 I issued a statement concerning the progress of the negotiations and the agreement of the parties to submit the outstanding issues to arbitration under s.240(4) of the Act. That statement was as follows:

“[1] The Commission has chaired a number of conferences between representatives of Shell Refining (Australia) Pty Ltd (the Company) and the Australian Workers’ Union (the AWU) concerning the renewal of the Shell Geelong Refinery Operations Enterprise Agreement. Negotiations for a new agreement have been taking place in the context of the announced sale of Shell Australia’s downstream oil assets, including the Geelong refinery, to Swiss/Dutch based oil trading company Vitol. That sale is expected to occur in early August 2014.

[2] The negotiations have resolved a number of matters in dispute but in the context of the change in ownership, have reached an impasse on several outstanding claims including redundancy pay, consultation and dispute settlement procedures. A ballot of AWU members has authorised protected industrial action by AWU members in support of its claims. Notices of industrial action have also been issued. However to date no industrial action has taken place.

[3] In order to avoid the consequences of industrial action for the Company, its employees, customers and the fuels market and in order to resolve the matters in dispute it is proposed that the enterprise bargaining dispute will be resolved in the following manner:

1. The outstanding matters will be resolved if possible by further discussions between the parties and conciliation before me, within 21 days from the date of this statement.

2. All matters that remain unresolved at the end of that period will be resolved by arbitration before me, applying the criteria for deciding disputed bargaining claims in section 275 of the Fair Work Act 2009 (the Act). The criteria are attached to this statement.

3. The outstanding issues that will be the subject of these processes are as follows:

• Wage increases to apply from 15 June 2016 and 15 June 2017. (There will not be any increase to current wages rates prior to that time. The term of the Agreement will be 4 years from 15 June 2014.)



• The application of the redundancy pay formula for future employees to be contained in a deed. This draft deed is being finalised by the parties. It is agreed that the deed will record the application of the redundancy pay formula for current employees in line with the existing Shell Redundancy policy. Other aspects of the deed are expected to be fully agreed.



• The wording of a consultation clause of the Agreement.



• The wording of the dispute settlement clause of the Agreement.



• The wording of the Agreement in relation to the mechanics of Flexible Hours Allowance, Long Service Leave and Annual Leave administration.

4. All other claims not agreed during the negotiations will not be pursued further.

5. All matters previously agreed during the negotiations will be included in an enterprise agreement.

6. The parties will have legal representation in the arbitration and agree to permission being granted for legal representation under s.596 of the Act.

7. The parties agree to accept the outcome of the arbitration and reflect the outcome in an enterprise agreement to be made under the Act except for the redundancy pay formula issue which will be dealt with in the proposed deed. There will be no recourse to protected industrial action in connection with bargaining for the Agreement.

8. At the request of the parties, Vice President Watson will conduct both the conciliation and the arbitration. On the basis that this occurs, the parties have agreed not to exercise any right of appeal.

9. Both parties will file and serve their proposed draft of the enterprise agreement, the wording of the disputed part of the deed and witness statements containing the evidence on which they intend to rely by 5pm on Thursday, 21 August 2014.

10. Any evidence in reply will be filed and served by 5pm on Thursday, 28 August 2014.

11. The arbitration will be heard in Melbourne on Thursday 4 and Friday 5 September 2014.

[4] The parties are directed to convey their response to this process by 12 noon on Thursday, 31 July 2014.

275 Factors the FWC must take into account in deciding terms of a workplace determination

The factors that the FWC 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.”

[3] After further conciliation and discussions between the parties, three of the five outstanding issues were resolved. Two remained unresolved - the quantum of wage increases to apply from 15 June 2016 and 15 June 2017 and the application of the redundancy pay formula to future employees contained in a deed to be entered into between Viva and the AWU.

[4] The bargaining representatives agreed to these matters being arbitrated thus enabling the Commission to arbitrate them pursuant to s.240(4) of the Act. A hearing of the matter was conducted on 4 September 2014. Mr W. Friend QC, of counsel, appeared for the AWU. Mr A. Morris, of counsel, appeared for Viva.

The context of the dispute

[5] In determining the outstanding bargaining matters it is important to have regard to the context of this dispute. Viva is the new name of the owner and operator of the Geelong oil refinery established and operated for many years by Shell Refining (Australia) Pty Ltd. The new name was adopted following the completion of the sale of Shell Australia’s downstream oil assets, including the Geelong refinery, to Swiss/Dutch based oil trading company Vitol.

