AMMA Head of East Coast Workplace Relations Leyla Sandeman (pictured) and Legal Research Clerk Maggie Wu review the successful appeal by CIMIC Group’s construction company, CPB Contractors, of a Fair Work Commission Full Bench decision which found that the project specific aspect of the application clause of a new enterprise agreement was unlawful. 

This month, the Federal Court ruled in favour of CPB Contractors (CPB), making declarations that the coverage clause in its recently approved CPB Contractors NSW Civil Works Enterprise Agreement 2017-2021 (Agreement) did not offend the enterprise agreement coverage or content rules in the Fair Work Act 2009 (Cth) (FW Act).

Background

On 9 May 2018, Commissioner Bernie Riordan of the Fair Work Commission (FWC) approved CPB’s Agreement covering its New South Wales civil engineering project employees and the Australian Workers’ Union (AWU) (who had been the employee bargaining representative for the Agreement).

Full Bench Appeal

Despite an initial failed attempt by the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) to seek leave to intervene in the approval process, on 25 June 2018, the Full Bench of the FWC heard an appeal lodged by the CFMMEU against the approval of the Agreement, and subsequently upheld the appeal and quashed Commissioner Riordan’s approval decision.

The Full Bench upheld the CFMMEU’s appeal on two separate grounds namely that:

  1. the ‘Application’ clause (clause 3.3) of the Agreement was contrary to ss 53 and 58 of the FW Act because it purported to exclude the operation of the Agreement in areas covered by later greenfields and project agreements; and it was an unlawful term under s 194(ba) because it provided a method by which the employer, CPB, and its employees could elect, unilaterally or otherwise, not to be covered by the Agreement (ground 4 of the CFMMEU’s grounds of appeal); and
  2. the Commissioner had erred in accepting an undertaking concerning clause 9 of the Agreement, which could not met the concern about the clause operating to exclude the National Employment Standards contrary to s 55(1) of the FW Act (ground 9 of the CFMMEU’s grounds of appeal).

The contentious feature of clause 3.3 was the last paragraph which provides as follows:

Any Greenfields or Project Specific Agreement made by the Company or Joint Venture which the Company is part and which is approved by the FWC, will cover the Company and any Employees at that particular Project / site to the exclusion of this Agreement.

The Full Bench agreed with the CFMMEU that because this paragraph purported to exclude the coverage of the Agreement in favour of a later enterprise agreement for a specific project or site, the clause offended s 58(2) (which provides a general rule for when a later enterprise agreement can apply to an employee already covered by an earlier enterprise agreement).  In addition, the Full Bench agreed with the CFMMEU that the clause was also rendered unlawful by the enterprise agreement content rules – specifically s 194(ba) – which provides that ‘a term of an enterprise agreement is an unlawful term if it is a term that provides a method by which an employee or employer may elect (unilaterally or otherwise) not to be covered by the agreement’.

Federal Court Application

The Federal Court application was focused only on ground 4 of the appeal, that is, the ground which dealt with clause 3.3. of the Agreement.

CPB applied to the Federal Court for declarations in respect of the findings made by the Full Bench in relation to ground 4 of the CFMMEU’s grounds of appeal.  No declarations were sought in respect of ground 9 (which meant in practical terms that the CFMMEU’s appeal was upheld in relation to that ground).

The hearing before the Full Court of the Federal Court (constituted by Judges Flick, O’Callaghan and Wheelahan) centred on the Full Bench’s two central findings in relation to ground 4, that is:

  1. that clause 3.3 was inconsistent with s 58(2) of the FW Act; and
  2. that clause 3.3 was rendered unlawful by s 194(ba) of the FW Act.

Coverage vs Application – finding in relation to s 58

In response to the CFMMEU’s argument that clause 3.3 offended s 58(2) because it purported to exclude coverage of the Agreement in favour of a later site/project specific enterprise agreement that would then apply to employees instead of the Agreement, the Federal Court clarified the distinction between enterprise agreement ‘coverage’ and ‘application’ and the operation and interaction of ss 51, 52, 53 and 58 of the FW Act.

The Federal Court found two difficulties with the reasoning of the FWC Full Bench.  The first was that clause 3.3 was concerned with ‘coverage’ and not ‘application’ of the Agreement (which is what s 58 is concerned with).

The Court held that clause 3.3 expressed an intent for a future project/site specific enterprise agreement to cover CPB and any employees at that particular project or site to the exclusion of the Agreement, and that an enterprise agreement could do so by the use of job descriptions that identify the employment covered by that agreement as being specific to the project/site.

