[2017] FWCFB 1019
FAIR WORK COMMISSION

DECISION


Fair Work Act 2009
s.604 - Appeal of decisions

Construction, Forestry, Mining and Energy Union
v
AGL Loy Yang Pty Ltd t/a AGL Loy Yang
(C2017/272)

VICE PRESIDENT HATCHER
DEPUTY PRESIDENT GOSTENCNIK
COMMISSIONER BISSETT

SYDNEY, 2 MARCH 2017

Appeal against decision [[2017] FWCA 226] and Order PR589311 of Deputy President Clancy at Melbourne on 12 January 2017 in matter number AG2016/4580.

Introduction and background

[1] The Construction, Forestry, Mining and Energy Union (CFMEU) has lodged an appeal, for which permission to appeal is required, against a decision 1 (Decision) and order2 (Order) issued by Deputy President Clancy on 12 January 2017 granting an application by AGL Loy Yang Pty Ltd (AGL Loy Yang) to terminate the Loy Yang Power Enterprise Agreement 2012 (Agreement) under s.226 of the Fair Work Act 2009 (FW Act). The CFMEU contends that the Decision and Order were subject to appealable error and should be quashed. On 24 January 2017 the Commission (Hatcher VP) stayed the Decision and Order pending the hearing and determination of this appeal, subject to the condition that the CFMEU and its members did not organise or engage in any industrial action.3

[2] The Agreement terminated by the Deputy President applied to about 578 employees of AGL Loy Yang working at the Loy Yang A Power Station and the adjacent open cut brown coal mine at Traralgon in Victoria. The Agreement reached its nominal expiry date on 31 December 2015, and since about mid-2015 negotiations have proceeded, unsuccessfully, for a replacement enterprise agreement. The CFMEU has been one of four organisations acting as a bargaining representative of employees in the negotiations. A number of applications have been made to the Commission in connection with the bargaining: an application by AGL Loy Yang under s.240 for the Commission to deal with a bargaining dispute (which remains on foot), an application by the CFMEU under s.229 for good faith bargaining orders (which was unsuccessful 4), four applications by the CFMEU under s.437 for protected action ballot orders (of which the first was discontinued5, the second6 and third7 were unsuccessful, and the fourth was successful8) and an application by the State Government of Victoria under s.424 to terminate protected industrial action (which was discontinued9). A new agreement proposed by AGL Loy Yang which included substantial wage increases was rejected in a vote of the employees in November 2015. A recommendation made by Commissioner Roe in the s.240 proceedings to resolve the dispute was rejected in a further vote of employees in September 2016. AGL Loy Yang made its application to terminate the Agreement on 21 July 2016, and the application was heard by the Deputy President on 17, 18 and 28 October 2016.

The statutory scheme

[3] Subdivision D of Div.7 of Pt.2-4 of the FW Act contains the statutory scheme concerning the termination of enterprise agreements after their nominal expiry date other than by way of a vote of employees. The provisions of the subdivision are as follows:

Clause 4 of the Agreement and the AGL Loy Yang undertaking

[4] Clause 4 of the Agreement was an issue of significance in the hearing before the Deputy President and in this appeal. It provides:

[5] In the hearing before the Deputy President, AGL Loy Yang advanced its case on the basis that clause 4 of the Agreement would have no legal effect if the Agreement was terminated and that it did not commit to indefinitely maintain the Agreement conditions identified in the clause if its application was granted. It did however give an undertaking that, for a period of three months following the termination of the Agreement, maintain the following conditions of the Agreement:

[6] Noting the identicality of the conditions specified in clause 4 of the Agreement and those in the undertaking, the undertaking in substance involved AGL Loy Yang keeping the commitment in clause 4 for a period of three months only.

