Fair Work (Transitional Provisions and Consequential Amendments) Act 2009
Sch. 6, Item 4 - Application to make a modern award to replace an enterprise instrument.
Sch. 6, Item 5 - Application to terminate an enterprise instrument.

PIZZA HUT - SDA EMPLOYEE RELATIONS AWARD 2000

Application to make a modern award to replace an enterprise instrument - application to terminate an enterprise award - consideration of statutory criteria - impact of enterprise agreements - whether terms enterprise specific terms - Fair Work (Transitional Provisions and Consequential Amendments) Act 2009, Schedule 6, items 4, 5.

Introduction

[1] This decision concerns two applications - an application by Yum Restaurants Australia Pty Ltd (Yum) pursuant to Item 4 of Schedule 6 of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (the Transitional Act) to make a modern award to replace the Pizza Hut - SDA Employee Relations Award 2000 (the Pizza Hut Award) and a counterpart application by the Shop, Distributive and Allied Employees Association (SDA) pursuant to Item 5 of Schedule 6 of the Transitional Act to terminate the Pizza Hut Award.

[2] A threshold issue arose as to whether the Pizza Hut Award is an enterprise award capable of being modernised. In a decision on transcript on 1 October 2010 with written reasons for the decision on 15 October 2010 1 we determined that the Pizza Hut Award was an enterprise award within the meaning of Item 3(1) of Schedule 6 of the Transitional Act.

[3] A proposed award was filed with the application. It generally follows the modern award format and contains provisions generally in line with the existing award with certain amendments to reflect the requirements of the Fair Work Act 2009 (the FW Act). During the course of the proceedings Yum amended its proposed award to provide for a higher rate of pay for Level 1 employees and Drivers, provide an additional 8% penalty averaging allowance, increase the casual loading to the rate in modern awards and to delete references to the National Training Wage.

[4] At the hearing of the matter on 15, 16, 29 and 30 November 2010, Mr P Kite SC with Mr G Boyce of counsel represented Yum and Mr J Fernon SC with Mr M Rinaldi of counsel represented the SDA.

The Statutory Framework

[5] Division 2 of Schedule 6 of the Transitional Act deals with the Enterprise Instrument Modernisation Process. Item 4 deals with applications to replace an enterprise instrument with a modern enterprise award as Yum has done in this case. Sub-item 4(5) sets out matters to be taken into account in determining whether or not to make an enterprise award and the content of any such award. Item 5 deals with applications to terminate an enterprise instrument as the SDA has done in this case. Sub-item 5(4) sets out matters to be taken into account in determining the application. The matters in items 4(5) and 5(4) are identical. They are as follows:

“(a) the circumstances that led to the making of the enterprise instrument rather than an instrument of more general application;

(b) whether there is a modern award (other than the miscellaneous modern award) that would, but for the enterprise instrument, cover the persons who are covered by the instrument, or whether such a modern award is likely to be made in the Part 10A award modernisation process;

(c) the content, or likely content, of the modern award referred to in paragraph (b) (taking account of any variations of the modern award that are likely to be made in the Part 10A award modernisation process);

(d) the terms and conditions of employment applying in the industry in which the persons covered by the enterprise instrument operate, and the extent to which those terms and conditions are reflected in the instrument;

(e) the extent to which the enterprise instrument provides enterprise-specific terms and conditions of employment;

(f) the likely impact on the persons covered by the enterprise instrument, and the persons covered by the modern award referred to in paragraph (b), of a decision to make, or not make, the modern enterprise award, including any impact on the ongoing viability or competitiveness of any enterprise carried on by those persons;

(g) the views of the persons covered by the enterprise instrument;

(h) any other matter prescribed by the regulations.”

[6] In making a modern award Fair Work Australia (FWA) must have regard to the minimum wages objective and the modern enterprise awards objective. The minimum wages objective is defined in s 284 of the FW Act as follows:

“What is the minimum wages objective?

