Fair Work Act 2009
s.604 - Appeal of decisions

Appeal against decision [2016] FWCA 1595 of Senior Deputy President Hamberger at Sydney on 11 March 2016 in matter number AG2015/5904.

Introduction and background

[1] The Construction, Forestry, Mining and Energy Union (CFMEU) has lodged an appeal, for which permission to appeal is required, against a decision of Senior Deputy President Hamberger issued on 11 March 2016 1 (Decision) to terminate the Sedgman Employment Services Pty Ltd Bowen Basin Front Line Employee Enterprise Agreement 2011-2014 (Agreement) pursuant to s.226 of the Fair Work Act 2009 (FW Act). Prior to its termination, the Agreement applied to employees at two coal handling and preparation plants (CHPPs) respectively located at the Coppabella and Moorvale Coal Mines in the Bowen Basin in Queensland. The Agreement was made by Sedgman Employment Services and its employees in 2012, at a time when Sedgman was the operator of the two CHPPs. Effective from 1 July 2013 Peabody Energy Australia PCI Mine Management Pty Ltd (Peabody) insourced the operation of the CHPPs. Pursuant to Part 2-8 of the FW Act, Peabody became bound by the Agreement in respect of former employees of Sedgman who transferred to its employment as part of the insourcing arrangement. Peabody applied for and obtained an Order under s.319(1) of the FW Act that the Agreement also apply to any new employees engaged by it at the CHPPs after the insourcing took effect.2

[2] The Agreement reached its nominal expiry date on 31 March 2014. Bargaining for a replacement enterprise agreement commenced in mid-2014, and continued through to June 2015. On 30 June 2015, Peabody informed employees that it was treating negotiations at an end on the basis that there was a fundamental disagreement about the level of remuneration. Peabody’s position was that the current level of remuneration in the Agreement was not in line with current market conditions in the industry, which had been significantly affected by a collapse in coal prices. The main change it wanted in the new agreement was the replacement of the Work Allowance in the Agreement (worth in excess of $500 per week), with a “Short Term Incentive Plan” (STIP), which was intended to align employee performance with production outcomes. There was no dispute that this change would result in a reduction in employees’ total remuneration, and not surprisingly the employees, primarily represented by the CFMEU, strongly opposed this change.

[3] Peabody lodged its application to terminate the Agreement on 16 October 2015. There was no further bargaining for a new enterprise agreement prior to the hearing of that application before the Senior Deputy President.

The applicable statutory provisions

[4] Section 225 of the FW Act provides that an employer, and employee or an employee organisation covered by an enterprise agreement that has passed its nominal expiry date may apply to the Commission for the termination of the agreement. In relation to any such application, ss.226 and 227 provide:

226 When the FWC must terminate an enterprise agreement

If an application for the termination of an enterprise agreement is made under section 225, the FWC must terminate the agreement if:

(a) the FWC is satisfied that it is not contrary to the public interest to do so; and 

(b) the FWC considers that it is appropriate to terminate the agreement taking into account all the circumstances including:

(i) the views of the employees, each employer, and each employee organisation (if any), covered by the agreement; and 

(ii) the circumstances of those employees, employers and organisations including the likely effect that the termination will have on each of them.

227 When termination comes into operation

If an enterprise agreement is terminated under section 226, the termination operates from the day specified in the decision to terminate the agreement.

The Decision

[5] In the Decision, the Senior Deputy President commenced by describing in detail the history of the Agreement’s making and operation, the negotiations for a new enterprise agreement, an undertaking offered by Peabody during the proceedings, and the state of the coal industry. In respect of the undertaking, the Senior Deputy President said (footnote omitted):

“[38] During the proceedings Peabody gave an undertaking that if the Sedgman agreement was terminated, it would apply the terms of its final offer to employees for a period of three months, during which time it would negotiate in good faith for a replacement enterprise agreement (interim proposal). However the final offer included a temporary transitional ‘top up’ payment to be paid outside of the enterprise agreement, in years one and two of the agreement. That payment did not form part of the interim proposal. I am satisfied that the undertaking is given in good faith and would be complied with by Peabody.”

[6] The “final offer” referred to was one involving the abolition of the Work Allowance and its replacement by the STIP.

