[2012] FWA 10861

[2012] FWA 10861

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FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.185 - Application for approval of a single-enterprise agreement

Agnew Legal Pty Ltd
(AG2012/8452)

Restaurants

COMMISSIONER ASBURY

BRISBANE, 24 DECEMBER 2012

Application to approve the CLB No. 1 Pty Ltd Enterprise Agreement 2012 - Agreement does not pass the Better Off Overall Test - Consideration of whether Agreement should be approved on the grounds in s.189 of the Act - Exceptional circumstances - Public interest - Finding that there are no exceptional circumstances - Application for approval on grounds in s.189 refused.

BACKGROUND

[1] This is an application by Agnew Legal Pty Ltd as bargaining representative for CLB No. I Pty Ltd trading as Wagamama (CLB) for approval of the CLB No. 1 Pty Ltd - Enterprise Agreement 2012 (the Agreement). The application is made pursuant to Chapter 2, Part 2-4 of the Fair Work Act 2009 (the Act).

[2] CLB is a wholly owned subsidiary of Edible Concepts Holdings Pty Ltd and provides Asian style food in a casual dining environment, under licence from a company located in the United Kingdom. CLB employs 226 staff in classifications covered by the proposed Agreement and operates 11 stores located variously in Brisbane, Sydney, Canberra and Perth.

[3] By email dated 6 November 2012, I advised the representative of CLB of significant concerns about whether the Agreement passed the better of overall test (BOOT) as set out in s.193 of the Act, when considered against the terms of the Restaurant Industry Award 2010 (the Award). In particular, I highlighted the fact that the wage rates in the Agreement are insufficient to offset the obvious detriment to employees associated with the removal of penalty payments including those in relation to Saturdays, Sundays, public holidays and late nights.

[4] CLB’s representative responded to that email acknowledging that the Agreement does not pass the BOOT and indicating that it intended to rely on the public interest ground in s.189(2) of the Act as the basis for approval of the Agreement. Subsequently, CLB’s representative corresponded with the Tribunal indicating that it still wished to leave open the option of providing undertakings to address any concerns about whether the Agreement passed the BOOT as an alternative to relying on the grounds in s.189(2) of the Act.

APPROVAL OF AGREEMENT UNDER S.189

[5] Section 189 of the Act provides an alternative basis upon which an agreement that does not pass the BOOT can be approved, in circumstances where the Tribunal is satisfied that, because of exceptional circumstances, the approval would not be contrary to the public interest. That section provides as follows:

189 FWA may approve an enterprise agreement that does not pass better off overall test—public interest test

Application of this section

(1) This section applies if:

(a) FWA is not required to approve an enterprise agreement under section 186; and

(b) the only reason for this is that FWA is not satisfied that the agreement passes the better off overall test.

Approval of agreement if not contrary to the public interest

(2) FWA may approve the agreement under this section if FWA is satisfied that, because of exceptional circumstances, the approval of the agreement would not be contrary to the public interest.

Note: FWA may approve an enterprise agreement under this section with undertakings (see section 190).

(3) An example of a case in which FWA may be satisfied of the matter referred to in subsection (2) is where the agreement is part of a reasonable strategy to deal with a short-term crisis in, and to assist in the revival of, the enterprise of an employer covered by the agreement.

Nominal expiry date

(4) The nominal expiry date of an enterprise agreement approved by FWA under this section is the earlier of the following:

(a) the date specified in the agreement as the nominal expiry date of the agreement;

(b) 2 years after the day on which FWA approved the agreement.

[6] Previous iterations of the legislation contained provisions in similar terms to those found in s.189. Relevantly, s.170LT of the former Workplace Relations Act 1996 provided:

170LT Certifying an agreement

...

(2) The Agreement must pass the no-disadvantage test...

(3) If:

(a) the only reason why the Commission must not certify an agreement is that the agreement does not pass the no-disadvantage test; and

(b) the Commission is satisfied that certifying the agreement is not contrary to the public interest;

the agreement is taken to pass the no-disadvantage test.

(4) An example of a case where the Commission may be satisfied that certifying the agreement is not contrary to the public interest is where making the agreement is part of a reasonable strategy to deal with a short-term crisis in, and to assist in the revival of, the single business or part.

[7] In Appeal against certification of Chubb Security - Darling Harbour Rangers Enterprise Agreement 1998 1 a Full Bench of the Australian Industrial Relations Commission held that s.170(LT)(4) was only an example, and did not limit the Commission’s discretion in determining whether approval of a particular agreement was not contrary to the public interest. That view is still relevant in relation to s.189(3) of the Act.

