Zancott Recruitment Pty Ltd

[2013] FWC 8865

[2013] FWC 8865[Note: An appeal pursuant to s.604 (C2013/7387) was lodged against this decision - refer to Full Bench decision dated 21 January 2014 [[2014] FWCFB 351] for result of appeal.]

FAIR WORK COMMISSION

DECISION

Fair Work Act 2009
s.319 - Application for an order re instruments covering new employer and non-transferring employees in agreements

Zancott Recruitment Pty Ltd
(AG2013/10912)

DEPUTY PRESIDENT BARTEL ADELAIDE, 11 NOVEMBER 2013

Agricultural industry

[1] This decision concerns an application pursuant to s.319 of the Fair Work Act 2009 (the Act) by Zancott Recruitment Pty Ltd (Zancott). Zancott is a labour hire company involved primarily in the construction industry.

[2] Mondello Farms Pty Ltd (Mondello) operated a vegetable processing business. It entered into the Mondello Farms 2008 Production Employees Collective Agreement (the collective agreement) with its employees. The collective agreement was made under the Workplace Relations Act 1996, as amended, and approved by the then Workplace Authority on 23 April 2009. It had a term of 5 years expiring on 30 April 2014.

[3] Mondello subsequently went into receivership and an administrator was appointed. On 30 August 2013, Rural Harvest Farms Pty Ltd (Rural) acquired the business of Mondello and the employees of Mondello transferred to Rural in accordance with the Act. Rural now proposes to outsource the work performed by its employees to Zancott in order to save on recruitment and human resource management costs. 1 If the outsourcing takes place, the employment of Rural employees who are covered by the collective agreement will be terminated and they will then be employed by Zancott (the transferring employees).

[4] Zancott seeks an order pursuant to s.319 (b) of the Act that the collective agreement will cover non-transferring employees who perform the transferring work for Zancott.

The statutory framework

[5] The collective agreement is a transitional instrument in accordance with sub-item 2(3), Schedule 3 of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (the TPCA Act). Item 8 of Schedule 11 of the TPCA Act makes certain modifications to Part 2-8 of the Act which deals with the transfer of business. For present purposes it is sufficient to record that the collective agreement is a transferable instrument for the purposes of Part 2-8 of the Act and, providing there has been a transfer of business, the collective agreement will cover Zancott and the transferring employees. 2

[6] Section 311 of the Act sets out when a transfer of business occurs, as follows:

“311 When does a transfer of business occur

Meanings of transfer of business, old employer, new employer and transferring work

(1) There is a transfer of business from an employer (the old employer) to another employer (the new employer) if the following requirements are satisfied:

(a) the employment of an employee of the old employer has terminated;

(b) within 3 months after the termination, the employee becomes employed by the new employer;

(c) the work (the transferring work) the employee performs for the new employer is the same, or substantially the same, as the work the employee performed for the old employer;

(d) there is a connection between the old employer and the new employer as described in any of subsections (3) to (6).

Meaning of transferring employee

(2) An employee in relation to whom the requirements in paragraphs (1)(a), (b) and (c) are satisfied is a transferring employee in relation to the transfer of business.

Transfer of assets from old employer to new employer

(3) There is a connection between the old employer and the new employer if, in accordance with an arrangement between:

(a) the old employer or an associated entity of the old employer; and

(b) the new employer or an associated entity of the new employer;

the new employer, or the associated entity of the new employer, owns or has the beneficial use of some or all of the assets (whether tangible or intangible):

(c) that the old employer, or the associated entity of the old employer, owned or had the beneficial use of; and

(d) that relate to, or are used in connection with, the transferring work.

Old employer outsources work to new employer

(4) There is a connection between the old employer and the new employer if the transferring work is performed by one or more transferring employees, as employees of the new employer, because the old employer, or an associated entity of the old employer, has outsourced the transferring work to the new employer or an associated entity of the new employer.

