| [2019] FWCA 8563 |
| FAIR WORK COMMISSION |
DECISION |
Fair Work Act 2009
s.225—Enterprise agreement
Xzavier Kelly
(AG2019/1531)
Shop, Distributive and Allied Employees Association
(AG2019/3813)
MCDONALD’S AUSTRALIA ENTERPRISE AGREEMENT 2013
Fast food industry | |
DEPUTY PRESIDENT COLMAN |
MELBOURNE, 19 DECEMBER 2019 |
Application to terminate the McDonald’s Australia Enterprise Agreement 2013 – retrospective date of operation sought – jurisdiction prospective only – discretionary considerations bearing on operative date – agreement terminated
[1] This decision concerns two applications made under s 225 of the Fair Work Act 2009 (Act) for the Commission to terminate the McDonald’s Australia Enterprise Agreement 2013 1 (Agreement), which reached its nominal expiry date on 24 June 2017.
[2] The first application was lodged by the Retail and Fast Food Workers Union Incorporated (RAFFWU) on behalf of Mr Xzavier Kelly, an employee covered by the Agreement who therefore has standing to bring the application under s 225(b) of the Act. Mr Kelly asks that the Commission terminate the Agreement with retrospective effect, operative from 25 June 2017. He says that employees covered by the Agreement have been disadvantaged by the continuing operation of the Agreement and that they would be better off under the Fast Food Industry Award 2010 (Award). Mr Kelly contends that s 227 allows the Commission to terminate an enterprise agreement with retrospective effect and that there are strong discretionary reasons for the Commission to do so in this case.
[3] The second application was lodged by the Shop, Distributive and Allied Employees Association (SDA) on 30 September 2019. The SDA is an organisation covered by the Agreement and has standing to make the application under s 225(c). It submits that the Agreement should be terminated with effect no later than 21 days from the date of the Commission’s decision. Alternatively, it says that any longer period between the date of the decision and the day from which the termination operates should be subject to the condition that the respondent employers apply certain terms of the Award from 21 days after the Commission’s decision. The SDA opposes Mr Kelly’s application to terminate the Agreement with retrospective effect. It says that the Commission has no power to do so, and that even if power existed, there would be compelling discretionary reasons for the Commission not to exercise it, in particular because some employees might be exposed to claims from their employers seeking to recoup retrospective overpayments.
[4] The employers covered by the Agreement are McDonald’s Australia Limited (McDonald’s) and the franchisees listed in Schedule 1 of the Agreement (the employers). The Agreement is a single-interest enterprise agreement, made pursuant to a single interest employer authorisation. The employers agree that the Agreement should be terminated but, like the SDA, contend that s 227 does not allow the Commission to terminate the Agreement with retrospective effect, and that there are powerful discretionary reasons not to do so in any event. They submit that the termination of the Agreement should operate from 3 February 2020, so as to allow them sufficient time to prepare payroll, timekeeping, administrative and other arrangements for the application of the Award to more than 100,000 employees around Australia.
[5] For the reasons given below, I have concluded that I am required by s 226 to terminate the Agreement. I have decided that the termination will operate from Monday, 3 February 2020. My decision is dispositive of both applications.
[6] McDonald’s owns and operates 142 restaurants in which it employs some 18,000 employees. It also runs a franchising system, under which it appoints franchisees to operate one or more restaurants. Those franchisees employ approximately 91,000 employees in 843 franchised stores.
[7] The Agreement was approved by the Commission on 24 July 2013. 2 On 25 February 2016, the Commission approved a variation to the Agreement,3 which added employer respondents, adopted the model consultation clause, and introduced a home delivery driver classification. The Agreement provides for an hourly rate of pay, overtime, and an early morning shift penalty. It does not otherwise provide for penalties or shift loadings. The employers pay employees an over-Agreement payment of 3.3% on top of the hourly rate.
[8] Mr Kelly’s application to terminate the Agreement was initially opposed by the employers and the SDA. They had recently negotiated a new enterprise agreement which would supersede the Agreement. On 14 June 2019, McDonald’s lodged an application under s 185 for the approval of the new agreement (2019 Agreement). However, on 27 September 2019, McDonald’s withdrew the application. The position of the employers and the SDA in relation to Mr Kelly’s application subsequently changed. By the date of the hearing, Mr Kelly, McDonald’s, and the SDA concurred that the Commission should terminate the Agreement but differed as to the day from which the termination should operate.