[8] However, it should be noted that the current legislation establishes an additional criteria not found in the former s.170LT, that requires the Tribunal to be satisfied that approval of an agreement that does not pass the BOOT would not be contrary to the public interest, because of exceptional circumstances. Further, the example in s.189(3) refers to “the matter referred to in subsection (2)”. Accordingly, the example in s.189(3) is coloured by the requirement in s.189(2) so that the short term crisis referred to in s.189(3) must involve circumstances that can be said to be exceptional.

[9] With respect to determining whether a particular case involves “exceptional circumstances” the following passage from the decision of Vice President Lawler in CEPU v Australian Postal Corporation 2 cited by Deputy President Bartel in Top End Consulting3 is relevant:

“In summary, the expression ‘exceptional circumstances’ requires consideration of all the circumstances. To be exceptional, circumstances must be out of the ordinary course, or unusual, or special, or uncommon but need not be unique, or unprecedented, or very rare. Circumstances will not be exceptional if they are regularly, or routinely, or normally encountered. Exceptional circumstances can include a single exceptional matter, a combination of exceptional factors or a combination of ordinary factors which, although individually of no particular significance, when taken together are seen as exceptional. It is not correct to construe ‘exceptional circumstances’ as being only some unexpected occurrence, although frequently it will be. Nor is it correct to construe the plural ‘circumstances’ as if it were only a singular occurrence, even though it can be a one off situation. The ordinary and natural meaning of ‘exceptional circumstances’ includes a combination of factors which, when viewed together, may reasonably be seen as producing a situation which is out of the ordinary course, unusual, special or uncommon.”

[10] With respect to the “public interest” consideration in s.189(2) it is true, as observed by Deputy President Bartel in Top End Consulting that the requirement is for the Tribunal to be satisfied that the existence of exceptional circumstances makes the approval of the agreement “not contrary to the public interest” rather than to be satisfied that approval of the agreement is in the public interest. It is also the case that the expression “in the public interest” when used in legislation, is to be determined by making a discretionary value judgment on the relevant facts, constrained only by the scope and purpose of the legislation. 4

[11] In relation to public interest in the context of the Fair Work Act 2009, Vice President Lawler in Tahmoor Coal Pty Ltd 5 cited the following passage from the Full Bench decision of the Australian Industrial Relations Commission in Re Kellogg Brown and Root Bass Strait (Esso) Onshore/Offshore Facilities Certified Agreement 2000:6

“The notion of public interest refers to matters that might affect the public as a whole such as the achievement or otherwise of the various objects of the Act, employment levels, inflation, and the maintenance of proper industrial standards. An example of something in the last category may be a case in which there was no applicable award and the termination of the agreement would lead to an absence of award coverage for the employees. While the content of the notion of public interest cannot be precisely defined, it is distinct in nature from the interests of the parties. And although the public interest and the interests of the parties may be simultaneously affected, that fact does not lessen the distinction between them.”

[12] In my view, public interest considerations in the context of s.189 could involve deciding whether a term of an agreement sought to be approved under that provision, undermines or reduces entitlements in a modern award to the extent that members of the public whose employment is regulated by that award may have interests which are impacted by the approval of the agreement. It may also be the case that there is a public interest consideration in maintaining a level playing field among employees in a particular industry or sector. This is particularly so given that the Objects of the Act include at s.3(b):

“ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards, modern awards and national minimum wage orders.”

[13] The use of the conjunction “and” in s.189(3) is also relevant. The example deals with circumstances where the agreement is part of a reasonable strategy to deal with a short term crisis in, and to assist with the revival of the enterprise of an employer covered by the Agreement - ie. a revival following a short term crisis and not a revival in general terms.

CONCERNS RELATING TO WHETHER AGREEMENT PASSES THE BOOT

[14] The application for approval of the Agreement was listed for hearing on Monday 12 November 2012. At that hearing, I outlined the following concerns and issues in relation to whether the Agreement passes the BOOT:

● Clause 2.2.1 of the Agreement appears to give the employer the right to rotate or relocate employees to another location without also providing for distant work as found in clause 24.4 of the Award.
● Clause 2.2.2 of the Agreement allows the employer to require an employee to perform an alternative job without making provision for higher duties.
● Clause 2.2.3 of the Agreement appears to give the employer a unilateral right to require an employee to change shifts in contrast with requirements under the Award in relation to agreed hours for part time employees (clause 12.3 and 12.4) and for employees to be given 7 days notice of roster changes where those changes have not been agreed (clause 31.6).
● Clause 2.2.4 of the Agreement limits the application of rates for employees performing higher duties where employees are being “cross-trained” in circumstances where there is no such restriction in the Award (clause 29).
● Clause 2.3.1 of the Agreement allows for employees to be trained outside of their ordinary working hours and provides that such training is not part of those hours. There is no such provision in the Award and training is paid for at appropriate rates.
● Clause 2.3.2 provides for training to be undertaken by employees on a “voluntary basis” and that such training will not be paid for by the employer. There is no such provision in the Award.
● The hours of work provisions in clauses 4.1.1 and 4.1.2 refer to a “maximum average” of ordinary hours in circumstances where it is not clear what the distinction is between “maximum average” in the agreement and “average” in the award.
● Clause 4.1.1(b) provides for a three hour minimum shift length in contrast with the six hour minimum shift length provided for in clause 31.2 of the Award.
● The Award provides for an employee to have eight full days off in a four week cycle (clause 31.2(e)) and the Agreement provides for eight rostered days off per four week cycle (clause 4.1.1(d)) which may result in employees getting less than a full day off, depending on the roster.
● The Agreement at clause 41.1.1(g) provides for broken shifts but does not prescribe a penalty for such shifts, in contrast with clause 24.2 of the Award which provides for an allowances of 0.5% of the weekly standard rate (the minimum hourly wage for a Level 4 classification) for each separate work period of two hours or more.
● There are significant changes to hours of work provisions for part time employees in clause 4.1.2 of the Agreement, compared to clause 12.1 of the Award in relation to reasonably predictable hours, minimum periods of work and variations to agreed hours.
● The overtime provisions in clause 4.2.2 of the Agreement entitle employees who work in excess of the hours in clause 4.1.1 and 4.1.2 of the Agreement to be paid at time and a-half for the first two hours and double time thereafter. The Award provides for overtime rates to be paid for work done outside the spread of hours as follows:

○ Monday to Friday - time and a-half for the first two hours and double time thereafter;
○ Between midnight Friday and midnight Saturday - 175% of the employee’s ordinary base rate of pay for the first two hours of overtime then 200% thereafter;
○ Between midnight Saturday and midnight Sunday - 200% of the employee’s ordinary base rate for all time worked;
○ On a rostered day off - 200% of the employee’s ordinary base rate of pay for all time worked with a four hour minimum payment.

● The Agreement does not provide for penalty rates for ordinary hours worked on weekends and public holidays (clause 34.1 of the Award) or additional payments for work between the hours of 10.00 pm and 7.00 am Monday to Friday (Clause 34.2 of the Award)

[1] It is true that the base hourly rates in the Agreement are in excess of those in the Award by amounts ranging from $0.80 per hour to $2.42 per hour. However, in the absence of rosters or any other information about the hours that will be worked by employees under the Agreement, I am not able to be satisfied that the rates in the Agreement are sufficiently in excess of those in the Award to offset the reductions outlined above. Accordingly, I am satisfied that the Agreement does not pass the BOOT.

EVIDENCE AND SUBMISSIONS IN RELATION TO S.189(2) OF THE ACT

[2] In support of the approval of the Agreement on the grounds in s.189(2) of the Act, evidence was given by Mr Troy Kelly, the Chief Executive Officer and Director of CLB No.1 Pty Ltd trading as Wagamama (CLB). Mr Kelly said that CLB employs 226 staff who will be covered by the proposed agreement. Four of those staff members are full time employees and the remaining staff members are part-time employees. CLB does not employ any casual employees.

[3] Mr Kelly said that CLB has filed company tax returns indicating losses for the years 2005 to 2010. Mr Kelly also said that the benchmarks for operating stores profitably are to have labour at a certain level of turnover, and that it was currently 3% in excess of that figure. In relation to steps taken to reduce costs Mr Kelly gave evidence of measures including:

● Shareholders contributions;
● Closure of stores
● Redundancies among staff in CLB’s support office.

[4] The Directors of CLB have commissioned an accounting firm to analyse the business and have received a report indicating that:

● There needs to be an injection of funds into the business to make its continued operation sustainable;
● The current business model is not sustainable and the business is unable to support current level of fixed cost and debt; and
● To make the business sustainable, a further restructure is needed including a reduction in head office staff and the closure of a number of stores.

[5] Mr Kelly also said that if the application for approval of the Agreement is rejected it will have the effect of:

● Reducing hours of work available to part-time or casual staff after 7.00 pm on weekends and public holidays;
● Reducing opening and closing times at some locations;
● Increasing hours of work for management;
● Closing further stores;
● Converting some existing full-time or salaried staff to part-time or casual employment; and
● Making some full-time or part-time positions redundant.

