| FWC 5529 [Note: An appeal pursuant to s.604 (C2017/5985) was lodged against this decision - refer to Full Bench decision dated 22 January 2018 [ FWCFB 8] for result of appeal.]|
|FAIR WORK COMMISSION|
Fair Work Act 2009
“Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (AMWU)
Visy Board Pty Ltd T/A Visy Board
MELBOURNE, 24 OCTOBER 2017
Alleged dispute about matters arising under enterprise agreement – matters pertaining – requirement to offer employment to labour hire employees – application dismissed.
 On 23 June 2017, the AMWU filed an application under section 739 of the Fair Work Act 2009 (FW Act) alleging a dispute with Visy Board under the Visy (Smithfield, Warwick Farm, Dandenong, O’Connor) Enterprise Agreement 2016 (the Agreement). The issue is whether Visy was required to offer two employees of a labour hire company, Mr Djengis Imerovski and Mr Faruk Selmanov (the Contractors), full time permanent employment under clause 16 of the Agreement. A second matter about staffing levels at the factory was also notified to the Commission but later resolved between the parties.
 The Agreement is a single enterprise agreement 1 between Visy Board and Visy Paper Pty Ltd (Visy). It covers, and applies to, Visy and all of its employees “who are engaged in positions covered by the classification structures described in Appendix 3 or 6 and employed at the sites listed in Appendix 1” of the Agreement (and excluding certain employees in Smithfield).2 The Agreement also covers three unions, including the AMWU.
 The background to this matter is as follows:
a. In 2016, the Contractors commenced work at Visy Board’s Dandenong Factory as employees of a labour hire company. The arrangement came to an end at some point in April 2017. While the precise dates are not clear, the AMWU’s application indicates that the arrangement was in place for more than three months, and this was not contested by Visy Board.
b. Discussions between the AMWU and Visy Board sought to address a concern that the Contractors had not been offered permanent employment with Visy at the end of the three month period. Discussions were held during the months of April and May 2017 in an effort to resolve the dispute, and Visy Board agreed to assess the Contractors for employment. Ultimately, they were not offered employment with Visy and this dispute was notified to the Commission.
 The matter was listed for conference on 7 July 2017 and I granted permission for Visy Board to be represented by a lawyer in the proceeding on the grounds of fairness and efficiency and having regard to the complexity of the matter. Following the conference, directions were issued for the filing of submissions.
 On 8 August 2017, agreed questions for determination were filed in the Commission. The questions are as follows:
1. Is clause 16 of the Agreement a “permitted matter” under section 172(1)(a) of the FW Act, insofar as it requires the employer to offer employment to employees of a third party?
2. If yes, does the Commission have jurisdiction to determine whether Visy must offer full time permanent employment to the Contractors under clause 16 of the Agreement?
3. If yes, is Visy required to offer the Contractors full time permanent employment?
 Submissions were subsequently filed by the AMWU (on 14 August 2017 and 7 September 2017) and by Visy Board (on 7 September 2017). The parties agreed the matter should be determined on the papers.
 Section 739 of the FW Act empowers the Commission to deal with certain disputes under enterprise agreement dispute settlement terms. The Agreement contains such a term at clause 23. Having regard to the information in the Form F10 application and submissions of the parties, I am satisfied that the Commission has jurisdiction to deal with the dispute, including by arbitration, under clause 23 of the Agreement.
 Clause 16 of the Agreement is at issue in this proceeding. It provides as follows:
16.1 The Company may engage employees for up to three (3) months on a casual basis to cover short-term fluctuations in work load and short-term absences. Casuals are either direct employees or workers engaged via a labour hire company to undertake process work. This provision:
a) is intended to provide increased flexibility in use of casual labour during seasonal/peak periods of demand;
b) is not intended to be used for engaging employees on a long term casual basis;
c) casuals will not be used to undermine permanent employees at the site(s); and
d) will have no effect on existing opportunities for full-time employees to work overtime where required.’
16.2 A casual will be paid at the minimum rate applicable at each site for each ordinary hour worked, and in addition a casual loading of 25%. The casual loading of 25% will be paid to a casual employee in lieu of any entitlement to notice of termination, annual leave, paid personal/carer’s leave, redundancy or other benefits.
16.3 Subject to clause 16.1, where the engagement of a casual employee at a particular site is to continue beyond a continuous full time period of three (3) months, then at the end of that 3 month period the Company shall offer full time permanent employment to the casual employee.