(1) FWA must establish and maintain a safety net of fair minimum wages, taking into account:

(a) the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth; and

(b) promoting social inclusion through increased workforce participation; and

(c) relative living standards and the needs of the low paid; and

(d) the principle of equal remuneration for work of equal or comparable value;

and

(e) providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability.

This is the minimum wages objective.”

[7] The modern enterprise award objective is defined in Item 6 of Schedule 6 of the Transitional Act as follows:

“6 The modern enterprise awards objective

(1) The modern awards objective and the minimum wages objective apply to FWA making a modern enterprise award under this Division.

(2) However, in applying the modern awards objective and the minimum wages objective, FWA must recognise that modern enterprise awards may provide terms and conditions tailored to reflect employment arrangements that have been developed in relation to the relevant enterprises. This is the modern enterprise awards objective.

Note 1: See also item 11 (enterprise instrument modernisation process is not intended to result in reduction in take-home pay).

Note 2: See also item 16A (how the FW Act applies to the enterprise instrument modernisation process before the FW (safety net provisions) commencement day).”

[8] If FWA decides not to make a modern enterprise award to replace an enterprise instrument, the instrument terminates when that decision comes into operation under, Schedule 6, Item 9(3) of the Transitional Act. If no application to modernise or terminate an enterprise instrument is made by 31 December 2013, the instrument terminates at that time under Schedule 6, Item 9(4) of the Transitional Act.

[9] These provisions were considered by a Full Bench of FWA in the Bank of Queensland Agents Award Case. 2 The Decision of the Full Bench emphasises the need to apply the statutory factors to the circumstances of the particular case in the overall context of the modern award system. The conclusions of the Full Bench in that matter were expressed as follows:

“[28] Like any applicant, the agents bear the onus of making a case for the modernisation of the agents award. The application must be decided in a context in which the outcome will determine whether a modernised award or the BFI award will apply. This is underlined by the terms of item 9(3) of Schedule 6 to the Transitional Act. That item provides that if Fair Work Australia decides not to make a modern enterprise award to replace an enterprise instrument, the instrument terminates when that decision comes into operation. While the agents award has a significant history, it must now be considered against the terms of a modern industry award that covers a wide range of businesses, large and small, in the banking, finance and insurance industry. The departures from the BFI award sought in the amended application are small in number. The evidence and material relating to the operations of the OMBs do not support a conclusion that the conditions sought should apply instead of the industry safety net provisions. Having considered the reasons advanced by the agents in the context of the matters which must be taken into account under item 4(5) we have concluded that a modern enterprise award should not be made to cover the OMBs. The agents award should not be modernised. The application is dismissed.”

The Evidence

[10] Lengthy evidence was led by Yum and the SDA. Yum led evidence from Richard Wallis, Operations Director of Yum and a number of Pizza Hut franchise operators, John Elias, Nathan Wyndham, Matthew Blackburn, Darren MacClure and Nicholas Hosking.

[11] The SDA led evidence from Daniela De Martino, National Industrial Officer, Struan Timms, New South Wales Branch Organiser, David Wagner, SDA Recruitment Co-ordinator in Queensland, Rozlyn Ede, SDA Recruitment Organiser in Queensland, Ben Harris, SDA Organiser in Western Australia and Karadji Cummings, SDA Organiser Victorian Branch. The evidence is summarised below in relation to each of the matters required to be taken into account in determining the applications.

The circumstances that led to the making of the Pizza Hut Award

[12] The Pizza Hut Award was made in 1993 by Vice President Moore with the consent of the SDA and Pizza Hut employers. 3 This followed an agreement between the parties in 1991 to establish an enterprise award and related union coverage proceedings leading to a demarcation order in favour of the SDA in 1992.4 The award was revised in 19945 and simplified by Commissioner Hingley in 2000.6 In each case the variations were predominantly by consent.

[13] The Pizza Hut award applies to the operations conducted by Pizza Hut and those of its franchisees who are named as respondents. The respondent list has been expanded to cover new franchisees from time to time but does not cover franchisees in Queensland or South Australia. Yum seeks to expand the award to cover all current and future franchisees in all states and territories.

