2 May 2014
Practice Group:
Labour, Employment
and Workplace Safety
Enterprise Agreement Carve Out Clarity: Are You
In Or Are You Out?
By James Parkinson
Introduction
The Federal Court has handed down a decision in John Holland Pty Ltd v Construction,
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Forestry, Mining and Energy Union [2014] which clarifies the approval process the Fair Work
Commission (FWC) is charged with when considering the 'fairly chosen' requirements under
the Fair Work Act 2009 (Cth) (Act).
The Federal Court found that the Full Bench of the FWC fell into jurisdictional error when it
quashed Deputy President McCarthy's approval of John Holland Pty Ltd's (Company)
Western Region Agreement Western Australia 2012-2016 (Agreement).
Ultimately, the Federal Court found that it is not the task of the FWC to prospectively consider
who may be covered by an enterprise agreement when considering the fairly chosen
requirements of the Act.
In reaching this decision, the Federal Court has introduced flexibility into the agreement
making process by allowing employers to make enterprise agreements for bulk areas of its
operations, while still having the ability to make more specific project agreements at a later
date.
The Facts
The Company was awarded the head construction contract to build the new children's
hospital in Perth, Western Australia. To undertake this project, the Company planned to
perform the vast majority of work through subcontractors and to directly employ only a
relatively small number of employees to carry out the contract.
It was expected that total number of direct employees would be 25. This figure would include
labourers, form workers, tow crane operators, riggers and doggers.
On 12 January 2012, the Company met with three employees at a site office to make the
Agreement pursuant to the Act. The agreement making process was explained at the meeting
and the three employees appointed themselves as bargaining representatives for the
proposed Agreement.
On 13 February 2012, the three employees voted in favour of the proposed Agreement.
At the time the Agreement was made, the Company was also tendering as head contractor
for other government projects in Western Australia. It also employed a broad range of
employees in work classifications nationally, from clerical to construction work.
Relevantly, the Agreement contained the following scope and carve out clause.
1.1
This agreement is made under the Fair Work Act 2009 (Cth) and subject to
clause 1.2 those bound by this agreement are:
(a)
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FCA 286 (27 March 2014)
John Holland Pty Ltd ABN 11 004 282 268 (the Company); and
Enterprise Agreement Carve Out Clarity: Are You In Or Are You Out?
(b)
1.2
All employees of John Holland Pty Ltd performing building or civil
construction work in Western Australia in accordance with a
classification specified in this Agreement (Employees).
Any project or site specific agreement entered into by the Company or by any
joint venture or similar business arrangement of which the Company is part,
will cover and apply to the Company and any employees at that particular
project or site to the exclusion of this Agreement.
Importantly, the three employees who voted in favour of the Agreement were the only
employees covered by the Agreement who were employed by the Company at the time that it
was made.
The job classifications contained in the Agreement included job classifications in addition to
those in which each of the three employees were covered. Therefore it was likely that
employees not presently covered by the Agreement would be covered at some point in the
future. Further, at the time of making the Agreement, there were no agreements of the kind
referred to in clause 1.2.
First Instance Decision
The Company applied for the Agreement to be approved by the FWC on 13 February 2012.
On 22 March 2012, Deputy President McCarthy heard the approval application and an
objection to approval which was lodged by the Construction, Forestry, Mining and Energy
Union (CFMEU).
The Deputy President approved the Agreement despite the objection. In considering the fairly
chosen requirements, it was held that the employees selected to vote were, at the time the
Agreement was made, operationally and geographically distinct. Therefore, at the time the
Agreement was made, there were no additional employees within the Company who should
have had an opportunity to vote on the Agreement.
This decision was appealed by the CFMEU to the Full Bench of the FWC.
The Full Bench's Decision
On appeal, the Full Bench quashed the approval decision of the Deputy President. The key
concern for the Full Bench was that the nature of clause 1.2 of the Agreement created
"significant doubt [as to whether] it would be possible to make any definitive finding as to the
group of employees covered by the agreement for the purposes of [the fairly chosen
requirements of the Act]."
The Full Bench further stated that such an assessment could only occur by analysing
"…how many building and civil construction employees are now covered or may in
the future be covered by site-specific agreements. As it is not possible to identify with
any certainty the group of employees to be covered by the agreement, it is not
possible to be satisfied that the group of [three] employees was fairly chosen as
required by [the Act]."
Essentially, the Full Bench was concerned that it was not in a position to know how many
employees may be covered by the Agreement in the future thereby undermining those
potential future employees collective bargaining rights under the Act.
Decision on Appeal
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Enterprise Agreement Carve Out Clarity: Are You In Or Are You Out?
Justice Siopis of the Federal Court quashed the Full Bench decision and found that it fell into
error when considering what future employees 'may' be covered by the Agreement.
In reaching his decision, Justice Siopis stated:

The Act calls on the FWC to be satisfied that the group of employees covered by the
Agreement 'was' fairly chosen. It is of significance that the past tense 'was' is used. This
directs the FWC to have regard to the conduct of those persons who made the
Agreement and the content of the Agreement.

There is nothing in the language of the Act that conditions the FWC's exercise of power to
approve enterprise agreements or that makes it necessary to satisfy the FWC as to the
number of employees who will, or may, during the term of the Agreement, be covered by
the Agreement. To ask such a question is a misapprehension of the statutory approval
task entrusted to the FWC.

Therefore, the inclusion of a clause which contemplates a potential change in
circumstances did not affect the fairness of the criteria chosen to identify the group of
three employees who were, in the absence of such circumstances, to be covered by the
Agreement.
Significance for Employers
The decision provides clarity on the ability of an employer to make an enterprise agreement
which contemplates certain exclusions of its workforce due to possibility of making further
project specific agreements in the future.
This is important as it introduces flexibility on the part of an employer to make geographically
large enterprise agreements which will be the 'default' agreement for employees to roll onto at
the conclusion of certain project agreements, while still having the flexibility to make project
specific agreements and ensure that appropriate staffing of those projects can occur.
Previously, such agreement making was fraught with danger as it was possible to
inadvertently tie up aspects of an employer's workforce under an enterprise agreement and
not be able to mobilise them to a project without contravening the one enterprise agreement
shall apply to an employee at any given time rule under the Act.
Contact:
Duncan Fletcher
duncan.fletcher@klgates.com
+61.8.9216.0923
Author:
James Parkinson
james.parkinson@klgates.com
+61.8.9216.0948
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Enterprise Agreement Carve Out Clarity: Are You In Or Are You Out?
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