[7] The Senior Deputy President then gave consideration to the matters identified in s.226(b)(ii), and also to the likelihood of a new agreement being reached if Peabody’s application was dismissed. In relation to this last matter, the Senior Deputy President’s assessment was that “In the current low inflation environment they have a very strong incentive to stick with the terms of the current agreement”, and on the basis concluded that if the Agreement was not terminated there was unlikely to be any new enterprise agreement in the foreseeable future. 3 If the agreement was terminated, the Senior Deputy President’s assessment was as follows (excluding footnotes):

“[45] ...In my judgment, the most likely foreseeable outcome of terminating the agreement would be that the parties would make a new enterprise agreement broadly along the lines of Peabody’s ‘interim proposal’, probably within the three month period covered by the Peabody undertaking or shortly thereafter. I am satisfied that Peabody would continue to offer an agreement similar to that rejected last year by the employees, with or without the transitional ‘top up’ then proposed but with a STIP replacing the Work Allowance. While it would theoretically be open to Peabody to revert the employees back to the modern award (once the three month period covered by the undertaking is complete) I consider this unlikely. The conditions in the award are unlikely to suit Peabody (as they noted at the time they applied for orders to extend the coverage of the Sedgman agreement in 2013), and, as recognised by Mr Economidis during his cross-examination, the pay and conditions in the modern award would be uncompetitive. Once the option of remaining with the Sedgman agreement is effectively removed by its termination the next best option for the employees would almost certainly be an agreement broadly along the lines proposed by Peabody. It would be open to the employees to take protected action to try and obtain a better deal, but that would, in my view, be unlikely.”

[8] In relation to the effect of termination on employees, the Senior Deputy President accepted evidence adduced by Peabody that its proposed STIP would produce an increment of about 10% on top of base remuneration, and that the likely effect of termination on employees would be “a small but significant reduction in their overall remuneration”. 4 The Senior Deputy President also concluded that termination would be unlikely to have a significant effect on the CFMEU, although there would be a reduction in its bargaining power5, and it would allow Peabody to “negotiate terms and conditions more in line with their business objectives, including the introduction of greater incentives for improved productivity...”.6

[9] The Senior Deputy President then made findings about the change in the state of the coal industry, including that “Thousands of coal workers have lost their jobs, and the labour market has been completely transformed” 7, and referred to Peabody having “inherited” the Agreement.8 In relation to s.226(a), the Senior Deputy President found that termination would not be contrary to the public interest9 for a number of reasons, including that it would not have any significant effect on anyone other than the parties involved and that termination of the Agreement would “facilitate the negotiation of a new enterprise agreement that would deliver productivity benefits”.10 He then stated his final conclusion under s.226(b) about the appropriateness of terminating the Agreement as follows:

“[56] Taking into account all the relevant circumstances, as outlined above, I consider that it would be appropriate to terminate the agreement. In summary, the current agreement was negotiated by a previous employer to suit its circumstances at the time. It was inherited by Peabody when it insourced the operations of the two CHPPS. It contains provisions that were relevant to Sedgman but are not relevant to Peabody. Even more importantly it was negotiated in very different circumstances. There has been a very significant change in the state of the coal mining industry since the Sedgman agreement was negotiated. It is well past its nominal expiry date, and it has not been possible, despite many months of good faith bargaining, to negotiate a replacement. In these circumstances it would be reasonable to facilitate the negotiation of a new agreement that better reflects the current state of the industry, and would provide incentives for improved productivity. I recognise that there is likely to be a small but significant reduction in remuneration for the employees in question. However, in the circumstances, I do not consider that that is enough to make it inappropriate to make termination of the agreement inappropriate.”