[9] I take into account the parties’ consensus that the Agreement should be terminated, however it remains my statutory responsibility to consider the relevant provisions and decide whether s 226 requires me to terminate the Agreement.
[10] Division 7 of Part 2-4 of the Act deals with the variation and termination of enterprise agreements. Subdivision D concerns the termination of an enterprise agreement after its nominal expiry date. It contains three provisions:
“225 Application for termination of an enterprise agreement after its nominal expiry date
If an enterprise agreement has passed its nominal expiry date, any of the following may apply to the FWC for the termination of the agreement:
(a) one or more of the employers covered by the agreement;
(b) an employee covered by the agreement;
(c) an employee organisation covered by the agreement.
226 When the FWC must terminate an enterprise agreement
If an application for the termination of an enterprise agreement is made under section 225, the FWC must terminate the agreement if:
(a) the FWC is satisfied that it is not contrary to the public interest to do so; and
(b) the FWC considers that it is appropriate to terminate the agreement taking into account all the circumstances including:
(i) the views of the employees, each employer, and each employee organisation (if any), covered by the agreement; and
(ii) the circumstances of those employees, employers and organisations including the likely effect that the termination will have on each of them.
227 When termination comes into operation
If an enterprise agreement is terminated under section 226, the termination operates from the day specified in the decision to terminate the agreement.”
[11] Later in this decision it will be necessary to have regard to other provisions of the Act that bear on the interpretation of s 227 and whether, as Mr Kelly contends, the provision authorises the Commission to specify a day which is in the past.
[12] I will first address the question of whether I should be satisfied that termination of the Agreement is ‘not contrary to the public interest’ (s 226(a)).
[13] In Re Aurizon Operations Limited, 4 the Full Bench concluded, drawing on the decision in Re Kellogg Brown and Root,5 that the ‘public interest’ refers to matters that might affect the public as a whole, such as the achievement or otherwise of the object of the Act, employment levels, inflation, and the maintenance of proper industrial standards.6 The public interest is distinct in nature from the interests of the parties, though those interests may be simultaneously affected. The object of the Act set out in s 3 is to provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians. The object is to be achieved, among other things, by ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions, and by achieving productivity and fairness through an emphasis on enterprise-level collective bargaining. Section 578 requires that in performing functions or exercising powers, the Commission must take this object into account.
[14] The parties agreed that termination of the Agreement would not be contrary to the public interest. Mr Kelly put forward a range of contentions as to why this was the case. In particular he submitted that the Agreement provides for terms and conditions of employment that are less favourable to employees than those in the Award, and that he and other employees would be better off as a result of the application to their employment of the Award instead of the Agreement.
[15] As I explain below in connection with the question of whether it is ‘appropriate’ to terminate the Agreement, I accept Mr Kelly’s contention that he, and others in analogous circumstances, will be better off under the Award than under the terms of the Agreement, as will various other employees. Although these matters affect private interests, they are also relevant to the consideration of the public interest. I also note that certain rates of pay in the Award are higher than those in the Agreement. Mr Kelly raised a number of other contentions as to why termination of the Agreement would not be contrary to the public interest, which he also relied on in support of his submission that the Agreement should be terminated with retrospective effect, but it is not necessary to address these here.
[16] Section 226(a) does not require the Commission to be satisfied that the termination of an enterprise agreement is in the public interest. It sets a lower requirement. The Commission must be satisfied that it is not contrary to the public interest to terminate the agreement. Having regard to all the circumstances, I cannot identify any considerations that would support a conclusion that terminating the Agreement would be contrary to the public interest. I am satisfied in the present case that it is not contrary to the public interest to terminate the Agreement. The first limb of s 226 is therefore made out.
[17] Next I am required to consider whether it is ‘appropriate’ to terminate the Agreement, taking into account all the circumstances, including the views of the employees, each employer and each employee organisation covered by the Agreement, and the circumstances of those employees, employers and organisations, including the likely effect that the termination will have on each of them.
[18] The views of the employers and the one organisation covered by the Agreement are that the agreement should be terminated. I take into account the circumstances of the employers outlined in their submissions and the witness statement of Mr Scott Paterson, national employee relations manager, as well as the circumstances of the SDA reflected in its written and oral submissions.