Subject to this clause the intention is that casuals not be re-engaged and their position not be filled by another casual within the following three (3) month period. If there is a need to re-engage a casual for a few days to cover short term absences, the Company will discuss the matter with the elected employee representatives and agree upon an appropriate solution. A casual employee must not be terminated and re-engaged to avoid an obligation under this provision.
Information with respect to casual employees will be made available to delegates upon request.”
 In The Australian Meat Industry Employees Union v Golden Cockerel Pty Limited 3, a Full Bench of this Commission set out the relevant principles to be applied in the construction of agreements. These principles were revised in Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union’ known as the Australian Manufacturing Workers Union (AMWU) v Berri Pty Limited4. I respectfully adopt and apply these principles in this decision.
 The AMWU says that clause 16 is about permitted matters because it protects against the “casualisation of labour” and sufficiently relates to the job security of employees covered by the Agreement.
 Visy Board says that, to the extent clause 16 relates to labour hire company employees, it is not about permitted matters because it limits or prohibits their engagement; and in relation to casual conversion rights, is not sufficiently related to job security.
 The significance of the dispute is that under the FW Act, terms in an enterprise agreement that are not about permitted matters have no effect, because of the operation of section 253. If clauses 16.1 and 16.3 of the Agreement are not terms about permitted matters, there is no obligation on Visy to offer employment to the Contractors and the alleged dispute does not arise.
 Section 172(1) of the FW Act permits enterprise agreements to be made about one or more of the following “permitted matters” 5:
(a) matters pertaining to the relationship between an employer that will be covered by the agreement and that employer’s employees who will be covered by the agreement;
(b) matters pertaining to the relationship between the employer or employers, and the employee organisation or employee organisations, that will be covered by the agreement;
(c) deductions from wages for any purpose authorised by an employee who will be covered by the agreement;
(d) how the agreement will operate.
 The “matters pertaining to the employment relationship” formulation has a long history. 6 The matter must be one that affects employers and employees in their capacity as such.7 Whether a matter pertains to the employment relationship is to be objectively determined on the particular facts in each case.8 The test is to be applied to each discrete, substantive and significant provision.9 As the Explanatory Memorandum for the Fair Work Bill 2009 explains:
“671. Whether a particular term is about matters pertaining to the employment relationship will depend on its precise construction, as well as the circumstances surrounding the particular employment relationship. Frequently, it will be obvious that a term pertains to the employment relationship - e.g., a term about the payment of wages or a term about hours of work and shift patterns. However, there are some terms where it is not so immediately clear whether the terms are about matters pertaining to the employment relationship (see, e.g., the discussion in Re Schefenacker Vision Systems Australia Pty Ltd, AWU, AMWU Certified Agreement 2004  AIRC 1064).”
 The Explanatory Memorandum contains examples of terms intended to be within the scope of permitted matters, including:
• terms relating to conditions or requirements about employing casual employees or engaging labour hire or contractors if those terms sufficiently relate to employees’ job security - e.g. a term which provided that contractors must not be engaged on terms and conditions that would undercut the enterprise agreement; and
• terms that would provide that casual employees are converted to permanent employees after a set period of time.
 Examples of terms not intended to be within the scope of permitted matters were also identified in the Explanatory Memorandum, including:
• terms that would contain a general prohibition on the employer engaging labour hire employees or contractors;
• terms that would contain a general prohibition on the employer employing casual employees; and
• terms that would require an employer to engage or not engage particular clients, customers or suppliers who had agreed to commit to certain employment, environmental or ethical standards (unless, e.g., such a terms was directly related to employees’ health and safety).
 In Rural City of Murray Bridge Nursing Employees, ANF (Aged Care – Enterprise Agreement 2004 & Ors 10 (Murray Bridge) a Full Bench of the Commission considered terms dealing with employees of labour hire agencies engaged by Schefenacker Vision Systems Australia Pty Ltd (Schefenacker). Relevantly, they included the following:
“17.4 Employees of labour hire agencies will not be considered for permanent employment until the total percentage of labour hire agency employees exceeds 20% of total weekly paid employees. When the 20% threshold is exceeded, employees of labour hire agencies will be offered permanent employment based on specific positions and shifts identified as being needed by the company.”
