SUBMISSION TO THE FAIR WORK ACT REVIEW PANEL BY DR
GRAHAM F SMITH, ADJUNCT PROFESSOR OF LAW, SCHOOL OF
LAW, VICTORIA UNIVERSITY
Introduction
1.
This is a private submission to the Fair Work Act Review Panel (Review
Panel) solely in my capacity as an adjunct professor in the School of Law
at Victoria University.
2.
My submission is not intended to be comprehensive nor will I canvass
each of the 69 questions posed in an attachment to the Fair Work Act
Review Background Paper. My submission focuses on a few key issues
that, based on my 19 years experience as a Workplace Relations Partner at
Clayton Utz, should, in my view, be considered by the Review Panel.
3.
I also note in this submission a few drafting issues for consideration.
Overview
4.
In my opinion the Fair Work Act (FW Act) has largely met its objectives
and does not need significant change.
5.
However, I am concerned that most large employers in Australia no longer
seek to utilise enterprise bargaining under the FW Act framework to
achieve significant changes to improve workplace flexibility and
productivity (unlike during the 1990s and the early part of this Century).
Employers have, during the period of operation of the FW Act, adopted a
largely defensive stance during enterprise bargaining and usually their
strategy is to endeavour to resist union proposals for change. My
experience has been that most union proposals for change in enterprise
bargaining under the auspices of the FW Act aim to achieve improvements
in terms and conditions of employment that have the effect of reducing
flexibility and productivity. The reasons for this change in the balance of
bargaining are unclear. Perhaps it reflects a sustained period of low
unemployment and economic growth? Perhaps the pendulum swung too
far in favour of employers in earlier periods? But the net result is that the
objective of achieving productivity through enterprise level collectivebargaining (object 3(f) of the FW Act) is not currently being achieved.
6.
Employers had hoped to improve productivity and flexibility through the
use of individual flexibility agreements (IFAs) under the FW Act, but this
has not eventuated in my view (see below).
Key Issues requiring consideration
IFAs
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7.
My impression (based on some empirical analysis done for clients) is that
in union negotiated enterprise agreements the IFA clauses leave very little
room for individual flexibility. The IFA clauses in many enterprise
agreement negotiated with unions (particularly the CEPU, AMWU and
CFMEU) limit the scope for IFAs to only a few minor terms and
conditions of employment. The Unions have by and large adopted a
pattern bargaining approach to IFA clauses. They do not like them and a
key bargaining agenda has been to limit their scope and operation.
8.
However, I suspect that even where enterprise agreements have adopted
the model IFA clause that the use of IFAs has been limited. Perhaps the
Review Panel could recommend some empirical research on this?
9.
A major impediment to the effectiveness of IFAs is that once made they
are easily terminated by the employee. Under Section 203(6) of the FW
Act an IFA can be terminated by the employee giving up to 28 days
notice. So if, for instance, an employer wishes to negotiate new roster
arrangements with a group of employees using IFAs and then sets up work
processes consistent with the roster, the ability to continue using that
roster (and the relevant work process that may lead to greater efficiency
and productivity) can be disrupted by even just one employee giving
notice of termination of the IFA. The lack of security in IFA
arrangements has, in my experience, lead many employers to disregard
IFAs as a practical tool to achieve more efficient and flexible (and
productive) work practices.
10.
My recommendation to the Review Panel is that the model IFA clause
should be mandatory in enterprise agreements and should not be
negotiable. Further, the model clause should be amended so that once an
employee agrees to an IFA, the IFA can only be terminated if the
employer agrees or failing agreement the employee makes an application
to Fair Work Australia (FWA) and FWA determines after a hearing that
the IFA should be terminated. The grounds on which FWA could
terminate an IFA should be limited to where FWA finds that the continued
operation of the IFA would be unfair having regard to any hardship to the
employee resulting from the operation of the IFA, balanced against the
detriment to the employer's operational requirements if the IFA is
terminated.
Greenfields Agreements
11.
Under the FW Act a Greenfields Agreement can only be made with a
Union (see Section 172(2)(b)).
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12.
Usually Greenfields Agreements will be negotiated in advance of
commencement of work on a major project or a component of a major
project. A practical reality is that financiers of the project or the head
office of a corporation responsible for developing the project will not
approve commencement of the project (or a significant component of the
project) until there is a overall commercial certainty. Usually part of this
commercial certainty is a requirement that enterprise agreements have
been agreed and approved, usually for two reasons:

so that the labour costs of the project are known; and

so that there is some certainty that there will not be protected
industrial action during the project.
13.
However, it is common for unions to effectively hold the employer parties
(which can often include contractors to the corporation initiating the
project) to ransom knowing that the longer negotiations go on, the capital
costs of the project will increase or that other commercial deadlines will
be impacted on and that significant employer concessions will be made.
Whilst it may be thought that this is just part of the cut and thrust of the
enterprise bargaining it has had the effect and will continue to have the
effect of causing significant escalation in labour costs for major projects in
Australia. On one view is provides an unfair bargaining advantage to the
unions, who are not answerable to employees in relation to Greenfields
Agreements (because none have yet been employed on the project).
14.
In my view there is a need for a different approach to Greenfields
Agreements. There is a need for some kind of circuit breaker. For
example (and there may be better approaches) the process for negotiating
Greenfields Agreement could be as follows:

the employer notifies the relevant Union(s) it wants a Greenfields
Enterprise Agreement;

there is a fixed period specified in the legislation for negotiation
of the Greenfields Agreement once notice has been given (e.g.
two months);

if no Agreement has been made by the end of the fixed period,
then there is automatic mediation by FWA (or another mediator),
again for a fixed period (e.g. one month);

if mediation is unsuccessful then final offer arbitration applies
(the only requirement in relation to the final offer arbitration is
that the Agreement self selected must satisfy the better off overall
test).
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Suspension of Industrial Action
15.
Section 423(2) of the FW Act requires that before industrial action can be
suspended or terminated, FWA must be satisfied that the industrial action
is causing or will cause "significant economic harm" to the
employer/employers and any of the employees who will be covered by
the enterprise agreement.
16.
In my view this threshold, especially as interpreted in CFMEU v
Woodside [2010] FW AFB 6021, is too high. The employer should be
able to have industrial action suspended under sections 423 and 426
(during which there would be FWA mediation) if:
17.

the actual industrial action or threatened or likely industrial action
(this should not be limited to industrial action that has already
commenced as required by section 423(6)) may cause material
(not "significant") harm to the employer's business; or