[14] Yum submits that the circumstances that led to the making of the Award establish that:

“a. The enterprise instrument was made as a result of Pizza Hut approaching the SDA to modernise existing industrial arrangements.

b. The enterprise instrument rationalised award coverage on a national basis replacing a myriad of awards with an award containing terms and conditions of employment tailored to the particular circumstances of Pizza Hut.

c. The changes introduced by the enterprise instrument addressed the operational requirements of Pizza Hut and the terms and conditions of its employees.

d. The making of the enterprise instrument meant that Pizza Hut employees obtained significant benefits compared to their counterparts under State instruments, particularly in terms of higher wages.

e. The enterprise instrument introduced a new and novel way of paying penalty rates in the form of all-up hourly rates.

f. The enterprise instrument rationalised union coverage on a national basis. The ACTU supported this rationalisation.

g. The Award has reflected a partnership between the SDA and Pizza Hut and acknowledges this partnership by naming both Pizza Hut and the SDA in its title.

h. The making of an enterprise instrument was supported by the SDA and virtually all Pizza Hut employees joined the SDA as a result of the enterprise agreement.

i. The Pizza Hut enterprise agreement (in similar terms to the Award) recently agreed with the SDA and its overwhelming support by employees and the vote of employees in December, 2009 to be bound by the Award suggests that this support continues.

j. The enterprise instrument was held by the AIRC to contain properly fixed rates of pay and conditions when it was initially made in 1993, when it was varied for safety net adjustments, when the current Award was made in 2000, and was considered in December, 2009 by Fair Work Australia to contain appropriate terms and conditions of employment for all employees.” 7

[15] The SDA submits that the evidence concerning the history of the Pizza Hut Award does not explain why an instrument of more general application was not made or should not have been made. Rather it submits that the history is consistent with regular bargaining between Yum and the SDA which is not precluded in the future in accordance with the enterprise bargaining provisions of the FW Act.

Whether a Modern Award would cover Pizza Hut Employees

[16] Yum submits that there is no single modern award that would cover Pizza Hut employees. It submits that the Fast Food Industry Award 2010 8 (the Fast Food Award) would cover most Pizza Hut outlets. It further submits that the following modern awards may apply:

● Restaurants Industry Award 2010; 9

● Clerks—Private Sector Award 2010; 10

● Storage and Wholesale Services Award 2010; 11 and

● Manufacturing and Associated Industries Award 2010. 12

[17] Yum submits that managerial employees employed by franchisees may become covered by the Fast Food Award if the enterprise award ceases to operate and these employees are not covered by the Pizza Hut Award at the moment.

18] The SDA submits that the Fast Food Award would cover the overwhelming majority of employees of Pizza Hut franchisees and in most cases, all employees.

[19] We agree with the parties that a modern award, principally the Fast Food Award would apply to all relevant Pizza Hut employees currently covered by the Pizza Hut Award if that award ceases to apply. It is also likely that other employees such as employees of franchisees in South Australia and Queensland, employees of future franchisees and certain supervisory employees who are not currently covered by the Pizza Hut Award are covered by other modern awards, principally the Fast Food Award.

[20] This finding provides a basis for considering other factors. There is no particular significance of the finding to the determination of the matter.

The Content of the Modern Award

[21] Yum contends that the content of the modern Fast Food Award is of little relevance to Pizza Hut outlets which have been covered by the Pizza Hut Award for over 15 years. Yum submits that a number of provisions of the Fast Food Award are inconsistent with the Pizza Hut Award and would require significant changes in employment practices to the detriment of Pizza Hut operations if the Pizza Hut Award is not modernised and retained. These matters go to the heart of the case put by Yum in relation to this and other factors and are therefore considered in more detail below.

[22] The SDA submits that Yum and other fast food operators had input into the content of the Fast Food Award and their concerns were taken into account - even though their views were not always accepted. It submits that considerable weight should be given to the fact that the same submissions which Yum advances in support of making a modern enterprise award were unsuccessfully advanced on behalf of fast food employers in the award modernisation process. It submits that Yum should not be entitled to re-litigate these matters.