[6] The oil refining industry in Australia is in the process of undertaking significant structural change. The changes are examined in a report of the Australian Parliament House of Representatives Standing Committee on Economics published in January 2013. The Forward to the Report summarises the circumstances as follows:

“Australia is a net exporter of energy and has a positive energy future. As the world’s ninth-largest energy producer, Australia is the largest coal exporter and third largest uranium producer in the world. In future years, we are projected to be the world’s second largest liquefied natural gas exporter, and are geographically well placed to cement our role as a leading energy supplier to our regional neighbours.

The oil refining industry is not experiencing the same growth as other areas of Australia’s energy sector. The global oil refining industry is undergoing significant structural change. Larger, more efficient refineries are being established in the Asian region resulting in increased competitive pressures on refining operations in other regions. The expansion of refining capacity in Asia has led to the rationalisation of refining in established markets such as Europe and the United States of America.

Australia’s domestic refining industry is similarly facing competitive pressures. Evidence shows that Australian refineries are not competitive when compared to the new and expanding mega refineries in Asia. The domestic context of high operating costs, ageing facilities, increasing sea miles for the transport of crude to the refineries, shallow berths that are not suitable for large crude carriers, increasing technical complexity needed for refining of the broad range of crude oil and the high Australian dollar, put Australia at a competitive disadvantage, resulting in the closure of some domestic refineries that are no longer commercially competitive.

Following the closure of the Clyde and Kurnell oil refineries, refinery capacity in Australia will decrease by about 28 per cent and leave five operating refineries. Domestic refiners will produce just over half the fuel consumed in Australia with the remainder being imported. Consequently, concerns have been raised about the viability of Australia’s oil refinery industry, and the potential impacts of declining domestic refinery capacity on the economy, energy security and employment in the sector.

The most pessimistic view was that this is the beginning of the end of Australian refining, and the most optimistic view was that there is a future for Australian refining, albeit under increasing competitive pressure. The committee noted that during the last decade the oil industry has invested over $9 billion in its Australian refineries.

While Australia’s proximity to the Asian region does pose some challenges for domestic refineries, it also provides opportunities to take advantage of Asia’s surplus refining capacity and to continue to strengthen supply chains in the region.

The energy industry is in a state of change, both with the global rationalisation of the traditional liquid fuel industry, and the growth in alternative and new types of energy sources. Australia’s liquid fuel needs should be seen as one part of our energy future, albeit an extremely important one. The market for liquid fuels is robust and, from the available evidence, it is operating soundly. Australia is well serviced by reliable and diverse supply chains.

The closure of the refineries will not lead to negative price outcomes for consumers. Australian fuel prices reflect an import parity price, which is the price in international markets. The Australian Competition and Consumer Commission was clear in its advice to the committee that as a result of import parity pricing, the retail price for petrol is not impacted by refinery closures.

The changes in domestic refining capacity to date will not impact on Australia meeting its liquid fuel requirements. There are reliable, mature and highly diversified international fuel supply chains, which provide Australia with economic security. The Australian Institute of Petroleum and refiners were also confident about the reliability of Australia’s supply chains and infrastructure to continue to meet local fuel demands, as it has done over many decades.

It should be noted that while Australia has both crude oil reserves and a refining capacity it is not self-sufficient. In 2010–11 Australia imported around 83 per cent of its crude oil and other refinery feedstock. It has and continues to import both crude oil and refined fuels. Following the closure of the Clyde and Kurnell refineries, Australia will refine 50 per cent of its fuel needs onshore, predominantly from imported crude.

...

While it is anticipated that domestic refinery closures will not impact negatively on price outcomes for Australians or on our energy security, unfortunately closures have, and will, result in job losses at specific refineries. Evidence presented showed that the people employed in the oil refinery industry are highly skilled, productive and, as is indicated by the average length of service, loyal.

The energy sector is a major employer providing work directly and indirectly for over 100 000 Australians, with jobs in the sector to grow by 3.9 per cent annually, for the next five years. However, employment in the oil refining sector diverges from the wider energy sector. At present, 5 500 people are directly employed in the sector with growth declining because of reducing refining capacity.

Where closures are inevitable, reducing undue stress and assisting workers to adjust to changing employment circumstances should be a priority for both industry and government. This can only occur when there is a level of certainty for workers and targeted support. To date, structural changes have occurred in a relatively orderly manner, with long lead times between closures being announced and workforce having to adjust. Efforts to redeploy and reskill displaced workers must remain a priority.

Despite the changes over the last decade and recent closures, evidence to the committee suggests that going forward there is a role for the Australian oil refinery industry, with groups acknowledging that some domestic refining capacity is a worthwhile complement to imports as part of having reliable, mature and diverse supply chains for liquid fuels.”

