FWCFB 1476
FAIR WORK COMMISSION
The Australian Workers’ Union
Fair Work Act 2009
s.604—Appeal of decision
VICE PRESIDENT CATANZARITI
SYDNEY, 3 APRIL 2014
Appeal against decision  FWC 8564 of Commissioner Cloghan at Perth on 2 December 2013 in matter number B2013/1250 & B2013/1366.
 This is an application for permission to appeal and, if permission is granted, an appeal against a decision of Commissioner Cloghan granting an application for a scope order made by the respondent (Company) and refusing an application for a scope order in the terms sought by the appellant (Union).
 It is accepted that the Commissioner’s decision was a discretionary decision and thus attracts the operation of the principles in House v King (1936) 55 CLR 499 at 504-5 per Dixon, Evatt and McTiernan JJ:
“The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.”
 In Yusuf v Minister for Immigration and Multicultural Affairs (2006) 206 CLR 323 McHugh, Gummow and Hayne JJ, with whom Gleeson CJ agreed, held (at ):
“ ‘Jurisdictional error’ can... be seen to embrace a number of different kinds of error... Those different kinds of error may well overlap. The circumstances of a particular case may permit more than one characterisation of the error identified, for example, as the decision-maker both asking the wrong question and ignoring relevant material. What is important, however, is that identifying a wrong issue, asking a wrong question, ignoring relevant material or relying on irrelevant material in a way that affects the exercise of power is to make an error of law. Further, doing so results in the decision-maker exceeding the authority or powers given by the relevant statute. In other words, if an error of those types is made, the decision-maker did not have authority to make the decision that was made; he or she did not have jurisdiction to make it. Nothing in the Act suggests that the Tribunal is given authority to authoritatively determine questions of law or to make a decision otherwise than in accordance with the law.”
 The two applications that were before the Commissioner relate to employees at the BP Refinery at Kwinana (Refinery). Historically there have been separate enterprise agreements for operators and laboratory technicians employed at the Refinery.
 The Commissioner gave the following background:
“ There are approximately 460 employees employed in connection with the operations at the BP Refinery.
 There are approximately 200 employees who are involved in the refining process.
 Approximately 165 employees have their terms and conditions of employment regulated, in part, by the Operations Agreement.
 Approximately 17 employees are covered by the Laboratory Agreement.
 Since 1997, employees who are currently covered by the Operations and Laboratory Agreements have had separate industrial instruments.
 The Operations employees are within the Operations Branch of the Kwinana Refinery corporate structure.
 The Laboratory employees are within the Business Information Branch of the Kwinana refinery corporate structure.
 Operations employees work over 24 hours each day and seven (7) days per week.
 Laboratory employees work 16 hours per day for each day of the week.
 Laboratory employees have specialist technical skills based on theoretical knowledge in such areas as chemistry, physics, mathematics and potentially microbiology.”
 The Union brought evidence that when the agreements were last negotiated:
(a) The AWU had sought a single agreement covering both operators and laboratory technicians.
(b) The Company had refused to agree to a single agreement on that occasion but
(i) participated in bargaining meetings that addressed the common terms for both agreement; and
(ii) agreed to “work towards” achieving a single agreement in the next round of bargaining.
 When the present round of bargaining commenced the Company insisted on separate agreements and separate bargaining for each of the two agreements.
 The Company applied for a scope order specifying separate agreements for the operators and technicians. The Union applied for a scope order specifying a single agreement covering the operators and laboratory technicians.
 Section 238 relevantly provides:
“238 Scope orders
Bargaining representatives may apply for scope orders
(1) A bargaining representative for a proposed single-enterprise agreement may apply to the FWC for an order (a scope order) under this section if:
(a) the bargaining representative has concerns that bargaining for the agreement is not proceeding efficiently or fairly; and
(b) the reason for this is that the bargaining representative considers that the agreement will not cover appropriate employees, or will cover employees that it is not appropriate for the agreement to cover.
No scope order if a single interest employer authorisation is in operation
(2) Despite subsection (1), the bargaining representative must not apply for the scope order if a single interest employer authorisation is in operation in relation to the agreement.
Bargaining representative to give notice of concerns
(3) The bargaining representative may only apply for the scope order if the bargaining representative:
(a) has taken all reasonable steps to give a written notice setting out the concerns referred to in subsection (1) to the relevant bargaining representatives for the agreement; and
(b) has given the relevant bargaining representatives a reasonable time within which to respond to those concerns; and
(c) considers that the relevant bargaining representatives have not responded appropriately.