[6] The Accounting Report referred to in the evidence of Mr Kelly was tendered and admitted as a confidential exhibit pursuant to an Order under s.593 of the Act. The Report essentially indicates that CLB is undertaking a range of actions to address its financial situation. Those actions include salary cuts for head office staff, store closures and redundancies. The Report also indicates that additional financial contributions will be required from shareholders. Labour costs are identified in the Report as the most significant cost of the group and it is noted that all employees are employed on a full time or part time basis and that there are no casual employees. Increased labour costs and a potential change to the CLB’s enterprise agreement are identified as impacts on the business.

[7] In his oral evidence, Mr Kelly identified redundancies that had been implemented among support office staff and other changes in that area. Mr Kelly also said that labour in stores had also been reduced. Negotiations with suppliers had resulted in further savings and negotiations with respect to rent are ongoing. Mr Kelly said that the majority of employees covered by the Agreement are under the age of 21 and many are students. Mr Kelly said that CLB could not increase labour rates above the levels in the Agreement and would make transition to its restructured model very difficult.

[8] In response to a question about why the business is different to a business suffering a similar type of downturn, Mr Kelly said that CLB is a national employer with over 400 employees who are supportive of the turnaround proposal. It has a lot of long term creditors and relationships that will be affected if the Company is not successful with its turnaround.

[9] There is no intention at this stage to close any further stores but proper levels of staff in some stores could be examined. Mr Kelly said that the business is in its current position because of the general economic climate and the propensity for people to spend less when they go out. The restaurant industry is currently an unstable environment. CLB also intends to regenerate its menu to reflect the more mature market in the casual Asian dining area.

[10] Mr Kelly also said that if the Agreement was not approved and the Award applied, the business would not be viable. This is because most of the traffic through the business is on weekends and evenings, when penalty rates apply. The tight margins on food costs and the labour intensive nature of the business would also impact on viability. Mr Kelly agreed that the Accounting Report did not examine the potential impact of the Award rates on the viability of the business.

[11] It was submitted that the Agreement does not meet the requirements of the BOOT and therefore could not meet the approval requirements under s.186(2) of the Act unless the employer can meet the requirement in s.189(2) or provide undertakings acceptable to the Tribunal under s.190 of the Act. Section 189(2) requires that the identified “exceptional circumstances” must be such that approval of the Agreement would not be contrary to the public interest, and the Tribunal’s satisfaction that the approval is not contrary to the public interest is causally connected to the exceptional circumstances arising from the “factual milieu” relevant to the application. 7

[12] In the present case, it is submitted that the existence of exceptional circumstances had been established by the evidence of Mr Kelly and the Accounting Report. This evidence shows that CLB is in a financially distressed state and requires relief to retain profit in order to improve its viability. The evidence also shows that the employer is taking steps to turn the business around and the proposed Agreement is one step in that strategy.

[13] It is also submitted that the position of CLB is not dissimilar to that of ABC Learning Centres in that:

● It is a national employer;
● Involves a large number of affected employees;
● Both businesses have or had obvious viability issues;
● Both businesses have turnaround strategies in place to get the businesses to operate on a viable platform; and
● If the proposed Agreement is not approved, then insolvency is and was a likely result.

[14] Accordingly the Tribunal should take the approach adopted by Commissioner McKenna in ABC Learning Centres and LHMU Enterprise Agreement 8 and approve the Agreement on the basis that the employer’s circumstances are exceptional and are not contrary to the public interest. CLB also pointed to the decision of Senior Deputy President Watson in Lone Star Asia Pacific Pty Limited9 extending the operation of a number of Agreements approved under s.170LT(4) of the Workplace Relations Act 1996. In that case, his Honour accepted an undertaking that the Agreement would be terminated upon reaching its nominal expiry date.

CONSIDERATION

[15] The evidentiary material outlining the factual situation in the ABC Learning Centres Case, was subject to confidentiality orders. However, it is apparent from the Decision and the Transcript of proceedings that the exceptional circumstances and public interest considerations in that case related to factors including that there were 14,000 employees throughout Australia covered by the proposed Agreement, and a proposed sale and continued operation of the business was dependent on the approval of the Agreement. It is clear that the continued employment of all or a substantial number of those employees was tied to the approval of the Agreement.

[16] It was also significant that the company was a major provider of childcare, and that a large number of families utilising those services would have been left without access to alternative childcare arrangements. Further, it was a matter of some notoriety that the financial situation of ABC Learning Pty Ltd was not related to general economic conditions or to the economic environment in which the Company operated.