Legal Principles to be Applied

[7] As noted above, the parties have agreed that the Commission should arbitrate this matter by reference to the criteria for arbitrating a workplace determination specified in s.275 of the Act. The parties also agreed that the approach to that task adopted by various Full Benches in making a workplace determination should also be adopted. That approach is summarised in one of those Full Bench decisions as follows: 1

[28] The factors in s.275 have a general bearing on the package of terms to be contained in the Workplace Determination and a more specific bearing on many of the particular claims. Both parties contended that the approach of a Full Bench of the Australian Industrial Relations Commission under predecessor legislation in CFMEU v Curragh Queensland Mining Ltd (the Curragh Case) should be adopted. We agree that this is a leading case dealing with the approach to similar legislation in the same context as the present case and deals with many of the same factors we are required to take into account. When amending legislation adopts wording or tests from predecessor legislation it is inferred that the legislature intended that authorities dealing with the predecessor legislation will continue to apply. While there are some changes to the wording of the factors to which regard must be given, the provisions are substantially the same.

[29] In particular we note the consideration by the Full Bench of the earlier authorities and the endorsement of the approach that the task of the tribunal in a matter such as this is to assess the respective positions of the parties in relation to the matters at issue and, by reference to the statutory factors, arrive at a conclusion that would be regarded as appropriate in the context of the bargaining had the bargaining concluded successfully. The Full Bench in the Curragh Case noted that this did not involve a form of subjective prognostication as to the outcome of the negotiations. Rather, the task involves an objective assessment of the statutory factors and an overall judgment as to an appropriate workplace determination to apply to the operations concerned until the parties replace the determination with a new enterprise agreement.

[30] In relation to specific criteria in the Act the Full Bench said:

“(a) The matters that were at issue during the bargaining period

Since it is clear that our decision is principally concerned with the matters that were at issue during the bargaining period, there is little more to be said on this topic.

(b) The merits of the case

The merits are intrinsic to the consideration of each of the issues which we have decided to deal with.

(c) The interests of the negotiating parties and the public interest

The Commission must exercise broad judgment to produce an outcome which is a fair compromise between the legitimate expectations of the respective parties and which also takes the public interest into account. .....

There is a range of factors affecting profitability and productivity. Our ability to influence the profitability and productivity of the Curragh mine, however, is limited to the area of direct labour costs and some work practices which are founded on award conditions. It is a truism that unless the mine is profitable its future, and the welfare of its employees, will be in jeopardy.

(d) How productivity might be improved in the business or part of the business concerned

We do not intend to approach the issue of productivity in a technical way. There was a great deal of material before us directed at measuring the cost of production at the mine, at other Queensland and Australian mines and at mines in the United States of America. To the extent that this evidence invites us to draw conclusions about labour productivity at Curragh compared with elsewhere, we think it is an invitation to error. Productivity measurement involves a multi-factor approach which assesses all relevant inputs on a comparable basis. We are not satisfied that we have sufficient evidence to draw valid comparisons even on labour productivity at the mine, much less on productivity overall. Whilst the material might contain useful broad indications of labour productivity, we do not think it conduces to any certain conclusions. We are required to consider how productivity might be improved. One way in which the Commission can contribute to productivity improvement is to give attention to unreasonable restraints on productivity and to eliminate them wherever that can be done consistently with the maintenance of fair standards of treatment for employees. We think it is preferable to focus directly on the elimination of unreasonable restraints on productivity rather than on the measurement of productivity in absolute terms or on inter-mine comparisons of productivity levels.

(e) The extent to which the conduct of the negotiating parties during the bargaining period was reasonable

.....

In all of the circumstances we do not agree with the CFMEU's submission that CQML's conduct during the bargaining period was manifestly unreasonable. Rather we see this case as one where both sides took a very strong stand on the issues of principle which they held dear and fought tenaciously to maintain their positions. By no means was this a model negotiation, but we are not prepared to attribute blame to one side or the other by labelling their conduct as unreasonable.

In the circumstances it is not strictly necessary that we rule on CQML's submission that the word "conduct", where it appears in s.170MX(5)(e), should be construed so as to exclude any consideration of the negotiating positions of the parties. Whilst we do not believe that exploration of the strategies, tactics and motivation of the parties is likely to be relevant there could be occasions where the position taken by parties and the objective justification for that position, or the lack of it, could be properly taken into account pursuant to s.170MX(5)(e). We do not need to explore the matter further in this case, although we point out that the Commission is given a broad discretion to take any relevant matters into account pursuant to s.170MX(6).