When the FWC may make scope order
(4) The FWC may make the scope order if the FWC is satisfied:
(a) that the bargaining representative who made the application has met, or is meeting, the good faith bargaining requirements; and
(b) that making the order will promote the fair and efficient conduct of bargaining; and
(c) that the group of employees who will be covered by the agreement proposed to be specified in the scope order was fairly chosen; and
(d) it is reasonable in all the circumstances to make the order.
Matters which the FWC must take into account
(4A) If the agreement proposed to be specified in the scope order will not cover all of the employees of the employer or employers covered by the agreement, the FWC must, in deciding for the purposes of paragraph (4)(c) whether the group of employees who will be covered was fairly chosen, take into account whether the group is geographically, operationally or organisationally distinct.
 The grounds of appeal in this case raise issues under each of the requirements in s.238(4). It is convenient to deal first with the grounds relating to s.238(4)(c).
Paragraph 238(4)(c) - Fairly Chosen taking account of whether the group is geographically, operationally or organisationally distinct
 The obligation on the Commission is to “take account” of geographical, operational or organisational distinctness in deciding whether the group to be covered by the proposed enterprise agreement was “fairly chosen”. A particular type of distinctiveness may not exist in respect of a proposed group in a particular case, and yet, having taken account of that absence, it may still be clear, that the group has been fairly chosen in all the circumstances of the particular case.
 The Commissioner found, correctly, that the operators and laboratory technicians were operationally and organisationally distinct. However, the Commissioner’s apparent finding that those two groups were geographically distinct was affected by error.
 It was accepted that all of the employees in question work at the BP Refinery at Kwinana. The laboratory technicians work in a laboratory building within the refinery site some 200m distant from where the operators work. Geographical distinctness under s.238(4A) is concerned with the geographical separateness of the employer’s various worksites or work locations, not a separation of a few hundred metres within the same work site.
 Depending upon the circumstances of the particular case, there may be more than one way of fairly choosing the group of employees to be covered by a proposed enterprise agreement.
 Enterprise agreements that cover all employees in a business are commonplace. Almost all such business will have organisation structures that will allow organisationally distinct groups to be identified. Many of those businesses contain operationally distinct groups. Yet it will rarely be the case that a ‘whole of enterprise’ group would be unfairly chosen.
 It follows that the weight to be attached to the geographical, operational or organisational distinctness of groups with a broader group will be neutral in determining whether an order ought be made, unless there are particular features of, or circumstances associated with, that distinctness that render the broader group one that is not fairly chosen.
 In this case, the operational and organisational distinctness between the operators and the laboratory technicians at the Kwinana refinery was pedestrian. The nature of that distinctness did not render the combined group in the Union’s proposed agreement a group that was not fairly chosen.
 Where the Commission is dealing with a single application for a scope order, it may be open in a particular case to find that the group proposed to be covered was fairly chosen notwithstanding that there may have been another grouping that could also have been fairly chosen. When there are competing applications it will often be the case that the alternative groupings can both be regarded as fairly chosen.
 The Commissioner noted the following submission by the Company:
“ BP submit that in the process of approval for the Operations and Laboratory Agreements in 2010, the AWU agreed with the Employer’s declaration that the respective employees had been fairly chosen, including by reference to “geographical, or operational or organisation distinctiveness”. While the AWU concede that it agreed to the position put by the Employer in 2010 that the employees were fairly chosen, that view does not remain in perpetuity and does not disentitle “those employees seeking their preferred scope under current bargaining”.”
 The Commissioner did not deal expressly with the Union’s position but we acknowledge it as correct. Typically there will not be only one way of fairly choosing a group of employees to be covered by a proposed enterprise agreement. The fact that the Union agreed in the 2010 approval applications that the separate operator and laboratory technician groups were fairly chosen does not prevent it from asserting in 2013 that a single group consisting of operators and laboratory technicians is also fairly chosen and more appropriate.
 On the evidence, the group to be covered by the Union’s proposed single agreement was clearly fairly chosen. The Commissioner made no finding to the contrary.
Paragraph 238(4)(b) – promoting fairness and efficiency in bargaining
 In this case the Commissioner observed:
“ The fourth factor at paragraph 238(4)(d) requires the Commission be satisfied that an order is reasonable in all the circumstances. Shortly put, the Commission has a positive obligation to be satisfied that in making an order, it is what might be expected in such circumstances. Any order must have the quality or attribute of being necessary to promote the fair and efficient conduct of bargaining.”