That agreement would also be subject to FWC approval, in which the FWC would need to be satisfied that the group of employees covered was fairly chosen (i.e. geographically, operationally or organisationally distinct).

On the assumption that such an agreement would cover different jobs to the Agreement, specific to the project/site, it was an error for the Full Bench to assume that employment at that project/site would otherwise fall within coverage of the Agreement, especially when clause 3.3 contemplated that employment not being covered by the Agreement.

The second difficulty identified in the reasoning of the FWC Full Bench was that, without knowing the terms of any later project/site specific enterprise agreement, and without examining the circumstances of particular employees to be covered by that agreement, there was no proper basis for the Full Bench’s conclusion that clause 3.3 offended s 58 of the FW Act.

For example, if a new employee commenced employment at a greenfields site, that was subject to a greenfields agreement, that employee would be excluded from coverage under the Agreement by clause 3.3, no question of coverage by the Agreement would arise, and therefore s 58(2) (i.e. concerning coverage by two agreements) would never apply.

Similarly, in relation to existing CPB employees who might transfer from a site covered by the Agreement, to a site covered by a project/site specific enterprise agreement, the question of coverage would turn on whether the particular employment (i.e. the job description) was the same.

If the employment was the same, then s 58(2) would operate to stop the project/site specific agreement from applying, but if the employment was not the same, s 58(2) would have no application.

The Federal Court held that it appeared that the Full Bench had made an erroneous assumption that the intention was that CPB would transfer employees between sites and potentially into and out of the application of different agreements.

In the absence of any proven circumstances, the Federal Court held that was not a valid assumption to make.

For those reasons, the Federal Court found the Full Bench made an error in finding that the last paragraph of clause 3.3 was inconsistent with s 58(2) of the FW Act.

Decision – No method, no election

The Court accepted the CFMMEU’s submission that clause 3.3 has a potentially wide application, susceptible of covering both existing employees of CPB as well as future employees.

However, the Court disagreed with the CFMMEU’s contention that the final sentence of clause 3.3 was rendered unlawful by s 194(ba), because it did not provide for either a “method” or an “election” within the meaning of and for the purposes of s 194(ba).

Their Honours held that to engage s 194(ba) it is essential that the term itself must provide the method by which the employer or employee can make an effective election (unilaterally or otherwise) to not be covered by the agreement.

In making this finding, they looked at the purpose for which s 194(ba) had been enacted and the ‘mischief’ it was designed to avoid, which was the removal of ‘opt-out’ clauses found in previous enterprise agreements such as in the case of Newlands Coal Pty Ltd v Construction, Forestry, Mining and Energy Union [2011] FWAFB 7325.  The Newlands Coal enterprise agreement had contained a specific ‘opt-out’ clause which provided that the enterprise agreement covered employees in the classifications for the agreement, unless an employee elected in writing at any time not to be covered by the agreement.

Taking the example of this type of ‘opt-out’ clause into account, the Court disagreed with the finding made by the Full Bench that the wording in clause 3.3 relating to the mechanism for the making and approval of a new site/project specific agreement constituted either a ‘method’ or ‘election’ for the purposes of s 194(ba).

Further, because a project/site specific agreement could not operate until approved, and because approval was within the power of the FWC, any actions taken by CPB or an employee in relation to making a project/site specific agreement could never be effective in themselves to bring about an operative agreement and could therefore never be classified as either a ‘method’ or an ‘election’.

Because clause 3.3 provided neither a ‘method’ or ‘election’, s 194(ba) was not engaged, and did not render the clause unlawful.

The Federal Court ruled in favour of CPB and granted declaratory relief, making declarations that clause 3.3 was neither an unlawful term for the purposes of s 194(ba) nor was it inconsistent with s 58.

Implications for employers

This decision is welcome as it reinforces the ability of employers to negotiate enterprise agreements which restrict coverage in circumstances where a later project/site specific enterprise agreement may be required with differing terms and conditions to an earlier enterprise agreement.

However, it is important to remember that while an enterprise agreement might contain an exclusion in its coverage clause for later project/site specific enterprise agreements, coverage (and application) of a later enterprise agreement to existing employees will still depend on the specific terms of the later enterprise agreement, and the rule applicable under s 58(2).

For this reason, it is crucial for employers to ensure that coverage clauses in later project/site specific enterprise agreements are drafted in a particular way, so that they are not broad enough to cover the same employment as an earlier enterprise agreement, to avoid unintended coverage of existing employees who may transfer to the project/site at a later date.

For further advice about enterprise bargaining, contact an AMMA consultant near you.