[17] In relation to Lone Star Asia Pacific Pty Limited Senior Deputy President Watson was considering an application to extend the operation of an agreement that had been approved under s.170LT(4) of the Workplace Relations Act 1996. In that matter his Honour observed that extending the operation of an agreement by 11 months when it had already operated for 11 months might be considered to stretch the meaning of “short term crisis”. However, he went on to find that in the particular circumstances of the matter, where rectification of the financial difficulties would not be immediate, that those difficulties could be said to reflect a short term crisis 10.

[18] His Honour also observed that the company in that case was undertaking a reasonable strategy to address the short term crisis, of which the operation of the agreement and its continuation formed a part. Further, his Honour observed that it was a comprehensive strategy and not one imposed onerously or entirely on employees.

[19] While the factual circumstances of that case may be similar to those in the present case, the legislative regime is not. Significantly, the legislation that applied when Lone Star Asia Pacific Pty Limited was decided, only required that the Commission be satisfied that approval of an agreement on the ground in s.170LT(4) was not contrary to the public interest. In the present case, I am also required to be satisfied that there are exceptional circumstances.

CONCLUSIONS

[20] I do not doubt that CLB has financial difficulties and that it has in place a reasonable strategy to overcome those difficulties. I accept that the Agreement is part of a strategy to overcome those difficulties. However, I am unable to accept that the financial position of the Company and the factors that are relied on in the submissions in support of the application for approval of the Agreement on the grounds in s.189(2) of the Act, constitute exceptional circumstances.

[21] The financial difficulties faced by CLB are not caused by or related to any circumstances that can be said to be exceptional. The evidence before me establishes that the financial difficulties faced by the CLB relate to the present economic downturn. That downturn presents challenges for all employers, including those in the restaurant industry. There is no evidence of any factors relevant to CLB that make its present circumstances out of the ordinary course, unusual, special or uncommon.

[22] There is no evidence that CLB is impacted by factors such as seasonal fluctuations, which, when combined with other factors such as rural or remote locations, can be said to constitute exceptional circumstances, as was the case in Top End Consulting or Samphie Pty Ltd T/A Black Crow Organics 11. To the contrary, CLB is impacted by exactly the same conditions as impact other employers in the restaurant industry.

[23] The essential effect of the approval of the Agreement would be to prevent the operation of penalty provisions of the Restaurant Industry Award 2010 (the Award) for the term of the Agreement. The term sought is two years.

[24] There is insufficient evidence upon which I could conclude that the implications of not approving the Agreement would result in a significant loss of employment. While hours may be reduced and some employees made redundant, there will not be job losses commensurate with those in ABC Learning Centres Pty Ltd. Further, there is evidence that even if the Agreement is approved, the ongoing employment of some employees covered by it may remain at risk or the working hours of those employees may be reduced. Unlike the circumstances in ABC Learning Centres Pty Ltd, CLB is not providing a service such as child care, upon which a significant sector of the community relies.

[25] In the present case, the evidence does not establish that there are exceptional circumstances applying to CLB. The factors that are impacting on CLB’s financial position are generally applicable to all employers in the restaurant/hospitality industry. I am also of the view that CLB’s issues with paying penalty rates under the Award are not short term difficulties. The issues are ongoing and structural, and as such do not constitute a short term crisis that the Agreement is designed to address.

[26] Accordingly, I am unable to be satisfied that there are exceptional circumstances. In the absence of exceptional circumstances, I am also unable to be satisfied that it would not be contrary to the public interest, to approve an agreement that effectively allows one employer in the restaurant industry to pay employees less than they would be entitled to under the terms of a modern award.

[27] The application for approval of the Agreement under s.189 of the Act is refused. In circumstances where CLB has sought an opportunity to consider whether it wishes to offer undertakings to address concerns about the Agreement failing the BOOT, and given the date upon which this Decision has been released, CLB should provide any undertakings it wishes to offer to the Tribunal by close of business on Friday 11 January 2013. In the event that undertakings are not offered or that they do not address the concerns set out above, I will issue a decision dismissing the application for approval of the Agreement under s.185 of the Act.

COMMISSIONER

Appearances:

Mr C. Agnew on behalf of the Applicant.

Hearing details:

2012.

Brisbane:

November 12.

1 (1998) 45 AILR

2 (2007) 167 IR 4.

3 Op. cit. at [39].

4 O’Sullivan v Farrer and Another (1989) 168 CLR 210 at 216 cited by Deputy President Bartel in Top End Consulting at [44].

5 [2010] FWA 6468.