 It is true that the Commission can only make a scope order when such an order will be “necessary to promote fair and efficient conduct of bargaining”. Where, as here, bargaining is at an impasse because of the disagreement over scope of a proposed enterprise agreement and the Commission is confronted with competing applications an order is “necessary” to break that impasse.
 When considering two competing applications in a particular case, it may properly be found in the case of each application that “making the order sought will promote the fair and efficient conduct of bargaining” within the meaning of s.238(4)(b). The relative degree of promotion of such fairness and efficiency in the conduct of bargaining will obviously be relevant to a determination of which of the two competing applications should be accepted.
 One can postulate circumstances where bargaining for two agreements for two groups would be more efficient than bargaining for a single agreement covering both groups. To give a single example, the evidence may establish that the two groups of employees have conflicting positions on issues that are important to them but not particularly important to the employer, as can arise where there are demarcation issues. In such a case, it may plainly be more efficient to have two separate agreements and avoid the effort and delay involved in resolving those issues for a single agreement.
 Intuitively, bargaining for two agreements for a group of employees will involve a degree of duplication of process and negotiation and thus be less efficient than bargaining for a single agreement to cover the same group. That is demonstrated in the present case by the identical programmes specified by the Company for the first bargaining meeting of each of the two groups. The lesser efficiency in such an approach is manifest. That is to say, in the particular circumstances of an individual case, it will not be open to decide that bargaining for two agreements will be more efficient than bargaining for one.
 It is true that bargaining for one agreement might see a greater cost in productive time lost on account of employee bargaining representatives from both groups attending bargaining meetings that deal only with issues relating to the other group. That need not be so if issues that concern only one group are dealt with in meetings where employee representatives of the disinterested group do not attend. In any event, it will typically be difficult to quantify what, if any, inefficiency arises from bargaining for a single agreement in such a case.
 With respect, there was nothing in the evidence that provided a rational foundation for a finding that conduct of the bargaining for the two agreements proposed by the Company would be fairer or more efficient than it would for the single agreement proposed by the Union. The evidence in relation to which of the competing proposals would better promote the fair and efficient conduct of bargaining was inclined slightly in favour of a single agreement.
Overall exercise of discretion under s.238
 The right of employees to bargain collectively is a right recognised in ILO Convention 87 Freedom of Association and Protection of the Right to Organise (1948) and ILO Convention 98 Right to Organise and Collective Bargaining (1949) both of which have been ratified by Australia. It is a right that was foundational to the enterprise bargaining regime first introduced to the federal industrial legislation in 1993. It is implicit in the right to bargain collectively that the preferences of employees as to the appropriate collective should be respected unless there is some good reason under the legislation to decide otherwise – a reason that relates to the conduct an efficiency of bargaining or to the efficient operation of the employer’s business. It is, after all, the employees who are in the best position to determine the collective that best suits their legitimate interests.
 In United Firefighters  FWAFB 3009 the Full Bench said (at ):
“ As recorded above, it was submitted by the UFUA and the ACTU that particular weight should be given to the views of employees because of, for example, legislative policy imperatives concerning freedom of association. While we generally agree with that submission it requires some qualification. The power to make a scope order is predicated on disagreement between bargaining representatives. The discretion to resolve that disagreement is to be exercised as provided for in ss.238(4) and (4A). While those provisions do not assign priority to the views of employees, in applying the provisions it is necessary to have regard to the overall context. The legislative scheme supports collective bargaining principles and the Fair Work Act encourages freedom of association and collective bargaining. It may be implied from the legislative scheme that the collective choice of employees is significant. It must be said, however, that while weight should be given to the views of the employees potentially affected, it may be that a proper consideration of the matters specified in ss.238(4) and (4A) in a particular case may make it appropriate to make a scope order contrary to the views of the employees potentially affected.”
 It is in this way that the views of the employees become significant and prima facie carry greater weight than the subjective views of the employer unless, as in United Firefighters, there are particular circumstances in a given case that make a contrary conclusion appropriate upon a proper application of s.238.
 In Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 40, Mason J (with whom Gibbs CJ and Dawson J agreed) stated as a principle that “where the ground of review is that a relevant consideration has not been taken into account and the discretion is unconfined by the terms of the statute, the court will not find that the decision-maker is bound to take a particular matter into account unless an implication that he is bound to do so is to be found in the subject matter, scope and purpose of the Act.” Such an implication emerges from s.238 in the scheme of FW Act in relation to the views of employees as a relevant consideration that the Commissioner was bound to take into account, as he purported to do.