[19] As to the views and circumstances of employees covered by the Agreement, the only employee whose views have been the subject of submissions and evidence is Mr Kelly. His view is that it is appropriate to terminate the Agreement. Mr Kelly said that his circumstances are such that he will be better off under the Award than under the Agreement. Attached to Mr Kelly’s statutory declaration filed in support of his application to terminate the Agreement is an ‘analysis document’ prepared by RAFFWU which compares certain terms of the Agreement and the Award. It studies Mr Kelly’s roster at a McDonald’s store in Burwood, Victoria, over a 20 week period from early November 2018 to mid-March 2019. 7 Mr Kelly said that the analysis demonstrates that under the Award he would be paid $2.31 per hour more than the rate of pay specified in the Agreement.8 Mr Kelly also says that under the Award, he would on average be paid $1.42 per hour more than his current actual rate of pay, inclusive of the above-Agreement payment.
[20] Mr Kelly submits that, although there is no evidence about the views of other employees, the Commission should infer that any employee who would be paid more under the Award than under the Agreement would have a view that it should be terminated. I am not prepared to draw inferences as to what might be the views of other employees. In my opinion, s 225 is concerned with actual views, not assumed or inferred views. On the other hand, the circumstances of other employees can be taken into account. In this regard, it may be accepted that there are employees whose circumstances are relevantly analogous to those of Mr Kelly, although it is not possible to say how many.
[21] As to the circumstances of employees covered by the Agreement, Mr Kelly advances the following contentions:
• Employees classified at level 2 would have higher minimum conditions under the Award than under the Agreement, including wage rates, although since July 2019 the actual wage rate (taking into account over-Agreement payments) has been higher than the Award rate, save in respect of crew trainers.
• Employees engaged at level 3 would also have higher minimum conditions under the Award compared to the Agreement, including a higher wage rate.
• The only employees who have a higher rate of pay under the Agreement than under the Award are those engaged at level 4, who generally do not work overtime or on weekends. These employees are engaged on salaried contracts on rates that exceed those in the Agreement, and they would therefore be unaffected by its termination.
• Accordingly, the likely effect of the termination of the Agreement is that many employees will be paid more under the Award than they are currently paid under the Agreement, and others would see no change to their pay.
• The Award provides for the following benefits that are superior to the Agreement: laundry allowance; 10% penalty for work between 10pm and 12am on weeknights; 25% penalty for Saturday and Sunday work; and weekday early morning penalties of 15% under the Award, compared to 10% under the Agreement.
• The Award also contains more beneficial provisions for part-time employees, which require there to be an agreed regular pattern of work, specifying the number of hours of work each day, the days of the week to be worked, actual starting and finishing times, and various other matters (clause 12.2). An employee who does not meet the definition of a part-time employee and who is not a full-time employee must be paid a casual loading (clause 12.8). Upon termination of the Agreement, employees currently treated as part-time under the Agreement would need to be treated as casuals under the Award and receive a casual loading of 25%.
[22] Mr Kelly says that the superiority of the Award’s conditions to those in the Agreement was acknowledged by McDonald’s in the course of developing the proposed 2019 Agreement, and that McDonald’s encouraged employees to vote in favour of the Agreement through promotional material that contained examples of employees who were worse off under the Agreement than the Award, but who would have been better off under the 2019 Agreement. 9
[23] The employers do not dispute the correctness of Mr Kelly’s analysis of the Agreement and the Award insofar as it applies to his own circumstances. In relation to other employees, they note that Mr Kelly’s analysis relates only to employees engaged as ‘crew’ 10 and ‘crew trainers’.11 They do not accept that the analysis is applicable to other employees. They also state that Mr Kelly’s analysis was confined to particular periods and that they do not accept that the analysis applies to other periods.
[24] The employers note that the Agreement contains a number of provisions that are more beneficial to employees than the Award, including location allowances, crew trainer allowance, additional public holidays and additional types of leave. They reject Mr Kelly’s contention that some part-time employees would, on termination of the Agreement, need to be treated as casual employees, and say that there is no evidence before the Commission about the actual circumstances of part-time arrangements and the extent to which these accord with the Award requirements for part-time employment.
[25] I accept Mr Kelly’s submissions that he will be better off under the Award than under the Agreement, and that employees whose circumstances are analogous to his would similarly be better off. The evidence adduced in these proceedings does not allow me to make any finding about the number of employees who will be better off under the Award than under the terms of the Agreement.