CFMEU’s grounds of appeal and appeal submissions

[10] The CFMEU’s challenge to the Decision was mounted at three levels. First, on the premise that the primary findings made by the Senior Deputy President were correct, it contended that his ultimate finding under s.226(b) as to the appropriateness of termination of the Agreement in paragraph [56] of the Decision was attended by appealable error in the following respects:

(1) the views of employees and the CFMEU were not taken into account;

(2) the circumstances of the CFMEU were not taken into account;

(3) only one circumstance of the employees, namely their remuneration during the three-month undertaking, was taken into account, and their other circumstances including their remuneration after the three-month period and their earlier reduction in remuneration due to reduced shift lengths, were not taken into account;

(4) the Senior Deputy President took into account his own views as to the suitability of the current terms of the Agreement and what was reasonable to be included in any proposed agreement, and in doing so engaged in effect in an impermissible merits determination of the contested issues; and

(5) the Senior Deputy President took into account his primary finding that the likely result of termination would be the making of a new enterprise agreement along the lines of Peabody’s proposal, contrary to the legislative scheme which facilitated but did not mandate the making of enterprise agreements.

[11] Secondly, the CFMEU submitted that the Senior Deputy President took an erroneous approach to the public interest under s.226(a) by again taking into account his own views about the suitability of the current terms of the Agreement, and what should be included in the proposed agreement, and by approaching the matter on the basis that the conversion of a component of remuneration to a productivity payment for Peabody’s benefit would attract the public interest.

[12] Thirdly, the CFMEU submitted that the following primary findings or conclusions were in error because they were purely speculative and/or not supported by the evidence:

(1) that the likely foreseeable outcome of termination would be that a new enterprise agreement would be made along the lines of Peabody’s proposal;

(2) that Peabody would be unlikely to revert to the modern award after the expiry of the three-month undertaking;

(3) that the implementation of the STIP proposed by Peabody would improve productivity; and

(4) that the labour market in the coal industry had been completely transformed.

[13] The CFMEU also contended that there were primary findings of fact that should have been made by the Senior Deputy President but were not, namely that negotiations for a new agreement had stopped as a result of a unilateral decision of Peabody, and that it had been Peabody’s decision to be bound by the Agreement by choosing to employ previous employees of Sedgman when it insourced the operation of the CHPPs.

Consideration

[14] As earlier stated, the CFMEU’s appeal may, under s.604 of the FW Act, only proceed with the permission of the Commission. Subsection 604(2) requires the Commission to grant permission to appeal if satisfied that it is “in the public interest to do so”, and permission to appeal may otherwise be granted on discretionary grounds.

[15] We do not consider in this case it is in the public interest to grant permission to appeal, or that permission should be granted on discretionary grounds. We have come to this conclusion because we do not consider that the Decision was attended by sufficient doubt to warrant its reconsideration, because the appeal does not raise any legal question or industrial issue of general significance, and because we do not consider that the refusal of permission will result in any manifest injustice to the CFMEU or its members.

[16] The nature of the exercise of power under s.226 was explained by the Full Bench in AWX Pty Ltd 11 as follows:

“[18] We begin an examination of this aspect by noting that the application of s.226 of the Act is an exercise in discretion by the decision maker. The provision requires that an instrument must be terminated if the Commission is satisfied that it is not contrary to the public interest and after taking account of all the circumstances including the views of the employees, each employer, and each employee organisation (if any), covered by the agreement; and the circumstances of those employees, employers and organisations including the likely effect that the termination will have on each of them.”

[17] In identifying that s.226 required the exercise of a discretion, the Full Bench in AWX Pty Ltd referred to the following passage in the High Court decision in Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission 12 (footnotes omitted):

“[19] "Discretion" is a notion that "signifies a number of different legal concepts". In general terms, it refers to a decision-making process in which "no one [consideration] and no combination of [considerations] is necessarily determinative of the result." Rather, the decision-maker is allowed some latitude as to the choice of the decision to be made. The latitude may be considerable as, for example, where the relevant considerations are confined only by the subject matter and object of the legislation which confers the discretion. On the other hand, it may be quite narrow where, for example, the decision-maker is required to make a particular decision if he or she forms a particular opinion or value judgment.”