[23] We turn to the particular terms and conditions of employment of concern to Yum. Yum contends that the part-time employment provisions of the Fast Food Award differ from the Pizza Hut Award in that it requires employers to agree in writing on a regular pattern of work, daily hours, the number of hours and the starting and finishing times each day when the employee is first employed; removes the ability to alter hours on seven days notice; requires variations to be agreed in writing; provides for overtime payments for hours in excess of agreed hours; requires a minimum engagement of three hours and removes the ability for rostering in two separate periods.

[24] Yum submits that these constraints inhibit existing flexibilities which are essential to Pizza Hut operations including the mutual objective of a predominantly part-time rather than casual workforce. It submits that the business operates with sharp spikes of demand, tight margins, and a high proportion of labour costs. It submits that the only way to deal with these restrictions is to reduce employee numbers on shifts, change rosters and phase out part-time employees to the detriment of the business and its employees.

[25] The SDA submits that the complaints of inflexibility are grossly overstated and that other fast food employers who operate almost identical operations operate successfully under the Fast Food Award provisions. It submits that Pizza Hut employers should not be given a commercial advantage over other employers by paying employees less and applying lesser conditions.

[26] Yum draws attention to the loaded rate provisions applying under the Pizza Hut Award. These provisions essentially provide for higher base rates of pay and lower penalties for some periods during the week than provided for in the Fast Food Award. Detailed evidence was provided as to how this concept has applied for some years by virtue of agreement with the SDA. Yum submits that the removal of the loaded rate concept will increase costs and prices to the detriment of employers, employees and consumers.

[27] The SDA submits that the benefits of a loaded rate should be bargained for in enterprise bargaining and there is no demonstrated ground for denying employees the benefits of penalty rates to deliver a commercial advantage over other employers. The SDA submits that if the pre-existing buy out of penalties by the current loaded rates does not enable Yum to satisfy the “Better Off Overall Test” (BOOT) in the future, it may be an indication that Yum and its franchisees have had the benefit of paying at an inadequate level under the existing arrangements. Any future correction should not be considered to be buying out twice or be otherwise unfair.

[28] Yum has concerns at the Fast Food Award provisions for delivery drivers which do not permit the alternative of payments on a per delivery basis. It considers that the demise of the more detailed five level classification structure under the Pizza Hut Award will mean that some classifications developed for Pizza Hut employees will be lost. It also is concerned at the movement of award free managerial employees to award coverage if the Pizza Hut Award is not modernised.

The Terms and Conditions Applying in the Industry

[29] Detailed information was provided on terms in other fast food industry instruments concerning weekend penalty rates, payments for working public holidays and casual loadings. Many of those instruments provide for loaded hourly rates, late night and weekend trading without significant additional penalties, different classifications reflecting multi-skilling, reduced public holiday payments, reduced rates for new starters, a 20% casual loading and similar rates of pay nationally. The information provided is contained in submissions by fast food employers in the award modernisation process. 13 Most of the relevant instruments are enterprise agreements which operate from a safety net of either industry or enterprise awards.

[30] The SDA led detailed evidence concerning comparisons in earnings under the Pizza Hut Award and the Fast Food Award and information as to local competitors of Pizza Hut outlets in the fast food industry.

The Extent to which the Pizza Hut Award contains Enterprise Specific Terms and Conditions

[31] Conflicting arguments were advanced in relation to this criterion. Yum contends that each of the matters detailed above arising as they do from the terms of the Pizza Hut Award and developed through its 15 plus year history are enterprise specific provisions. The SDA submits that the existence of a term in an enterprise award does not mean that it is an enterprise specific term. It submits that in order to fall within the concept, construed in a purposive manner, a term must be demonstrated to be required or desirable because of a particular feature of an enterprise. Terms which were proposed to be appropriate for an industry award in the award modernisation process, should not now be construed as enterprise specific terms.