The Decision

[7] After summarising the evidence and submissions of the parties and the history of bargaining, the Deputy President discussed the terms of s.226 considered in the context of Pt.2-4 of the FW Act, referred to relevant authorities, and said:

[8] Specifically in relation to s.226(a), the Deputy President stated 11 that he would follow the approach taken to the concept of the public interests in the Australian Industrial Relations Commission Full Bench decision in Re Kellogg Brown and Root, Bass Strait (Esso) Onshore/Offshore Facilities Certified Agreement 2000.12 In relation to s.226(b), the Deputy President stated that he would approach the criterion of appropriateness on the basis that “all the circumstances must be taken into account in considering whether it is appropriate to terminate an agreement, including the views of each employer, the employees and any employee organisations covered by the agreement, and their circumstances, including the likely effect the termination will have on them” and that “the requirement is to take the matters into account and to give them due weight in assessing whether it is appropriate to terminate an agreement”.13

[9] In relation to s.226(a), the Deputy President concluded that it was not contrary to the public interest to terminate the Agreement, and in reaching that conclusion the Deputy President made findings to the effect that:

[10] In relation to s.226(b), the Deputy President concluded that it was appropriate to terminate the Agreement taking into account all of the circumstances, and then gave his reasons for that conclusion. 15 As to s.226(a)(ii), the Deputy President found:

[11] The Deputy President then set out his consideration of other matters relevant to his conclusion concerning the appropriateness of termination. He first considered the approach taken by AGL Loy Yang over the course of bargaining for a new agreement, and said:

[12] The Deputy President went on to say that “I accept AGL Loy Yang has inherited longstanding terms and conditions that appear restrictive, inflexible and inefficient”. 16

[13] The Deputy President rejected the submission advanced by the CFMEU that termination of the Agreement would have detrimental consequences for the La Trobe Valley community. Returning to the history of bargaining, he also rejected the CFMEU submission it would be inappropriate to terminate the Agreement because the bargaining to date had been one-sided. The Deputy President said:

[14] The Deputy President gave consideration to the CFMEU’s submission that the termination of the Agreement would lead to the loss of benefits and bargaining power on the part of the employees. In relation to bargaining power, he reiterated:

[15] As to the submissions that termination would negatively impact the incomes of the employees, the Deputy President said:

[16] The Deputy President then stated the following conclusion:

[17] Finally the Deputy President gave the order to terminate the Agreement a prospective date of operation of 30 January 2017.

Appeal grounds and submissions

[18] The CFMEU’s grounds of appeal were as follows:

[19] In support of appeal grounds 2 and 3, the CFMEU submitted that the Deputy President in his consideration of appropriateness under s.226(b) did not weigh or balance those matters which favoured termination against those which militated against termination, but rather erroneously discarded those which militated against termination. In this connection the CFMEU pointed to five specific examples of this:

[20] In relation to appeal ground 4, the CFMEU submitted that the Deputy President erred by taking into account in paragraph [154] that it had been successful in obtaining a PABO on 28 October 2016 (the same day final submissions were heard) without also taking into account that AGL Loy Yang had indicated its intention to lock out the workforce if protected industrial action was taken, and that the Victorian Government had later (on 15 December 2016) applied for termination of protected industrial action when notice of the taking of industrial action was given by the CFMEU. These matters demonstrated that employees in fact had a lack of bargaining power.

[21] In support of appeal ground 6, the CFMEU submitted that the Deputy President erred in paragraphs [158] and [159] in relying upon a “commitment” made by AGL Loy Yang to apply market competitive terms and conditions if the Agreement was terminated after its three-month undertaking expired, when in fact no such commitment had been made. Mr Clinch, who was AGL Loy Yang’s Manager - Group Employee Relations, only gave evidence that it was AGL Loy Yang’s intention to do so, and he was contradicted by Mr Rieniets, the General Manager, who said that no thought had been given to what might happen after three months since it was AGL Loy Yang’s intention to reach a new agreement by that time. The CFMEU also pointed to an ASX/Media Release issued on 21 September 2016 which appeared to state that if the Agreement was terminated, employment conditions would revert to the relevant modern award.