[18] Section 226 involves the exercise of a “narrow” discretion of the type described in the last sentence of the above passage. Notwithstanding this, it remains the case that the evaluative assessments required by s.226(a) and (b) allow a degree of latitude on the part of the decision-maker as to the conclusions to be reached. For the reasons explained in Coal and Allied Operations, this means it is necessary in an appeal from a decision made under s.226 to demonstrate error in the decision-making process. 13 The types of errors that might be demonstrated are those identified in House v The King.14

[19] We are not satisfied that the CFMEU has demonstrated a reasonably arguable case of error by the Senior Deputy President in the exercise of his discretion. In relation to his conclusions concerning s.226(b), we do not consider that the Senior Deputy President failed to take into account any relevant consideration or took into account any irrelevant consideration. Paragraph [56] of the Decision opens with the words “Taking into account all the relevant circumstances, as outlined above...”, and we consider that should be taken to mean what it says, namely that the Senior Deputy President in concluding that it was appropriate to terminate the Agreement had had regard to and weighed in the balance all the matters which he set out in some detail earlier in the Decision. What follows in the paragraph is, as was expressly stated by the Senior Deputy President, a summary of those matters which were most salient to the Senior Deputy President’s overall conclusion under s.226(b). It is not a fair reading of the paragraph to treat any matter not explicitly referred to as not having been taken into account.

[20] In any event, it is clear that the views and the circumstances of the employees and their union, the CFMEU, were (understandably) focused almost entirely on the employees’ current level of remuneration under the Agreement and the likely effect on that remuneration of termination of the Agreement. This matter was given explicit consideration in paragraph [56] of the Decision. We do not accept the submission that the Senior Deputy President’s conclusion about this only related to the period of the three-month undertaking proposed by Peabody. The conclusion that “...there is likely to be a small but significant reduction in remuneration for the employees...” was clearly based not just on the Senior Deputy President’s analysis of the effect of the undertaking, but also his finding that the most likely effect of termination of the Agreement would be that the parties would enter into a new enterprise agreement along the lines of Peabody’s proposed undertaking. 15 The Senior Deputy President’s assessment of the evidence concerning the effect of termination on employee remuneration was therefore referable to both before and after the three-month period of the undertaking.

[21] We do not consider that the Senior Deputy President took into account an irrelevant consideration or impermissibly engaged in a merits determination of the competing proposals for a new enterprise agreement by expressing the view that the facilitation of a new enterprise agreement which better reflected the current state of the industry and provided incentives for improved productivity would be “reasonable”. 16 Because the Senior Deputy President was required by s.226(b)(ii) to take into account the likely effect of the termination of the Agreement on the employees, Peabody, and the CFMEU in his consideration of the appropriateness of termination, once he had found that the likely effect of termination would be a new agreement along the lines of Peabody’s proposed undertaking (and would not be a reversion to the modern award), it was necessarily the case that the appropriateness of a new agreement to that effect needed to be considered. Contrary to the CFMEU’s submission, this did not involve mandating an outcome, only predicting what the most likely outcome would be.

[22] In relation to the Senior Deputy President’s consideration under s.226(a), none of the matters raised by the CFMEU in its appeal could result in a reversal of the conclusion that termination of the Agreement would not be contrary to the public interest. For similar reasons as earlier stated in relation to s.226(b), it was necessary for the Senior Deputy President to consider whether the likely outcome of termination, being a new agreement along the lines of Peabody’s proposed undertaking, was contrary to the public interest. The Senior Deputy President did not find or assume that the accrual of productivity benefits to Peabody would be in the public interest, as submitted by the CFMEU; to the contrary, he specifically found that “Terminating the agreement would have no significant effect on anyone other than the parties immediately involved”. 17 

[23] The CFMEU’s challenges to the primary findings made by the Senior Deputy President were also without substance. His assessment that the likely outcome of termination of the Agreement would be a new agreement along the lines of Peabody’s proposed undertaking was speculative, but necessarily so. Section 226(b)(ii) required consideration of the likely effect upon employees, Peabody, and the CFMEU of termination of the Agreement, and that inevitably required a judgment to be made as to what terms and conditions of employment might apply upon termination in order for the relevant effects to be assessed.

[24] The evidence clearly supported the Senior Deputy President’s conclusion that it was unlikely that Peabody would revert to the modern award upon termination of the Agreement and the expiry of its undertaking. This issue was raised directly in cross-examination of Peabody’s witness, Mr Jason Economidis, who was the General Manager of the Coppabella Mine. Although one of Mr Economidis’ answers to questions about this was arguably somewhat ambiguous, his final position was not. He said that Peabody would re-appraise its position after the expiry of the three-month undertaking if no new agreement was reached in that period. 18 The following evidence was then given by him:

“And after that reappraisal, it’s possible that you may go back onto award conditions? - No, it’s not possible.