[32] We do not intend to adopt an overly technical approach to the term ‘enterprise specific terms and conditions’. The concept involved, as far as it bears on the discretion to modernise and retain an enterprise award, is the extent to which specific provisions developed to suit the needs of an enterprise will be lost if the award is not modernised and retained. We consider that the matters raised by Yum as conditions that will be replaced by significantly different terms if the Fast Food Award applies fall within this description and should be considered as such.

The Likely Impact on Persons Covered by the Pizza Hut Award

[33] Yum submits that there will be a significant impact on Pizza Hut employers and their employees if the Pizza Hut Award is not modernised. It submits that the Pizza Hut Award and the employment arrangements it underpins is just as much part of the unique operating brand as other parts of Pizza Hut’s operations and marketing. It submits that the loss of the Pizza Hut Award would lead to the loss of benefits to Pizza Hut and its employees.

[34] The SDA accepts that if the Pizza Hut Award is not modernised, on expiry of the current enterprise agreement Yum will need to negotiate a new agreement and satisfy the BOOT benchmarked against the Fast Food Award. However it says that this will encourage collective bargaining and Pizza Hut employers will be in no different position than any other fast food industry employer.

The Likely Impact on Persons Covered by the Fast Food Award and Other Relevant Modern Awards

[35] Some Pizza Hut employees are covered by the Fast Food Award. Other employees covered by the Fast Food Award are employed by other fast food employers. There is no direct impact on this latter group other than implications of Pizza Hut being able to apply terms and conditions more in line with the Pizza Hut Award safety net. We do not consider that this impact is likely to be significant.

[36] For those Pizza Hut employees not covered by the Pizza Hut Award there will be a more direct impact. For the same reasons as Yum seeks to continue to apply its enterprise award penalty rates regime, the impact on Pizza Hut employees coming under the award for the first time may be the application of a lesser safety net. It is not clear whether this would lead to any change in actual terms and conditions.

The Views of Persons Covered by the Pizza Hut Award

[37] It appears clear that Pizza Hut employers support the modernisation of the Award. It is equally clear that the SDA opposes its modernisation. The parties made competing submissions about what could be inferred to be the views of Pizza Hut employees. There was no evidence about such views. We do not believe that speculating about such matters assists in the determination of the matter.

Other Matters Prescribed by the Regulations

[38] There are currently no other matters prescribed by the Regulations.

Conclusions

[39] In our view the consensual nature of the enterprise award is a factor in support of its retention. It indicates that there has been a desire for enterprise specific terms and conditions and an acceptance of that notion by the SDA. However the fundamental review of award structures brought about by award modernisation and the single national safety net established by modern awards reduces the significance of this factor. Yum was an active participant in the award modernisation process and made submissions that were adopted by the Australian Industrial Relations Commission (AIRC) that a fast food industry award should be made separate from the General Retail Industry Award 2010. 14 There is no doubt that the parties to the award have been active - and indeed proactive - in relation to award coverage for Pizza Hut employees and the history bears that out. Changed circumstances and the way in which the award modernisation process operated require a reconsideration of the appropriateness of an enterprise award.

[40] The adoption of enterprise terms from the enterprise award in enterprise agreements also diminishes the significance of the award history. The parties have been active in relation to enterprise agreements. The most recent enterprise agreement is in similar terms to the enterprise award. Conceptually there appears to be no reason why this could not continue, although the question of the terms of the respective safety net awards is relevant to future agreements and satisfaction of the BOOT. We discuss this consideration below in relation to the terms of each of the instruments.

[41] We accept that the part-time provisions of the Fast Food Award can be described as less flexible for the employers than the corresponding provisions of the Pizza Hut Award and Pizza Hut - SDA National Employee Relations Agreement 2009 15 and Pizza Hut - SDA National Employee Relations Agreement 201016 (the Agreements). To the extent that this is a problem for Pizza Hut, it does not arise immediately - only when the Agreements cease to apply - and then only if the existing arrangement is not replicated in a replacement agreement.