[22] In relation to appeal ground 8, the CFMEU submitted that Deputy President erred by rejecting that employees would suffer significant detriment if the Agreement was terminated. A reversion to the modern award rates would mean a reduction in pay in the range of 56-66%, not 30% as suggested in paragraph [157] of the Decision, and in addition there would be a loss of a range of other benefits including a reduction in employer superannuation contributions for employees in an accumulation fund and a reduction in defined for those employees who remained in a define benefits fund. As the CFMEU had submitted in relation to appeal ground 6, AGL Loy Yang had not actually made any commitment not to revert to the modern award and NES after three months. The Deputy President, it was submitted, erroneously disregarded the effect of termination on the employees on the basis that the FW Act permitted a reversion to the safety net of the modern award and the NES.

[23] In relation to appeal grounds 5 and 7, the CFMEU submitted that the Deputy President erroneously discarded AGL Loy Yang’s failure to comply with its commitment in clause 4 of the Agreement. The provision was legally effective in that it required AGL Loy Yang to give the guarantees referred to in the clause prior to seeking termination of the Agreement. Its validity was not affected by the Federal Court Full Court decision in Toyota Motor Corporation Australia Ltd v Marmara & Ors 17 since it did not impose any prohibition upon AGL Loy Yang applying for termination of the Agreement. Additionally, it would not be appropriate to terminate the Agreement insofar as it would allow AGL Loy Yang to renege upon the commitment it made to its workforce in clause 4 of the Agreement. Insofar as the Deputy President relied upon the passage from the Full Bench decision in Aurizon quoted in paragraph [160], nothing in that passage justified clause 4 simply being disregarded.

[24] The CFMEU submitted that permission to appeal should be granted because the errors it had identified warranted correction on appeal, the Deputy President’s failure to correctly apply the jurisdictional prerequisites in s.226 raised an issue of general importance, the CFMEU was denied procedural fairness by taking into account matters that were not in evidence, and the Decision manifested an injustice to the CFMEU and its members in that it had erroneously diminished their bargaining power and would cause them loss.

[25] AGL Loy Yang submitted that the Decision was not attended by appealable error and constituted a legitimate exercise of the discretion conferred by s.226, and that the CFMEU’s appeal did not raise any issue which justified the grant of permission to appeal in the public interest or on any other basis. It submitted that:

[26] Specifically in relation to the issue of the Deputy President’s treatment of clause 4 of the Agreement, AGL Loy Yang submitted:

[27] In the alternative to these submissions, AGL Loy Yang proffered an extended undertaking which, in substance, would require it to continue to apply the provisions referred to in clause 4 of the Agreement for a period of three years from the date of our decision in this appeal, unless before that date a replacement enterprise agreement came into effect or a workplace determination made pursuant to Pt.2.5 of the FW Act came into operation. The text of the undertaking proposed by AGL Loy Yang in this respect is contained in the Attachment to this decision. The circumstances in which the undertaking was given were identified in correspondence to the Commission from AGL Loy Yang’s solicitors dated 23 February 2017 as follows:

Consideration

Permission to appeal

[28] We consider that permission to appeal should be granted. The subject matter of the appeal is of public importance, given that it concerns a long-running dispute at an important utility which may have significantly detrimental effects for the community if protected industrial action occurs. In that context, appellate review of the Deputy President’s consideration of whether termination of the Agreement was appropriate under s.226(b) would be in the public interest.

General approach

[29] The proper approach to be taken in an appeal from a decision made under s.226 of the FW Act was described in the Full Bench decision in Construction, Forestry, Mining and Energy Union v Peabody Energy Australia PCI Mine Management Pty Ltd 19 as follows:

[30] Accordingly, in order for its appeal to be successful, it is necessary for the CFMEU to demonstrate that the Deputy President acted upon a wrong principle, or mistook the facts, or took into account an irrelevant consideration or failed to take into account a relevant consideration, or determined a result which was unreasonable or manifestly unjust.

Appeal ground 1

[31] The CFMEU did not in its submissions provide any real elaboration upon the proposition that the Deputy President approached AGL Loy Yang’s application on the basis of a legislative presumption that termination of the Agreement was appropriate. We do not consider that the Decision expressly or implicitly gives any indication that the Deputy President took such an approach. Appeal ground 1 is rejected.