[26] I also accept that employees engaged at levels 2 and 3 would have a higher minimum rate of pay under the Award than under the terms of the Agreement. I note that s 206(2) of the Act provides that, where the rate of pay under an enterprise agreement is less than the award rate, the agreement has effect in relation to an employee as if the agreement rate were equal to the award rate. Nevertheless, the fact that certain Agreement rates are below the Award rates is a circumstance favouring a conclusion that it is appropriate to terminate the Agreement.
[27] In relation to the position of part-time employees covered by the Agreement, there is no evidence as to the particular working arrangements of individual employees or the extent to which they may in fact accord with the requirements of clause 12.2 of the Award. It is not known how many part-time employees will benefit from the application of the part-time provisions in the Award. However, as discussed below, the employers contend that a substantial amount of work is involved in preparing for the application of the Award to part-time employees and it may be accepted that there are likely to be employees whose arrangements do not currently align with the Award prescriptions for part-time employment and who will be better off if the Agreement is terminated.
[28] Had the question of whether the Agreement should be terminated remained contested, there would no doubt have been a greater evidentiary focus on the particular views and circumstances of employees other than Mr Kelly, differentiated by reference to their various classifications, modes of engagement and rostering arrangements. Nevertheless, there is sufficient evidence for me to reach a conclusion. Taking into account the views of the persons referred to in s 226(b) that have been presented to the Commission, and the circumstances of those persons, as well as the effect that termination will have on each of them, I consider that it is appropriate to terminate the Agreement.
[29] As I have concluded that it is not contrary to the public interest to terminate the agreement, and that it is appropriate to do so taking into account all the circumstances including those in s 226(b), the Act requires me to terminate the Agreement.
[30] Section 227 provides that, if an enterprise agreement is terminated under s 226, the termination ‘operates from the day specified in the decision to terminate the agreement.’ I briefly recap the parties’ positions.
[31] Mr Kelly contended that the Commission has power under s 227 to specify a day that is in the past, and that it should specify 25 June 2017, the day after the Agreement’s nominal expiry date. The employers and the SDA submitted that the Commission has no power to terminate the Agreement with retrospective effect, and that it should not do so in any event. The employers contended that the Commission should specify 3 February 2020 as the operative day, which they said was the date on which they will be ready to apply the Award to their employees. The SDA submitted that the termination should operate from a day no more than 21 days after the date of the Commission’s decision.
[32] Mr Kelly submitted that s 227 confers a broad discretion on the Commission to determine the date from which the termination will operate, and that the provision does not confine the Commission’s discretion to the specification of a future date.
[33] Mr Kelly relies on two decisions of the Commission which have accepted that an enterprise agreement may be terminated with retrospective operation. First, in Dee Enterprises (Qld) Pty Ltd, 12 Deputy President Asbury stated that the agreement termination provisions do not preclude the Commission from granting an application with retrospective effect, but that the Commission would only do so if there were ‘exceptional circumstances.’13 In that matter, the employer had made a previous application in 2009 to terminate the agreement in question, which it erroneously believed had been granted. In 2015, two employees brought claims against the employer in the Federal Circuit Court for breach of the agreement. The employer realised that the agreement had not been terminated and made a new application under s 225, seeking to have the agreement terminated with retrospective effect. The Deputy President considered that there were exceptional circumstances and that the case before her warranted termination with retrospective effect. However, it does not appear that argument was presented to the Deputy President on the question of whether the Commission has power under s 227 to specify a date that is in the past, and the matter does not appear ultimately to have been contentious.
[34] Secondly, in Catalina Country Club Ltd, 14 Deputy President Sams considered an application to terminate an agreement which contained a provision conferring perpetual annual wage increases of CPI or 4% on the first pay period after 1 December each year in which the agreement was in operation. The agreement nominally expired on 7 September 2012, and a further wage increase was due in December 2012. The employer was in difficult financial circumstances that were putting the employment of relevant employees at risk. On 28 November 2012, it made an application to terminate the agreement with effect from that date, immediately before the further wage increase became payable. On 17 April 2013 the Deputy President granted the application in the terms sought and terminated the agreement with effect from 28 November 2012. The Deputy President stated that there was no statutory prohibition on the retrospective operation of a decision to terminate an expired agreement and that s 227 appeared to contemplate such an outcome.15 However again, it does not appear that the question of retrospectivity was the subject of argument.
