A Full Court of the Federal Court has found an employee collective agreement made under s.327 of the Workplace Relations Act as it stood following amendments made by the Workplace Relations Amendment (Transition to Forward with Fairness) Act was not validly made.

Pilbara Iron Ore Company (Services) Pty Ltd had decided it would enter into an employee collective agreement reflecting the terms of AWAs to which it was a party with existing employees in its rail operations network.

However, Pilbara Iron decided not to enter into an employee collective agreement with existing employees who were either employed under AWAs within their nominal terms, for which the nominal terms had already expired, or who were on ITEAs and common law contracts.

Pilbara Iron offered contracts of employment to 10 new employees who were advised that when they started work, steps would be taken to make a collective agreement with them that would apply to them and future employees in similar positions. Each of the 10 employees was engaged in classifications connected with the rail network.

The new employees performed work of the same kind and at the same locations as the existing employees in the rail network but the existing employees were not given the opportunity to consider or approve the terms of the new employee collective agreement.

The existing legislation at that time under s.327 provided that:

'An employer may make an agreement (an employee collective agreement) in writing with persons employed at the time in a single business (or part of a single business) of the employer whose employment will, or would but for the operation of an ITEA that is passed its nominal expiry date, be subject to the agreement.'

A 'single business' was defined under s.322 as 'a business, project or undertaking that is carried on by an employer which can include a geographically distinct part of a single business; or a distinct operational or organisational unit within the single business'.

Pilbara Iron had argued that part of a single business can be a group of employees distinguished by the date on which they started work. The Full Court rejected that proposition. It found that all persons employed at the time whose employment would otherwise be subject to the agreement should have a reasonable opportunity to decide whether they wanted to approve the agreement.

The Full Court found it was difficult to imagine a discreet part of a single business that was not identifiable by reference to distinct geographical, operational or organisational factors.

It said that part of a single business cannot be constituted purely by those employees whom the employer had chosen at a point in time as the parties to the proposed agreement. It had to be a recognisable section, segment or constituent of the business, consistent with the ordinary natural meaning of the word 'part'.

The construction put by Pilbara Iron that part of a single business was wide enough to include a group of employees distinguished by the date on which they started work was found by the Full Court not to conform with the ordinary meaning of 'part' of a single business. It must be an agreement for a section or division of the business, it said.

The Full Court found that s.327 of the WR Act, which required the identification of persons with whom an agreement may be made by reference to their employment, provided ample scope for the making of an agreement with only some of the persons employed in the part of a single business.

For example, the choice could be made by reference to the trades or callings of employees or to the tasks on which employees were engaged, such as maintenance as distinct from production. The Full Court further held there may be more than one agreement covering part of a single business, made with persons employed in that part in distinct types of employment.

The conclusion of the Full Court was that the agreement was not an agreement made pursuant to s.327 as the group of employees to which the agreement related was something less than the entire category of persons employed in a single business or part of a single business whose employment would be subject to the agreement.

It appears that Pilbara Iron determined only to offer the collective agreement to be voted on by 10 new employees as it was not confident that the existing employees who would have been eligible to be covered by the agreement would have voted in favour of it. The artificial creation of a part of a business, being only new employees employed at a point in time, was not found to be in conformity with the ordinary meaning of 'part' of a single business.

The Full Court issued an order declaring that the agreement had never come into operation.

The original decision

In the original decision in August 2010, the Federal Court dismissed the CFMEU's claim that the agreement never came into operation because it failed to meet all the requirements of the WR Act. The Workplace Authority had approved the agreement in November 2008.

Justice Buchanan in his original decision said the problem for the CFMEU was there was no reason to assume that because an agreement was made with employees in part of a single business that it must be made with all such persons. The Workplace Relations Act did not require an agreement to apply to all persons in a single business or part of a single business, he said. The union's application must therefore be dismissed, he said.

Following the successful appeal, the original decision has been set aside and the Full Court issued an order declaring the agreement had never come into operation.

Implications for employers

The first thing to note is that this decision only relates to agreements made under the Workplace Relations Act. The Fair Work Act 2009 requires agreements to be made with employees who are employed at the time the agreement is made who will be covered by the agreement. There is no longer a reference to a single business or part of a single business.

The Full Court's findings in this case will only be relevant where other employers under the Workplace Relations Act have, as was the case with Pilbara Iron, chosen to restrict a collective agreement to persons on the basis of their employment at a point in time and not made the agreement available to all persons eligible to be covered by the agreement's scope in terms of the occupations or other part of a single business.

Where employers have entered into employee collective agreements and the voting process has been made available to all employees eligible to be covered by the agreement without reference to their date of commencement, the collective agreement should still be a valid agreement made under the Workplace Relations Act.

To view the original decision click here.

To view the appeal decision, click here.