 In this case there were three petitions of employees in favour of a single agreement covering both operators and laboratory technicians. The Appellant’s written submissions accurately summarise the true position in relation to those petitions:
“The Laboratory employees’ petition was attached to the witness statement of Ms Solly and was signed by 15 of the 17 eligible employees. Petitions of operations employees were attached to the statement of Messrs Phillips (86 signatures) and Glover (58 signatures) respectively. A total of 159 out of 182 eligible employees (just over 87%) had signed the petitions.”
 On the matter of the views of the affected employees, the Commissioner stated:
“ The AWU submit a petition of 87 employees indicating their preference and support to one enterprise agreement to cover both operations and laboratory employees and it is only fair that the Commission take their preference into consideration. While 87 employees represent approximately 50% of the workforce, as a matter of fact, I do not know the views of the remaining employees. Notwithstanding the views of approximately 50% of the workforce, I must, as a matter for fairness and equity, take into consideration the views and preference of the Employer.”
 On the appeal the Company acknowledges that this was a mistake. We agree with the submissions of counsel for the Union that it also involved error.
 When all three petitions are considered, just over 87% of the total group of operators and laboratory technicians had signed a petition in support of the Union’s proposed single agreement. The Commissioner’s figure of 50% involves a clear and significant mistake of fact. The Commissioner refers to “a” petition when there were in fact three petitions. The Commissioner gives a figure for the number of employees who supported a single agreement that is wrong, suggesting that that he overlooked the petition attached to Mr Glover’s statement or confused the true percentage (87%) with the number of employees who had voted. Either way, the Commissioner proceeded on the basis that he did not know the views of about 50% of the relevant workforce when the evidence demonstrated that the number of employees who had not signed was less than 18% of the relevant workforce.
 The true level of support for a single agreement was a majority far more substantial than the percentage found by the Commissioner. This error must have affected the exercise of the Commissioner’s discretion. The position is even clearer when the smaller group that the Company seeks to retain under a separate agreement overwhelmingly support being part of the larger group - 15 out of 17 signed the laboratory technician’s petition.
 The Commissioner has also appeared to place significant reliance on the differences between operational and laboratory employees:
“ The overwhelming weight of evidence provided in the hearing supports a finding that there is a well defined, plain and unmistakable difference between operational and laboratory employees.
 Having reached such a conclusion, should this structural arrangement which has existed for many years be considered not “fairly chosen” for the purposes of an enterprise agreement and be disturbed with a composite replacement enterprise agreement?
 I suspect that all the differences in terms of role, work activities, education, skill and required experience for employment for each occupational group would not change if there was a composite enterprise agreement. However, that is no more than an observation.
 It is important to note that while the Commission is required to take into account whether or not a group of employees is geographically, operationally or organisationally distinct, it is not decisive (Cimeco Pty Ltd v Construction, Forestry, Mining and Energy Union  FWAFB 2206  (Cimeco)).
 However, it is more important in my view to note in Cimeco the Full Bench’s determination that:
“...it can reasonably be assumed that if a group of employees covered by the agreement are geographically, operationally or organisationally distinct then that would be a factor telling in favour of a finding that the group of employees was fairly chosen. Conversely, if the group of employees covered by the agreement was not geographically, operationally or organisationally distinct then that would be a factor telling against a finding that the group was fairly chosen.”
 We observe at this point that we do not understand the Full Bench in Cimeco to have used the language of “telling” to suggest that these factors are determinative one way or the other. It is clear that the Full Bench was only concerned to specify that the presence or absence of a particular distinctness in the group proposed to be covered must taken to account on the appropriate side of the balance in determining whether the group was fairly chosen. However, once a proposed group has been assessed to be fairly chosen within the meaning of s.238(4)(c) and (4A), the issue becomes whether it is reasonable to make the order.
 The Commissioner’s ultimate conclusion was as follows:
“ In light of the well entrenched historical separation of industrial instruments and the geographical, operational and organisational difference, it is necessary to consider the AWU’s submission as to why a composite enterprise agreement of operational and laboratory employees would be fairly chosen.
 The AWU submit that the operations and laboratory employees work closely with each other. Such a situation is common in workplaces. In fact, management generally strive for alignment between different work groups in the workplace for efficiency, productivity and cohesion reasons. I am unable to find that the AWU’s argument compelling in advancing the proposal that there should be a composite enterprise agreement of laboratory and operational employees.