New employer ceases to outsource work to old employer

(5) There is a connection between the old employer and the new employer if:

(a) the transferring work had been performed by one or more transferring employees, as employees of the old employer, because the new employer, or an associated entity of the new employer, had outsourced the transferring work to the old employer or an associated entity of the old employer; and

(b) the transferring work is performed by those transferring employees, as employees of the new employer, because the new employer, or the associated entity of the new employer, has ceased to outsource the work to the old employer or the associated entity of the old employer.

New employer is associated entity of old employer

(6) There is a connection between the old employer and the new employer if the new employer is an associated entity of the old employer when the transferring employee becomes employed by the new employer.”

[7] I am satisfied that the nature of the arrangements proposed between Zancott and Rural meet the requirements of ss.313(1) and (4) of the Act and therefore constitute a transfer of business.

[8] Section 314 of the Act sets out the circumstances in which a transferable instrument (in this case the collective agreement) may cover new non-transferring employees, that is, employees who are engaged after the transfer of business and who perform the transferring work. However the section applies in circumstances where no modern award covers the new employer in relation to the transferring work. 3 In this case, at the time Zancott engages a new non-transferring employee, it will be covered by the Storage Services and Wholesale Award 20104 (the modern award) in respect to the transferring work. In addition, s.314 is not directed to the situation of current employees of Zancott who may in the future perform the transferring work.

[9] Section 319 of the Act deals with the orders that can be made by the FWC in relation to non-transferring employees and provides that:

“319 Orders relating to instruments covering new employer and non-transferring employees

Orders that the FWC may make

(1) The FWC may make the following orders:

(a) an order that a transferable instrument that would, or would be likely to, cover the new employer and a non-transferring employee because of subsection 314(1) does not, or will not, cover the non-transferring employee;

(b) an order that a transferable instrument that covers, or is likely to cover, the new employer, because of a provision of this Part, covers, or will cover, a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer;

(c) an order that an enterprise agreement or a modern award that covers the new employer does not, or will not, cover a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer.

Note: Orders may be made under paragraphs (1)(b) and (c) in relation to a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer, whether or not the non-transferring employee became employed by the new employer before or after the transferable instrument referred to in paragraph (1)(b) started to cover the new employer.

Who may apply for an order

(2) The FWC may make the order only on application by any of the following:

(a) the new employer or a person who is likely to be the new employer;

(b) a non-transferring employee who performs, or is likely to perform, the transferring work for the new employer;

(c) if the application relates to an enterprise agreement—an employee organisation that is, or is likely to be, covered by the agreement;

(d) if the application relates to a named employer award—an employee organisation that is entitled to represent the industrial interests of an employee referred to in paragraph (b).

Matters that the FWC must take into account

(3) In deciding whether to make the order, the FWC must take into account the following:

(a) the views of:

(i) the new employer or a person who is likely to be the new employer; and

(ii) the employees who would be affected by the order;

(b) whether any employees would be disadvantaged by the order in relation to their terms and conditions of employment;

(c) if the order relates to an enterprise agreement—the nominal expiry date of the agreement;

(d) whether the transferable instrument would have a negative impact on the productivity of the new employer’s workplace;

(e) whether the new employer would incur significant economic disadvantage as a result of the transferable instrument covering the new employer;

(f) the degree of business synergy between the transferable instrument and any workplace instrument that already covers the new employer;

(g) the public interest.

Restriction on when order may come into operation

(4) The order must not come into operation in relation to a particular non-transferring employee before the later of the following:

(a) the time when the non-transferring employee starts to perform the transferring work for the new employer;

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

The case for Zancott

[10] Mr Earls, from the Master Builders Association of South Australia (the MBA) appeared on behalf of Zancott. He based much of his submission around the interests of the transferring employees and the negative consequences upon them if the order covering the non-transferring employees was not made. It was submitted that Rural is struggling financially and that outsourcing the employees to Zancott would assist their financial position. However, if the order was not made and the modern award terms and conditions applied to new employees of Zancott who perform the transferred work, it was submitted that the cost to Rural of the outsourcing arrangement would be prohibitive. I interpose that the weight of these submissions is diminished by the absence of evidence from Rural.