CQML asked us to give a firm indication, for guidance in future cases, that:

"[the Commission] will not allow its processes to be used for some generalised exploration of another parties (sic) internal documents nor find persuasive the speculative views of documents which do nothing more than reveal a process of internal discussion and deliberation about a range of possible future options."

We agree with the sentiments contained in this passage. Much of the material produced by CQML at the CFMEU's request and tendered in evidence (subject to objection) was unhelpful and irrelevant to our task. To that extent additional time was wasted in that the tender of that material provoked the tender of further material by CQML in rebuttal. Parties must be free, within reasonable bounds of relevance, to conduct their cases as they see fit. Nevertheless, there is much to be said in cases of this kind for preserving, as far as it can be preserved, the traditional distinction between negotiation and arbitration so that the task of arbitration can take place without any need to examine the relative correctness of the parties' negotiating positions or tactics unless such an examination contributes in an objective way to an evaluation of the merits of the claim. Such an approach is not inconsistent with the requirement upon the Commission to have regard to the extent to which the conduct of the negotiating parties during the bargaining period was reasonable.”

[8] In accordance with the agreement of the parties I propose to consider the outstanding matters by reference to the criteria in s.275 of the Act, guided by the approach discussed in the above Full Bench authorities.

Wage Increases

[9] The AWU claims wage increases of 8% from each of the agreed dates in years 3 and 4 of the agreement, 15 June 2016 and 15 June 2017. Viva contends that the appropriate wage increases on these dates should be 2.75% and 3% respectively. It is agreed that there will be no wage increases in years one and two of the agreement.

[10] The AWU contends that the context of the parties’ agreement to forgo wage increases for the first two years of the agreement is important. The concession was made by employees as a trade-off in respect of maintenance of existing redundancy entitlements. It seeks the two 8% increases as recompense for the freeze in wages in years 1 and 2 of the agreement.

[11] The AWU disputes any reliance on wage increases paid to employees of contractors as the contractors do only a small part of their work for the oil industry. Rather, it places more significance on the increases provided to Viva maintenance employees at the Geelong refinery which have been 4% or slightly higher in 2013, 2014, 2015 and 2016.

[12] The AWU submits that productivity improvements have occurred and will continue to occur on the basis of the provisions of the agreement relating to continuous improvement. It submits that this constructive input by operators should justify wage increases at the level sought by the AWU. The AWU led evidence from its delegates Bruce Doherty, Andrew Pearse and Stephen Jones that demonstrated the extent of work practice and productivity changes over recent years in each part of the refinery.

[13] Viva contends that the quantum of wages increases should be guided by recent increases at other oil refineries, a long term view of Geelong refinery maintenance wage increases, wages outcomes for contractor employees who work at the Geelong refinery, the state of industry in the Geelong region and cost pressures faced by all Australian oil refineries. It also submitted material on the movements in wages and prices in the Geelong region and in Australia generally.

[14] All of these circumstances contribute to a consideration of the merits of a wage increase, the interests of employees and the interests of the employer. The public interest is also attracted by virtue of the impact on ongoing viability of what has always been, and now most definitely is, a very significant Geelong business.

[15] I do not consider that the conduct of either of the parties in the negotiations can be described as unreasonable or that any party has not negotiated in good faith. Indeed the preparedness of the AWU delegates to discuss ways to avoid the consequences of damaging industrial action reflects a mature and positive relationship between the company, the AWU and employees. The acknowledgment of the current position of Australian oil refining and the substantial agreement on the terms of new agreements is likely to enhance relationships at the workplace level, contribute to a constructive approach to ongoing improvements and provide a foundation for a positive approach in the next enterprise agreement negotiations.

[16] In my view the cost pressures on Australian oil refineries which have led to the closure of three Australian oil refineries are a significant factor. Viva is retaining the Geelong refinery as a going concern at least for the time being. It is in the interests of employees, Viva and the public that this continues to be the case for as long as possible. The length of time the refinery continues to operate will be a function of the ongoing viability and profitability of the refinery. Cost increases should be kept to a minimum and productivity should be maximised in order to deliver positive operating results and encourage further investment in improved plant and equipment.

[17] In my view the previous measures engaged in by Geelong operators to improve work practices and productivity together with their preparedness to continue their constructive approach to business improvement is highly commendable. The agreement to forgo wage increases for two years will deliver a considerable cost saving to the business and bring about an adjustment to the Geelong refinery’s comparative cost position. I have no reason to doubt the commitment of Geelong operators to ongoing productivity improvements. In my view, the cooperative approach to the future viability of the Geelong refinery is a positive basis for the new owner and its employees to continue to work cooperatively together to enhance their mutual interests.

