AREEA reviews a decision of the Western Australian Industrial Relations Commission (WAIRC) which found Rio Tinto unlawfully altered the contractual terms of two Rio Tinto fly-in, fly-out (FIFO) workers.

In the case, David Perrin v Pilbara Iron Company (Services) Pty Ltd, the WAIRC found two Rio Tinto crane and truck operators, employed on a FIFO basis, were denied payments for ‘disruptions’ under their contracts when required to work at locations away from their usual place of employment.

The decision is a valuable reminder that when reviewing or amending policies relating to the terms and conditions of employment, employers cannot limit employees’ entitlement to a contractual benefit.

Background: Rio changes allowances policy

The two FIFO employees operated cranes and plant equipment for Rio Tinto subsidiary Pilbara Iron Company (Services) Pty Ltd in the Pilbara, where Rio operates 16 iron ore mines, four port terminals and extensive rail network.

The crane and truck operators were previously engaged as contractors and offered permanent positions in 2014.  Their contracts of employment included a ‘Role Allowance’ (included in a schedule to the contract) made up of a standby or call out payment, also known as a ‘disruption’, where as part of their roster they were required to be on standby for more than ten weeks per year. The contract also entitled them to receive additional payments where they are called out on 12 or more occasions per year.

At the time, the employees raised concerns with the remuneration offer in their contracts however after discussions with their Superintendent were assured the pay difference could be made up in disruptions and night shift payments.  These disruptions occurred when employees were required to undertake work, including ad hoc night shifts, across other mining operations in the Pilbara as directed by the company.

In 2015, Rio Tinto identified an inconsistency with the application of its ‘Allowances Policy’ where employees in West Pilbara were paid for all disruptions and all ad hoc night shifts yet other FIFO crane and transport employees were not. The company undertook a review of the policy that found it was being applied inconsistently with the nature of FIFO work where employees are already working away from home, and believed these payments were covered by the commute allowance that FIFO employees receive.

A decision was made by senior management to align crane and transport employees’ allowances with other employees of the business. The company’s view was each day a FIFO employee was required to work away from their home camp should not be considered a separate call out and treating them as such would be synonymous to ‘a call out from a call out’. The revised application of the policy meant FIFO employees would only receive payment for the first and last shifts where they were required to work away from their home camp.

The change in policy led the two crane and truck operators, through the Western Mine Workers’ Alliance, to bring a claim before the WAIRC that the revised application denied them their entitlement to a contractual benefit.

Decision: Unilateral variations unlawful

Senior Commissioner Kenner found that when entering into the contract of employment with Rio Tinto, the employees would have inferred that the ‘Role Allowance’ formed part of their total fixed remuneration. The reference to the relevant clause in the ‘Allowances Policy’ specified how the allowance was to be determined and applied for the purpose of the additional call out payments.

The Senior Commissioner found that, along with subsequent discussions with the superintendent about the payment for disruptions, this would lead a reasonable person in the employees’ position to believe they would be entitled to receive additional payments for working away from their home camp.

The Senior Commissioner found Rio Tinto made a conscious decision to include the entitlement to a role allowance in the two crane and truck operators’ offers of employment that then formed part of their remuneration, although it was not generally paid to other FIFO employees.

Rio Tinto relied on the terms in the contract that referred to their ability to vary policies and that those policies, including the ‘Allowances Policy,’ are discretionary and do not form part of the contract of employment.

“If the Role Allowance provision in the policy could be changed at [Rio Tinto]’s complete discretion, as it contended, then the “entitlement” conferred by the Schedule would be illusory and have a mirage like quality,” the Senior Commissioner said.  “I do not consider that is how the contract of employment should be construed.”

The Senior Commissioner expressed the need for the contract to be in read in its entirety, highlighting that the ‘Policies, Procedures and Other Conditions’ provisions of the contract commences with “In addition to the terms and conditions outlined in this contract…” Following that approach, he emphasised that in order to give effect to all of the terms of the contract and not just some of them, the contract should be viewed as a whole.

Further, he stated that: “It was not open for the [Rio Tinto] to unilaterally vary the contracts of employment to reduce the entitlement in this way. They are not discretionary benefits in terms of the Schedule.”

Implications

It is important to remember that the discretion to vary or amend internal policies from time to time cannot preclude any contractual benefit or entitlement to employees.  Employees make decisions to accept or reject offers of employment based on the terms and conditions provided in their contract or relevant industrial instrument, as well as any representations made to them by their prospective employer.

For this reason, employers should be wary of representations made in discussions with prospective employees held prior to offers of employment being accepted.

If a policy, procedure or standards document is required to ascertain a contractual benefit and the benefit is an express term of the contract of employment then it can be inferred that the relevant document is incorporated into the contract and has contractual effect.

Employers should be cautious when referring to specific policy entitlements in contracts of employment, in order to avoid accidentally incorporating policy entitlements as contractual terms which an employee can later apply to enforce.

Employers also need to be aware of how policies are being applied across their operations and should encourage supervisors and managers to be consistent in their application of policies in order to avoid potential disputes.

For advice on any of the themes or matters within this decision, contact a workplace relations specialist at your local AREEA office.