[11] It was further submitted that any disadvantage suffered by the non-transferring employees would be of limited duration given the April 2014 nominal expiry date of the collective agreement.

[12] An affidavit from Mr Cameron Buzzacott, the Managing Director of Zancott, supporting the submissions of Mr Earls was attached to the application. Mr Buzzacott noted that applying the modern award would add $335,053 to direct labour costs. I am unsure as to the basis of this calculation but the figure provides some insight into the disparity between the terms and conditions of the collective agreement and the modern award.

[13] All but one of the transferring employees signed a declaration supporting the making of the orders as sought on the basis that it would ensure consistency of terms and conditions among the transferring and non-transferring employees. 5 This was supplemented by evidence from one of the transferring employees, Mr Cory Fox.6

Consideration

[14] I have set out above the views of the transferring employees and of Zancott. Section 319(3)(a)(ii) of the Act requires the Fair Work Commission (the FWC) to have regard to the views of “the employees who would be affected by the order”. By definition new non-transferring employees are yet to be employed. I understand that there is no intention at this stage to engage existing employees of Zancott in the transferring work, although Zancott wishes to have this option available if circumstances change. 7

[15] Section 319(3)(b) requires the FWC to consider whether any employee would be disadvantaged in the terms and conditions of employment by the making of the order. Existing Zancott employees engaged the construction and related industries, who may in the future be engaged on the transferring work, currently receive more favourable wages and conditions 8 than those provided by the collective agreement. The potential significance of this circumstance in relation to the terms and conditions of employment that such employees will receive if engaged on the transferring work depends on the nature of the contractual arrangement they currently have with Zancott. Given the limited likelihood that existing employees will be engaged on the transferring work, this matter is of less weight than the situation of new non-transferring employees.

[16] New non-transferring employees would receive the terms and conditions of the modern award in the absence of any order under s.319(1), and I conclude they would be disadvantaged if they were to receive the terms and conditions of the collective agreement. The collective agreement has a provision for voluntary additional hours at ordinary rates, lower penalty payments for public holidays, lower shift penalties, a lower casual loading and lower meal and first aid allowances than the modern award. 9 There are no terms and conditions in the collective agreement that are more beneficial than the terms and conditions of the modern award. The extent of the disparity between the respective instruments is a significant matter weighing against the granting of the application.

[17] The nominal expiry date of the collective agreement is 30 April 2014 and as such is likely to be within its nominal life if the outsourcing of the employees were to proceed. This would tend to favour the making of the order. In view of the submissions put in support of the application I have a concern that there is little incentive for Zancott to renegotiate the agreement on or before its expiry, however I acknowledge that the employees have a say in this matter and that economic circumstances in the vegetable processing industry may change.

[18] Sections 319(3)(d) and (c) require a consideration of the impact of any order on the new employer’s productivity and economic position. In this case there is no suggestion of any negative impact on Zancott and accordingly this favours the making of the order sought.

[19] The FWC is required to take into account the degree of business synergy between the transferable instrument and any existing workplace instrument that already covers the new employer. The only existing workplace instrument is the collective agreement applicable to the employees working in the construction and related industries. Given the different nature of this work compared to the transferring work, it is my view that issues of business synergy do not assume any importance in this matter. The modern award is not “a workplace instrument that already covers the new employer” and is therefore not relevant to the consideration of ss.319(3)(f) of the Act.

[20] The final matter to be taken into account under s.319(3) the Act is the public interest. The relevant aspects of the public interest were recently summarised by a Full Bench in Parks Victoria v The Australian Workers' Union and others 10 with reference to well settled case law on this topic.11 The proceeding before the Full Bench concerned the making of a workplace determination, with the public interest being one of the matters that the FWC is obliged to take into account in determining the terms to include in the workplace determination, in accordance with s.275 of the Act. The Full Bench stated

“[49] Section 275(d) provides that the Commission must take the public interest into account. The public interest imports a discretionary value judgment confined only by the subject matter, scope and purpose of the FW Act.