[18] In all of the circumstances, I consider that wage increases in years 3 and 4 should be moderately in excess of CPI. An outcome in line with CPI will fail to recognise the business improvements expected to be delivered by Geelong operators. An outcome significantly greater than CPI will threaten profitability and viability and potentially hasten the closure of the operation. As the actual CPI figures are unknown at this stage, I consider that the best approach is to provide for wage increases at the rate of CPI plus 0.5% on each of the two dates. The calculation should be based on the CPI movement for the weighted average of eight capital cities for the year ending March 2016 and 2017 respectively.

Redundancy Pay

[19] As has been the case with respect to enterprise agreements concerning the Shell Group of companies, no redundancy pay formula is proposed to be provided in the Viva enterprise agreement. However the parties have agreed on the terms of a deed that will provide for redundancy payments in specified circumstances between the date of the deed and the date the enterprise agreement is replaced by another enterprise agreement or is terminated. The only issue that is subject to this arbitration is the definition of “operator” for the purposes of that deed. Viva proposes additional qualifying words that confine the application of the operative provisions to employees engaged at the date of the deed. The AWU opposes those additional words.

[20] Viva submits that the formula concerned is a generous one by community standards, and that there is a long history of redundancy pay being dealt with by way of policy that is able to be changed from time to time. It has not determined what to apply to any future redundancies of employees who may be engaged in the future, but wishes to consider such a matter when and if the need arises. It anticipates that approximately 10-15 new operators could be employed each subsequent year based on past attrition rates and, in view of the significant costs involved, wishes to reserve its long standing right to move away from previous generous practices for those employees who do not have an expectation of receiving the generous redundancy payout. It notes that the dispute settlement clause of the enterprise agreement would be available to assist with any dispute about the matter if a dispute arises in the future.

[21] The AWU anticipates that there will be minimal recruitment of new operators in the next few years and the cost of this claim is likely to be minor. It submits that the saving to the company of foregoing wage increases for years 1 and 2 of the agreement is estimated to be in the order of $2.7m which it contends is well in excess of the cost of its claims on redundancy pay. The AWU contends that the interests of equity require all employees to be entitled to the same redundancy formula.

[22] The future incidence of extending the redundancy formula to new employees depends in part on matters outside Viva’s control and partly on matters within its control. The extent of future vacancies depends on the number of terminations of employment, primarily retirements and resignations. The depressed job market in the Geelong region and past experience suggests that only those operators seeking to retire would be leaving their employment voluntarily. The other variable is the extent to which Viva decides to replace employees who retire or otherwise leave their employment. The AWU is doubtful that all vacancies will be replaced. Whether there are redundancies in the period of operation of the deed is another variable within Viva’s control.

[23] The formula referred to in the deed is of long standing. It is broadly in line with other redundancy policy formulae that have operated in the oil industry in Australia for many years. In my view, it is preferable that as current employees know the nature of their potential redundancy benefits, new employees should also have that knowledge. The formula is clearly generous, especially at the early stages of employment and in the extent of accrual. On the other hand, the National Employment Standards in the Act that apply as a minimum are significantly lower. If there is not clarity as to the actual formula to apply to new employees, they will know only that they will be entitled to this minimum standard.

[24] I note that the AWU accepts Viva’s right to determine whether to fill any future vacancies. The AWU anticipates that the incidence of vacancies and their filling may be low and nevertheless presses this claim. I also note that the deed has a fixed term, tied to the duration of the accompanying enterprise agreement. The parties have full rights to revisit these issues at the time of the next agreement renewal. In all of the circumstances, I consider that the deed should not include the additional words of limitation sought by Viva.

Conclusions

[25] For the above reasons, the arbitrated matters are determined as follows:

● The wage increases to apply from 15 June 2016 and 15 June 2017 will be CPI for the year ending March of the relevant year + 0.5%.
● The definition of “operator” in the proposed deed should not contain the additional words proposed by Viva.

VICE PRESIDENT WATSON

Appearances:

Mr W. Friend QC, of counsel, for the Australian Workers’ Union.

Mr A. Morris, of counsel, for Viva Energy Refining Pty Ltd.

Hearing details:

2014.

Melbourne - Video Link to Perth.

4 September.

 1   Transport Workers’ Union v Qantas Airways Ltd[2012] FWAFB 6612. See also Parks Victoria v Australian Workers’ Union[2013] FWCFB 950.

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