 I now turn to the AWU submission that some sampling and testing is carried out by both operational and laboratory employees. While the parties contested the facts surrounding the quantity and complexity of such sampling and testing, every organisation structure, like a “family tree”, has “roots”, a “trunk” and “branches”. The “roots” or foundation of operational and laboratory employees are different and can be best illustrated by the different educational, desired skills and experience required. The “trunk” of both occupational groups is different in terms of their primary focus and contribution to the refinery process. The individual characteristics of the two “trunks” make the two occupational groups dissimilar. However, unlike an organisational structure of neat discrete boxes, the reality is that where different trees (or occupations) occupy common ground, it is inevitable that at some point, “branches” will cross over into the space alongside. However, because there is a cross over of branches at some point does not mean that, the “trees” or occupations are inseparable.
 The fact that because some activities in the refinery process can be carried out by both groups of employees does not make them indistinguishable and fairly represent a chosen group of employees.
 At paragraph  of Cimeco, the Full Bench made the following observation:
“It is not appropriate to seek to exhaustively identify what might be the other relevant considerations. They will vary from case to case and will need to be demonstrated to the satisfaction of the tribunal. The word ‘fairly’ suggests that the selection of the group was not arbitrary or discriminatory. For example, selection based upon employee characteristics such as date of employment, age or gender would be unlikely to be fair. Similarly, selection based on criteria which would have the effect of undermining collective bargaining or other legislative objectives would also be unlikely to be fair. It is also appropriate to have regard to the interests of the employer, such as enhancing productivity, and the interests of employees in determining whether the group of employees was fairly chosen.”
 The Commissioner concluded by stating:
“ In conclusion, having considered the evidence, submissions and for the reasons set out above, I am satisfied that: both parties have met and are meeting the good faith bargaining requirements pursuant to paragraph 238 (4) (a) of the FW Act; that making an order will promote the fair and efficient conduct of bargaining; that the group of employees for each of the replacement enterprise agreements relating to the operations and laboratory agreements, as sought by BP in application B2013/1250 was and are fairly chosen, and finally, it is reasonable in all the circumstances to make an order that there be two agreements with the scope of the current Operations and Laboratory Agreements.”
 Overall, the Commissioner’s approach was to consider whether the requirements of s.238(4) were met in relation to the enterprise agreement proposed by the Company and then, having been satisfied that those requirements were met, granting the Company’s application without separately considering whether the requirements of s.238(4) were also met in relation to the Union’s proposed agreement. That approach involved error.
 The Commissioner was considering two separate and competing applications for a scope order. Each had to be considered on its own merits. In circumstances where each of the competing proposed agreements satisfied the requirements in s.238(4)(a) to (c), the resolution of the competing applications is governed by s.238(d). One of the two applications will be a more reasonable exercise of discretion. It would not be reasonable to make the orders sought in the other application.
 In accordance with the approach laid down in United Firefighters, prima facie, if the group proposed by the Union is reasonable it should have been preferred unless there was some good reason to prefer the two groups proposed by the Company over the single group preferred overwhelmingly by the employees. That is, unless there are factors relating to the fairness and efficiency of bargaining and or demonstrated prejudice to the employer’s business operations that make it more reasonable to accept the employer’s application, notwithstanding the contrary preference of employees, weight should be accorded to the views of the employees.
 The Company relied upon a history of separate agreements going back to 1997 and the fact that the two groups have different educational profiles and largely performed different tasks.
 Those matters, without more, do not provide a justification for preferring the scope sought by the Company over the scope sought by the employees in deciding which order is more reasonable to make (cf s.238(4)(d)).
 There was nothing in the evidence to demonstrate how the Company would be prejudiced in the fairness and efficiency of bargaining, or in its business operations, through an enterprises agreement for the combined group proposed by the Union rather than separate agreements that had existed for many years. It follows that there was no proper basis to prefer the application of the Company.
 The Union pressed a ground of appeal based on s.238(4)(a) and a contention that the Company had not been meeting the good faith bargaining requirements. It is unnecessary to deal with that ground.
 The Union has established error within the categories in House v The King. In the exercise of our discretion we grant permission to appeal.
 The decision and orders of the Commissioner are quashed.
 On a re-hearing of the originating applications, for the reasons we have given, we grant the application of the Union and grant a scope order in favour of an enterprise agreement covering both operators and laboratory technicians and we dismiss the application of the Company.
C Howell of Counsel for the Appellant.
T Caspersz of Counsel for the Respondent.
Final written submissions:
Filed by the Appellant on 4 February 2014.
Filed by the Respondent on 24 February 2014.
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