 At first instance, O’Callaghan SDP held that the term pertained to the employment relationship as it defined “when employment will be considered … and upon what basis.” On appeal, the Full Bench agreed and said:
“ We admit to some difficulty in characterising this provision, comprised as it is of a series of sub-clauses with a number of legal effects. On the one hand, it may be accepted that Schefenacker’s employees have a legitimate interest in the engagement of labour hire employees because of the effect of such engagement on their own employment. For that reason it may be that the engagement of labour hire employees is a matter pertaining to the relationship between Schefenacker and its own employees. On the other hand, the extent to which the agreement can regulate the contractual relationship between Schefenacker and labour hire agencies, yet still pertain to the relevant relationship, is obviously a question of degree.
 We agree with the Senior Deputy President, for the reasons he gave, that the first four sub-clauses pertain to the relationship between Schefenacker and its employees. The number of labour hire employees engaged, it is to be inferred, is likely to have a direct effect upon the amount of work available to Schefenacker’s employees and, ultimately, upon the number of employees Schefenacker engages directly. While it is true that cl.17.2 and cl.17.4 may be construed as a partial prohibition on the use of labour hire employees, they are also designed to increase permanent employment by placing obligations upon the employer to engage more permanent employees in the circumstances specified.”
 In Wesfarmers Premier Coal Ltd v AMWU (No 2) 11 (Wesfarmers), the Federal Court considered a clause dealing with the use of independent contractors. As French J observed:
“A distinction has been drawn between provisions regulating or prohibiting the use of independent contractors and provisions which prescribe minimum terms and conditions for the employees of independent contractors. The distinction was drawn in R v Moore; Ex parte Federated Miscellaneous Workers’ Union of Australia (1978) 140 CLR 470. Gibbs J observed that an award could properly require that the employee of any contractor engaged by the employer be engaged on the same terms and conditions as those applicable to the employees of the employer under the award.” 12
 He went on to find:
“In my opinion, cl 33 makes clear that the proposed agreement in this case was to include provisions restricting or qualifying the employer’s right to use independent contractors. Having regard to the basic test set out in Electrolux that a matter pertaining to the relationship between employer and employees will affect them in their capacities as such, I am of the opinion that cl 33 imports into the proposed agreement a discrete matter which does not pertain to that relationship. It is not merely ancillary, but substantive and distinct.” 13
 The decision in United Firefighters’ Union of Australia v Metropolitan Fire and Emergency Services Board is also relevant. 14 In that case, a Full Bench of the Commission confirmed the relevance of Re Cram; ex parte NSW Colliery Proprietors’ Association Limited15 to the law on “matters pertaining”, deriving the following propositions:
1. A matter will pertain to the relationship of employers and employees if it directly affects the conditions of employees, which includes all the elements that constitute the necessary requisites, attributes, qualifications, environment or other circumstances affecting the employment.
2. The “mode of recruitment” 16 is a matter which has the necessary direct effect, because the competence and reliability of the workforce has a direct impact on the conditions of work, notably as they relate to occupational health and observance of safety standards.
 Clause 16 of the Agreement must be read in the context of the Agreement as a whole, including relevant terms of the Graphics Arts - General - Award 2000 and the Metal, Engineering and Associated Industries Award 1998, incorporated into the Agreement as at 1 March 2006. For present purposes, it is sufficient to deal with clauses 16.1 and 16.3 of the Agreement.
 Clause 16.1 applies certain limits to the use of casual and labour hire employees under the Agreement. The intention is to provide increased flexibility during seasonal/peak periods of demand but not to engage employees on a long term casual basis. “Casuals” will not be used to undermine permanent employees at the sites covered by the Agreement and nor will their use have any effect on existing opportunities for full-time employees to work overtime where required. “Casuals” are defined in clause 16.1 as “either direct employees or workers engaged via a labour hire company to undertake process work” and the terms “casual” and “casual employee” are used interchangeably throughout clause 16.
 Clause 16.3 provides that, subject to clause 16.1, if a casual employee is to be engaged for more than three months, Visy “shall” offer them full time permanent employment at the end of the three month period. There is also an intention that casuals not be re-engaged or replaced for a further three month period, and the option to discuss and “agree upon an appropriate solution” with elected employee representatives if there is a need to re-engage a casual for a few days to cover a short term absence. Finally, clause 16.3 requires information about casual employees to be made available to delegates on request.