[50] The public interest refers to matters that may affect the public as a whole such as the achievement or otherwise of the objects of the FW Act, employment levels, inflation and the maintenance of appropriate industrial standards.

[51] The statutory distinction between the interests of the employer and employees on the one hand (s.275(c)) and the public interest on the other (s.275(d)) leads us to conclude that the public interest is distinct from the interests of the parties, though the considerations may overlap. For example, matters which may be in the public interest may also be in the interests of one or more of the parties.” (footnotes omitted)

[21] The object of Part 2-8 of the Act is:

“309 Object of this Part

The object of this Part is to provide a balance between:

(a) the protection of employees’ terms and conditions of employment under enterprise agreements, certain modern awards and certain other instruments; and

(b) the interests of employers in running their enterprises efficiently; if there is a transfer of business from one employer to another employer.”

[22] Zancott have submitted that its interests and those of the transferring employees are tied to the interests of Rural, and that Rural’s interests are served by making the order sought. 12 I presume that Zancott’s business interests are served by obtaining a new contract with Rural but there was no information put on which I can reach a view on how the order would promote the efficiency of Zancott’s business.

[23] The protection of employee’s terms and conditions of employment is reinforced in the objects of the Act and the modern awards objective that deal with the provision of a fair and relevant minimum safety net of modern awards and National Employment Standards. 13 The order sought will effectively deprive new non-transferring employees of access to the modern award terms and conditions in favour of an inferior collective agreement for as long as the collective agreement remains in place.

Conclusion

[24] I have taken into account the submission that the transferring employees would be concerned if, having worked through the difficult period with Mondello and Rural, they receive less beneficial terms and conditions than non-transferring employees. However, in my view the public interest consideration that arises are the disparate terms and conditions of employment among employees performing the same work for the same employer and the potential for divisions to occur within the workforce. This consideration has to be balanced with the provisions of Part 2-8 of the Act, which contemplate that such a circumstance may be appropriate and the relevant objects of the Act concerning a fair safety net as set out above.

[25] On weighing the relevant matters in s.319(3) I have determined that an equitable outcome is to make the order as sought, but that it will lapse on the nominal expiry date of the collective agreement. Assuming the outsourcing proceeds, this will give the parties the opportunity to consider a new agreement that will deliver consistency across transferring and non-transferring employees and will ensure that any prejudice to non-transferring employees by the making of the order, is for a limited time only.

[26] An order giving effect to my determination is issued with this decision.

DEPUTY PRESIDENT

Appearances:

Mr T Earls on behalf of Zancott Recruitment

Hearing details: 1 November 2013

 1   Tr PN 85

 2   Pursuant to s.313 of the Act

 3   Section 314(1)(d) of the Act

 4   MA000084

 5   Annexure CB2 to the affidavit of Mr Buzzacott. One employee was not available to sign the declaration.

 6   Tr PN92 - 117

 7   TR PN30 - 34

 8   These employees are currently covered by the Zancott Pty Ltd Employee Collective Agreement 2009, made pursuant to the Workplace Relations Act 1996, as amended.

 9   Some of these provisions are subject to the Transitional Provisions in Schedule A to the modern award. See Bupa Care Services Pty Ltd v P & A Services Pty Ltd as trustee for the D’Agostino Family Trust t/as Michel’s Patisserie Muruillimbah & others, [2010] FWAFB 2762 in relation to the treatment of voluntary additional hours as compared to award overtime provisions.

 10   [2013] FWCFB 950(11 February 2013)

 11  O’Sullivan v Farrer (1989) 168 CLR 210 at p216; Re Kellogg Brown and Root, Bass Strait (Esso) Onshore/Offshore Facilities Certified Agreement 2000 (2005) 139 IR 34

 12   TR PN59 - 60; PN46

 13   Sections 3(b) and 134(1) of the Act

Printed by authority of the Commonwealth Government Printer

<Price code C, PR544419>