Sorry? – It’s not possible. I’ve made a number of conversations [sic]. There’s no way that I will say that we will go back to award conditions because we won’t.” 19

[25] We consider it was reasonable, and certainly not erroneous, for the Senior Deputy President to make the assessment that the termination would “facilitate the negotiation of a new enterprise agreement that would deliver productivity benefits”. 20 Insofar as the STIP proposed by Peabody to be included in a new agreement linked an element of pay to the achievement of organisational and personal performance indicators, it was reasonable to conclude that this would lead to productivity benefits. For the reasons earlier stated, it is not a valid criticism to describe this assessment as speculative in nature because s.226 required assessments of that nature to be made. Nor is there any basis to conclude that the finding that there has been a complete transformation in the coal industry labour market involves any error of substance. While the terms in which this finding was expressed were arguably slightly hyperbolic, there is no doubt that the collapse in the market price for coal has led to mine closures, redundancies, and a significantly reduced demand for labour overall. This has necessarily put pressure on the market rates being paid for such labour.

[26] Finally, we do not consider that it was necessary for the Senior Deputy President to have made the other findings which the CFMEU contends he should have made. Neither of those findings, if made, could in our assessment have given rise to the possibility of a different outcome.

[27] None of the matters advanced by the CFMEU in its appeal raise any issue of general application about the interpretation or application of s.226 which it would be desirable, in the public interest or otherwise, to resolve at the Full Bench level. The appeal grounds were, we consider, confined to the particular facts and circumstances of this case.

[28] Finally, the Decision has not caused any manifest injustice to employees which would require appellate review. If the decision to terminate the Agreement had in fact led to detriment to employees beyond the “small but significant reduction in remuneration” predicted by the Senior Deputy President on the basis of Peabody’s evidence and submissions, then arguably that would justify the grant of permission to appeal in order that the outcome produced by the Decision be more closely scrutinised. However that has not occurred. There is no suggestion that Peabody has not complied with the undertaking it proffered at first instance. We admitted evidence from Peabody, without objection from the CFMEU, which demonstrated that the pay increment resulting from the implementation of the STIP pursuant to the undertaking is likely to be about 9.22% at the Coppabella CHPP and about 8.31% at the Moorvale CHPP. This is close enough to the 10% estimation upon which the Senior Deputy President relied, noting that he qualified this estimation by saying that “it could end up being a bit less or a bit more”. 21

[29] There has been no further substantive bargaining between the parties to date, but we accept as plausible Peabody’s explanation that the currency of this appeal has affected the willingness of the parties to bargain. During the hearing of the appeal, Peabody advised that it intended to extend the operation of its undertaking by a further three months. We consider this to be a reasonable response to the current situation, and it will in our assessment allow bargaining to resume in a stable environment once this decision has been delivered.

Order

[30] Permission to appeal is refused.

VICE PRESIDENT

Appearances:

D.Williams with L.Sandeman solicitors for Peabody Energy Australia PCI Mine Management Pty Ltd.

S.Crawshaw SC with A.Walkaden for Construction, Forestry, Mining and Energy Union.

Hearing details:

2016.

Sydney:

25 May.

 1   [2016] FWCA 1595

 2   PR538223

 3   Decision at [44]

 4   Decision at [46]

 5   Decision at [47]

 6   Decision at [48]

 7   Decision at [49]

 8   Decision at [50]

 9   Decision at [51]-[55]

 10   Decision at [53], [55]

 11   [2013] FWCFB 8726 

 12   [2000] HCA 47; (2000) 203 CLR 194 at [19] per Gleeson CJ and Gaudron and Hayne JJ

 13   Ibid at [21]

 14   [1936] HCA 40; (1936) 55 CLR 499 at 505 per Dixon, Evatt and McTiernan JJ

 15   Decision at [45]

 16   Decision at [56]

 17   Decision at [53]

 18   Transcript 25 January 2016, PN 424

 19   PNs 425-426

 20   Decision at [55]

 21   Decision at [46]

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