Appeal grounds 2 and 3

[32] The CFMEU’s contention that the Deputy President erroneously disregarded those considerations which militated against termination of the Agreement and thereby failed to take into all the circumstances as required by s.226(b) rests, it appears to us, primarily upon the fact that the Decision did not contain a concluding paragraph in which the Deputy President referred to the circumstances he had earlier taken into account and expressed himself as having weighed the matters against each other and come to a certain conclusion. To uphold that submission would, we consider, be highly artificial. There is no single formula for the way in which a member of the Commission is required to express his or her reasons for a particular exercise of a discretionary power. 20 What was required in this case by s.226(b) was for the Deputy President to take into account all the relevant circumstances, including those specifically identified in s.226(b)(i) and (ii), in determining whether termination of the Agreement was appropriate. That the Deputy President structured his reasoning so that the relevant circumstances were considered and weighed seriatim rather than in a conjoint fashion is not demonstrative of any appealable error.

[33] In relation to the first four of the five examples identified in the CFMEU’s submissions (set out in paragraph [19] above), we do not consider that in any case the Deputy President erroneously discarded any circumstance as irrelevant. Dealing with each example in turn:

[34] As to the manner in which the Deputy President dealt with the issue of clause 4 of the Agreement (the fifth example), we will consider that in relation to appeal grounds 5 and 7. Appeal grounds 2 and 3 are rejected.

Appeal ground 4

[35] We do not consider that the Deputy President erred by taking into account that the CFMEU’s most recent PABO application was granted on 28 October 2016, the last day of the hearing, without taking into account AGL Loy Yang’s intention to lock out its workforce if protected industrial action was taken and the Victorian Government’s application to terminate protected industrial action. The CFMEU’s PABO applications were the subject of evidence and submissions during the hearing, so that the outcome of its most recent PABO application was plainly a matter of relevance. The critical conclusion reached by the Deputy President was that the capacity of the CFMEU to take protected industrial action was not altered by the termination of the Agreement: “The bargaining power of the unions and employees will remain. They continue to have the capacity to exert legitimate industrial pressure through protected industrial action, having successful obtained a PABO.” 22 In that context, the capacity of AGL Loy Yang to engage in employer response action in accordance with the provisions of Pt.3-3 of the FW Act was a given, and we do not consider that the Deputy President erred by not mentioning this. As to the Victorian Government’s application that was made on 15 December 2016, it is not clear to us that the Deputy President was aware of this. It is certainly not suggested by the CFMEU that it brought the application to the Deputy President’s attention. Appeal ground 4 is therefore rejected.

Appeal ground 6

[36] As to appeal ground 6, Mr Clinch gave clear evidence that AGL Loy Yang intended to pay market-competitive rates and conditions to employees if no new agreement was reached by the end of its three-month undertaking. He was not challenged in respect of this evidence by the CFMEU, notwithstanding that AGL Loy Yang had earlier issued a Media Release/ASX statement which, on one reading, indicated an intention to revert to the modern award safety net if termination was granted and that Mr Reiniets had given evidence that he had not considered what would happen if no agreement was reached in three months. In those circumstances we consider that the Deputy President was entitled to accept and rely upon Mr Clinch’s evidence. That the Deputy President described the statement of intention made by Mr Clinch as a “commitment” 23 is a matter of semantics rather than substance. Appeal ground 6 is therefore rejected.

Appeal ground 8

[37] It may be accepted that the Deputy President, in paragraph [157] of the Decision, mischaracterised the CFMEU’s case concerning the effect of termination on employees by understating the reductions in pay rates that would be involved in a reversion to the rates of pay and conditions in the relevant modern award. However this did not result in any appealable error because, as earlier stated, the Deputy President firmly rejected the proposition that there would be any reversion to the modern award upon termination of the Agreement on the basis of the three-month undertaking given by AGL Loy Yang and Mr Clinch’s evidence concerning AGL Loy Yang’s intention after that undertaking expired. Appeal ground 8 is therefore rejected.