[42] We consider that there are avenues available to apply the Fast Food Award provisions in a way that allows flexibility by agreement and complies with the requirements of the Award. We also consider that the alleged problems are not confined to Pizza Hut and its franchisees. They are common to many other take away pizza and fast food operators who operate in a similar or identical manner. The availability of a review of award provisions for the industry as a whole in 2012 and 2014 also diminishes the significance of this matter further.

[43] The existence of loaded rates in the Pizza Hut Award and the Agreements and the previous submissions of the SDA in support of the concept suggest that loaded rates are likely to continue to be available under agreements negotiated with the SDA. Negotiating on the basis of the penalty regime in the Fast Food Award will be in common with many other fast food employers.

[44] We do not believe that Yum has established that its operations are distinguishable from other employers such as to establish the need for a different penalty rate regime. The availability of flexibility and consistency of costs should be balanced against the impact on employees and appropriate community standard penalty payments. Again if the balance is not right and the attainment of loaded rates under the Fast Food Award is considered overly restrictive then the content of that award could be reconsidered as part of the award review processes.

[45] Our comments above apply equally to the matters concerning delivery drivers, classifications and managerial employees. Yum has not established to our satisfaction that its employment practices cannot be continued or that their continuation under the basis of the industry wide safety net is inappropriate.

[46] As noted above the Pizza Hut award contains clauses which could be described as enterprise specific terms and conditions. The significance of this factor is covered by our comments above about the actual impact of a change in award safety net on those provisions which apply under enterprise agreements and the Pizza Hut Award at the moment.

[47] We agree that the possible impact of not modernising the award on parties to the Pizza Hut Award arises on expiry of the Agreements with the change of the award for the application of the BOOT. We repeat our comments above about the appropriateness of this. Yum will be in no different position to other employers. It may be required to increase its loaded rate to properly encompass the different award penalties. But it is not precluded from retaining all of its current employment arrangements. In circumstances where the same constraints will affect competitors - possibly much earlier - it cannot be said that such a situation will affect the viability of Pizza Hut operations. Insofar as competitiveness is concerned, the situation can only lead to a more level playing field than the current situation, where it appears that Pizza Hut employers may have a competitive advantage.

[48] Yum did not run its case by accepting that it had an advantageous position compared to its competitors. Rather it sought to establish that the Fast Food Award provisions are unsuited to its operations and the Pizza Hut Award provisions are more appropriate. However in our view it has failed to establish that it is in a unique position in this regard. Many other fast food operators are relevantly in an identical position to Pizza Hut employers in terms of their market and labour needs. If the Fast Food Award provisions require reconsideration on the basis of the types of arguments advanced by Yum, then they can just as conveniently, and in our view more appropriately, be dealt with by the entire industry covered by the modern award as part of a future award review.

[49] In all of the circumstances we do not believe that Yum has made out a case for the modernisation of the Pizza Hut Award. We dismiss the Yum application and grant the application by the SDA to terminate the Pizza Hut Award.

[50] In view of this conclusion it is unnecessary that we determine the threshold argument of the SDA that the application is incompetent because it seeks a modern award with a wider scope than the Pizza Hut award and therefore cannot be said to be ‘replacing’ it.

VICE PRESIDENT WATSON

Appearances:

P Kite SC and G Boyce of counsel for Yum Restaurants Australia Pty Ltd

J Fernon SC and M Rinaldi of counsel for Shop, Distributive and Allied Employees Association

Hearing details:

2010.

Sydney

15, 16, 29 November.

 1   [2010] FWAFB 7591

 2   [2010] FWAFB 3906

 3   Bendjur Pty Ltd and others and Shop, Distributive and Allied Employees Association K7610

 4   K6075

 5  Shop, Distributive and Allied Employees Association L4460

 6   Shop, Distributive and Allied Employees Association and LMJ Restaurants Pty Ltd and others S6276

 7   Exhibit K27 Outline of Submissions for Pizza Hut, paragraph 37.

 8   MA000003

 9   MA000119

 10   MA000002

 11   MA000084

 12   MA000010

 13   Quick Service Food Chains Industry Submission, 16 July 2008

 14   MA000004

 15   AE877415

 16   AE880937

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