employees and their families/dependants may be subject to
material harm.
The threshold for termination of industrial action should remain higher
than it is for suspension because of the consequences of termination, i.e.
an arbitration. My analysis of the case law suggests that generally
sections 424 and 425 are working well (and a good example is the recent
Qantas Full Bench decision).
Transfer of Employment/Section 22
18.
The provisions of subsections 22(5) and (7) of the FW Act are largely
unintelligible in terms of their practical consequences, particularly when
they are read in conjunction with sections 91 and 122.
19.
For example, if an employer decides to recognise prior service of an
employee for the purposes of section 122, is the employee merely
disentitled to NES redundancy pay or is the employee also disentitled to
any redundancy pay? More specifically, does the employer still have to
pay redundancy entitlements applicable under an enterprise agreement but
not the NES redundancy entitlements? How do you work this out if the
formulas' for calculation of redundancy entitlements in each of the
enterprise agreement and the NES are different? The current view of the
Fair Work Ombudsman is that section 122 only disentitles an employee to
NES redundancy entitlements. If this is correct then the combination of
section 22 and section 122 deals in only a piecemeal way with transfer of
redundancy entitlements in a transfer of business situation. This is
undesirable from a policy perspective.
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20.
Equally, if a new employer recognises prior service under section 91 of
the FW Act, is the old employer in breach of the FW Act if it pays out
accrued annual leave on termination of employment to employees who
request a payout? Apparently yes, notwithstanding the no double dipping
provision in section 22(6).
21.
The commercial arrangements that normally accompany a transfer of
employment are not dealt with at all in the FW Act, but they should be.
What if, for instance, the first employer hands over to the second
employer the money equal to the accrued annual leave entitlements but an
employee does not then commence employment with the second
employer? Is the second employer obliged to pay the money back? The
FW Act is silent on these kinds of issues.
22.
In relation to section 22(5) of the FW Act, is all personal carer's leave
accrued with the old employer required to be recognised by the new
employer, or only the personal leave which accrued under the NES? This
is a fundamental issue of concern for employers and should be spelt out
very clearly in the legislation.
23.
Overall there is a need for a much clearer and better thought out set of
provisions in relation to the issues dealt with in section 22 and its related
provisions.
Arbitration of Claims during the Operation of an Enterprise Agreement
24.
A fundamental principle in the enterprise bargaining context is that an
enterprise agreement should resolve all claims for the nominal period of
operation of the enterprise agreement. After all, employees vote on and
approve an enterprise agreement as a settled document and an employer
needs certainty that the terms of the agreement remain largely fixed during
the operation of the enterprise agreement. The principle I am referring to
has been recognised in different ways by key judgements of the Federal
Court. See for instance the comments of Merkel J at paragraph [76] in
FSU v Commonwealth Bank 147 FCR 158; and of Ryan J in Kilpatrick
Green v CEPU [1998] FCA 559.
25.
However, it appears that under the FW Act unions are able to "negotiate"
with employers the inclusion of provisions in an enterprise agreement that
permit Fair Work Australia to arbitrate new claims. This is the outcome
found to exist in Boral Resources (NSW) Pty Ltd v Transport Workers
Union of Australia [2010] FWAFB 8437 (Boral Resources).
26.
The FW Act should be amended to go back to the pre-FW Act position
whereby a disputes settlement clause in an enterprise agreement could
only authorise the Federal industrial tribunal to arbitrate disputes over the
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operation or application of terms of the enterprise agreement. In other
words disputes falling within the four walls of the agreement. Otherwise
employers can be "pressured" to include clauses which give open slather
to FWA arbitration and the value of a negotiated enterprise agreement
could be reduced to nought.
Drafting Issues
Transfer of Business Provisions
27.
The transfer of business provisions should be amended to clarify that the
old employer can apply for orders under sections 318(2), 319(2) and
320(3). Often the new employer will be reluctant to bring an application
under these provisions because it has to have an ongoing relationship with
the relevant union/employees. But because an application is not made,
many proposed commercial transactions will fall over. If the old
employer is able to bring the application in advance of the transaction
there is a greater possibility that many transactions will proceed.
Qualifying Periods and Casual Employees
28.
Section 384 should be amended to make clear that where an employee was
a casual employee on a regular and systematic basis and the employee is
recruited into a materially different role, then the qualifying period starts
from when the employee commences in the new role. To give a practical
example, under the present provisions if a member of general staff in a
university was a regular casual but is appointed to a new position in the
university as a tutor, the qualifying period would not apply to the
appointment as a tutor. This does not seem right in my view from a policy
perspective.
Long Service Leave and Award-Derived Long Service Leave Terms
29.
The effect of section 113 of the FW Act is that historic award provisions
relating to long service leave are locked in indefinitely (as part of the
NES) and cannot be re-negotiated in an enterprise agreement. This can
occur even when those award-derived long service leave terms did not
apply to employees or an employer immediately before the FW Act
commenced to operate because at that time the relevant collective
agreement terms relating to long service leave were different to and
overrode the award term. I am happy to elaborate on the problems that
this causes but it does need careful review.
Graham Smith
Professor of Law,
Victoria University
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3 February 2012
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