Appeal grounds 5 and 7

[38] We accept the CFMEU’s submission that the Deputy President erred in his consideration of the clause 4 issue. The Deputy President ultimately assigned no weight to clause 4 as a matter relevant to the appropriateness of termination of the Agreement on the basis that the provision was of doubtful legal effectiveness. The Deputy President also quoted in connection with his consideration of clause 4 a passage in the Aurizon decision which referred to the FW Act not guaranteeing the continuation of the terms and condition contained in an enterprise agreement in perpetuity after the nominal expiry date had passed.

[39] It may be accepted that there is some difficulty in construing clause 4 in a way which gives it valid legal effect. Clause 4 clearly could not be effective as an ongoing, operative obligation upon AGL Loy Yang to maintain the identified employment entitlements after the Commission had made an order to terminate the Agreement. Under s.54(2)(a), once a decision to terminate an enterprise agreement comes into operation under s.227, the agreement ceases to operate from that date and, under s.54(3), it can then never operate again. The CFMEU sought to surmount this difficulty by contending that clause 4 should be interpreted as requiring AGL Loy Yang to make a commitment to maintain the identified entitlements prior to applying for termination of the Agreement. However, as submitted by AGL Loy Yang, this in substance would constitute a purported precondition on the making of a termination application under s.225, a failure to comply with which would prohibit the making of the application, which was not provided for in the FW Act itself. In Toyota Motor Corporation Limited v Marmara 24 the Federal Court Full Court determined that a “no extra claims” provision in an enterprise agreement which purported either to prohibit or place a precondition upon the exercise of the right of an employer under s.208 of the FW Act to request that employees approve a proposed variation to the agreement by voting for it was invalid to that extent.25 In Timda Pty Ltd26 the Commission (Gostencnik DP) determined that the same reasoning applied to a provision in an enterprise agreement which purported to continue the operation of an agreement until it was replaced by a successor agreement and was said to prohibit or precondition the exercise of the right to apply under s.225 for the termination of an enterprise agreement. Insofar as that is the case, it is difficult to identify any residual valid sphere of operation for clause 4.

[40] However we do not consider that the Deputy President’s properly-founded doubt as to the legal effectiveness of clause 4 meant that it could simply be discarded as an irrelevant consideration. On any view, regardless of its legal effect, clause 4 constituted a representation by AGL Loy Yang to its workforce at the time that the Agreement was approved that it would maintain the identified conditions in the event that its termination was sought after its nominal expiry date had passed. Under s.180(5)(a), one of the pre-approval steps that an employer is required to take before employees vote upon an enterprise agreement is that it take all reasonable steps to ensure that the terms of the agreement, and the effect of those terms, are explained to the employees who will vote upon it. Compliance with s.180(5)(a) is, by reason of s.188(a)(i), an element of the approval requirement for non-greenfields enterprise agreements in s.186 that “the agreement has been genuinely agreed to by the employees covered by the agreement”. There was no evidence before the Deputy President, nor was it suggested by either party, that employees were informed that clause 4 was of no legal effect and was for that reason was a nullity with which AGL Loy Yang did not intend to nor need to comply. It may therefore reasonably be inferred that employees took into account the benefit ostensibly afforded by clause 4 in voting to approve the Agreement.

[41] In those circumstances, we consider that it was relevant to consider whether it would be appropriate for AGL Loy Yang’s termination application to be granted on the basis of its apparent intention to depart from the commitment embodied in clause 4 beyond the three-month period contemplated by its undertaking, regardless of its legal effect. In the exercise of the discretion embodied in s.226, it was necessary for the Deputy President to have regard to the objects of Pt.2-4 of the FW Act, which included (in s.171(a)) the object “to provide a simple, flexible and fair framework that enables collective bargaining in good faith, particularly at the enterprise level, for enterprise agreements that deliver productivity benefits”, and also, as required by s.578(b), to “equity, good conscience and the merits of the matter”. Considerations of fairness, good faith, equity and good conscience arising from these provisions necessarily drew attention to AGL Loy Yang’s intentions with respect to clause 4. 27 By not considering clause 4 beyond the question of its legal efficacy, the Deputy President erred in the exercise of his discretion by failing to take into account a relevant consideration.