 Both clauses 16.1 and 16.3 of the Agreement are clear on their terms. Together, they place limits on Visy’s ability to use labour hire workers in the following ways:
• they can only be engaged for up to three months;
• they can only be used to cover short-term workload fluctuations or absences;
• they cannot be used as a substitute for permanent employees working overtime; and
• they cannot be used for three months after a period of work with Visy without the approval of elected employee representatives, and only then to cover short term absences.
 In each of these respects, the terms restrict or qualify Visy’s right to use independent contractors. 17 It follows that in each respect, the terms are not about permitted matters.
 The same cannot be said for the requirement to provide information to employees and relevant unions about casual employment. That is clearly a matter pertaining to the employment relationship and a term about permitted matters. 18
 As to the requirement to offer full time permanent employment to labour hire workers after 3 months, in my view, there are important differences between clause 16.3 of the Agreement and the clause considered in Murray Bridge discussed above. In that case, a requirement to offer permanent employment applied only once more than 20% of the workforce was made up of labour hire workers and only then “based on specific positions and shifts identified as being needed by the company.” In the absence of specific workforce need (that is, a specified position or shift) the requirement to offer employment to labour hire workers did not apply.
 In Murray Bridge, the Full Bench considered the term as a ‘partial prohibition on the use of labour hire employees’, but weighed against this its objective of increasing permanent employment by placing obligations on the employer “in the circumstances specified”. Those circumstances, in my view, included the number of labour hire workers engaged as a proportion of the overall workforce as well as the existence of a specific workforce need. These were matters that had a direct effect on the employees in question.
 Clause 16.3, on the other hand, operates in isolation from any consideration of workforce numbers or composition. As clause 16.1 makes clear, the operation of clause 16 “will not be used to undermine permanent employees at the site.” That is, it will not operate in a way that has a direct effect on employees.
 In my view there is also no connection in clause 16.3 between the requirement to offer employment to labour hire workers after a period and the competence and reliability of the workforce. There is no reference, let alone any requirement, for those who are to be offered employment to have any relevant skills, competencies or characteristics. Clause 16.3 is dealing with the fact of recruitment, rather than any standards or procedures used to select employees.
 In this respect, clause 16.3 requires Visy to offer full time permanent employment to labour hire workers if their engagement is to continue beyond three months. As a practical matter, the requirement reinforces the limit on engagement to three months and the prohibition on engagement for a further three months. The only option if such workers are to continue to be used is to offer them full time, permanent employment. In my view, this undermines job security by compelling Visy to act in a way that is likely to increase its permanent workforce regardless of the circumstances.
 In my view, clause 16.3 restricts or qualifies Visy’s right to use independent contractors in a way that is not sufficiently related to job security. 19 To that extent, it is not a term about permitted matters.
 To the extent that clauses 16.1 and 16.3 restrict or qualify the use of labour hire workers, they are not terms that sufficiently relate to the job security of employees and they are not terms about permitted matters.
 To the same extent, clauses 16.1 and 16.3 are not otherwise about matters pertaining to the relationship between the employer and employee organisation(s) that will be covered by the Agreement, or about deductions from wages or how the agreement will operate.
 Having reached this conclusion, it is not necessary to determine agreed questions 2 and 3.
 The application is dismissed.
1 Fair Work Act 2009 (Cth), s.12 and s. 172;  FWCA 1395 at .
2 Fair Work Act 2009 (Cth), s.52-53; Agreement, clause 4.
3  FWCFB 7447.
4  FWCFB 3005.
5 Fair Work Act 2009 (Cth), s.12.
6 Explanatory Memorandum to the Fair Work Bill 2009, at -.
7 Electrolux Home Products Pty Limited v AWU  HCA 40; (2004) 221 CLR 309.
8  HCA 40 at ; Wesfarmers Premier Coal Ltd v AMWU (No 2)  FCA 1737 at .
11  FCA 1737 per French J.
12  FCA 1737at .
13 Ibid at .
14  FWCFB 2894; See also Airport Fuel Services v Transport Workers Union of Australia  FWAFB 4457 and National Union of Workers v Alto Manufacturing Pty Ltd  FWC 2730.
15 (1987) 163 CLR 117.
16 The expression “mode of recruitment” referred to the standards and procedures used to select those who would be engaged in employment by the employer.
17  FCA 1737 at .
18  FWAFB 4457.
19  FCA 1737 at .
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