[42] To the extent that the CFMEU submitted that the Deputy President erred by disposing of the clause 4 issue on the basis of the passage from the Aurizon quoted in paragraph [160] of the Decision (which we have earlier set out), we do not consider that this is a fair reading of the reference in the context of the Deputy President’s finding read as a whole. In our view the reference to Aurizon at paragraph [160] was simply used by the Deputy President to underscore his principal finding that no weight should be given to clause 4 because of its legal uncertainty. In any event we consider that passage to be merely a restatement of the effect of the relevant provisions of the FW Act, not a decision rule guiding the exercise of the power in s.226 regardless of the circumstances. Aurizon did not involve any issue similar to that raised by clause 4 of the Agreement in the current proceedings.

[43] The appeal must therefore be upheld to the limited extent identified. However it does not follow that it is necessary to quash the Decision and the Order and to re-determine AGL Loy Yang’s termination application. We have not found any error in the Decision apart from the Deputy President’s consideration of the clause 4 issue. The undertaking proffered by AGL Loy Yang in the appeal, set out in the Attachment to this Decision, effectively involves adherence to the clause 4 commitment for as long as could reasonably have been expected by anybody. The practical effect of the undertaking now given is to remove clause 4 as a relevant consideration in the proceedings, and to render the error we have identified in the Decision immaterial to the ultimate outcome. That being the case, we see no proper basis to disturb the Decision or the Order.

Orders

[44] We make the following orders:

scription: Seal of the Fair Work Commission with the member's signature.

VICE PRESIDENT

Appearances:

S. Crawshaw SC with T. Slevin of counsel for the Construction, Forestry, Mining and Energy Union.

F. Parry QC with B. Avallone of counsel AGL Loy Yang Pty Ltd t/a AGL Loy Yang

Hearing details:

2017.

Melbourne:

20 February.

ATTACHMENT

Construction, Forestry, Mining and Energy Union and

    AGL Loy Yang Pty Ltd

      (C2017/272)

    UNDERTAKING GIVEN BY AGL LOY YANG PTY LIMITED

1. AGL LY will maintain the terms and conditions set out in the following clauses of the Loy Yang Power Enterprise Agreement 2012 (2012 EA) subject to undertaking 3 below.

2. Further to undertaking 1(k) above:

3. These undertakings will cease to have effect on the first of the following dates:

4. These undertakings only apply if (and for any period) an order terminating the 2012 EA is in force.

 1   [2017] FWCA 226

 2   PR589311

 3   [2017] FWC 504, PR589672

 4   [2016] FWC 3376

 5   Matter No. B/2016/384, application made on 12 March 2016; discontinued on 5 April 2016

 6   [2016] FWCFB 2878

 7   [2016] FWC 4364; [2016] FWCFB 6332

 8   [2016] FWC 7839

 9   Matter No. B2016/1316, application made on 15 December 2016; discontinued on 16 December 2016

 10   Decision at [66]

 11   Decision at [76]

 12   (2005) 139 IR 34

 13   Decision at [78]

 14   Decision at [105]-[114]

 15   Decision at [142]

 16   Decision at [148]

 17   [2014] FCAFC 84, 222 FCR 152

 18   Ibid

 19   [2016] FWCFB 3591

 20   See Mt Arthur Coal Pty Ltd v Jodie Goodall [2016] FWCFB 5492 at [66]

 21   Decision at [153]-[154]

 22   Decision at [154]

 23   Decision at [159]

 24   [2014] FCAFC 84, 222 FCR 152

 25   Ibid at [90]-[113]

 26   [2016] FWCA 358

 27   See Cochlear Limited v AMWU [2009] AIRCFB 27 at [35]

Printed by authority of the Commonwealth Government Printer

<Price code C, PR590387>