[35] The employers and the SDA submitted that, although s 227 does not state that it is temporally confined, it must be read in the context of the Act as a whole, and with regard to the fact that other provisions expressly permit the Commission to make an order or determination with retrospective effect. They point to s 165(2), which states that the Commission must not make a determination varying a modern award with retrospective effect unless the variation is made under s 160 and the Commission is satisfied that there are ‘exceptional circumstances that justify specifying an earlier day’ than the day on which the determination is made. A similar express power exists in relation to national minimum wage orders. Section 297(1) provides that a determination by the Commission varying a national minimum wage order under s 296 comes into operation on the day specified in the determination, and s 297(2) states that the specified day must not be earlier than the day on which the determination is made, unless the Commission is satisfied that there are ‘exceptional circumstances that justify specifying an earlier day’.
[36] The employers and the SDA also rely on the common law presumptions that legislation will not operate with retrospective effect, and that Parliament is presumed not to interfere with fundamental rights, unless the contrary intention is clearly expressed in the legislation.
[37] It is a precept of statutory interpretation that words are to be understood in their legislative context. In Project Blue Sky Inc v Australian Broadcasting Authority, 16 the majority stated that the primary object of statutory interpretation is to ‘construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute’, and that the meaning of a provision is to be determined ‘by reference to the language of the instrument viewed as a whole’.17 The text of s 227 does not confine a ‘specified day’ to a current or prospective day, but read in the context of the Act as a whole, it is clear that this is its objective meaning.
[38] First, the presence in the Act of ss 165 and 297 indicates that, where Parliament has conferred on the Commission power that is exercisable with retrospective effect, it has done so expressly. It is highly unlikely that Parliament would have intended to confer retrospective power on the Commission in some sections expressly but in other sections tacitly. Against this, it might be said that ss 165 and 297 do not authorise the Commission to make retrospective orders, but expressly prohibit it from doing so, subject to particular exceptions, and that, because s 227 does not contain any such prohibition, it therefore contemplates retrospective power. However, this is a fine distinction of a stylistic rather than substantive nature. The fundamental interpretative significance of ss 165 and 297 in the present matter is that they clearly and directly enable the Commission to make retrospective orders. Section 227 does not do so.
[39] Secondly, it is significant that ss 165, 297 and 227 are all concerned with the Commission’s role in determining the time from which a decision will have effect. In one respect they also bear a close lexical similarity: a determination under ss 165 and 297 ‘comes into operation on the day specified in the determination’ (ss 165(1) and 297(1)), and in s 227 the termination of an enterprise agreement ‘operates from the day specified in the decision’. The common use in these provisions of the formulation ‘day specified’ indicates a legislative awareness of a functional connection between these provisions, which only underscores the differential way in which Parliament has chosen to confer power on the Commission under ss 165 and 297 on the one hand and s 227 on the other. It emphasises Parliament’s intention to vest retrospective power in the Commission in the former provisions and not to do so in s 227.
[40] Thirdly, if Mr Kelly’s interpretation of s 227 is correct, retrospective power has been conferred on the Commission without any limitations. Whereas retrospective power in ss 165 and 297 is exercisable only in exceptional circumstances, under s 227 the power would be at large. Section 227 would leave to the Commission’s broad discretion, confined only by the general provisions in the Act that govern the exercise of its powers, to decide whether to retrospectively re-write the employment conditions of a particular workforce. This cannot have been intended.
[41] I would note in this connection that there is a legislative history of Parliament limiting the exercise of retrospective power by the Commission’s predecessor, the Australian Industrial Relations Commission, to cases where there are ‘exceptional circumstances.’ Both the Industrial Relations Act 1988 and the Workplace Relations Act 1996 provided that an award of the Commission was to be expressed to come into force on a ‘specified day’, and that, unless the Commission was satisfied that there were exceptional circumstances, the specified day could not be earlier than the date of the award. 18 Sections 165 and 297 continue this approach.
[42] Fourthly, it is significant that ss 167 and 298 proceed to address what is the obvious consequence of a retrospective determination, namely that it will affect the rights and liabilities of the relevant parties. Section 167(2) provides that the validity of the approval by the Commission of an enterprise agreement is not affected by the retrospective variation of an award. Section 167(3) and s 298 provide that a court must not order a person to pay a pecuniary penalty for conduct engaged in before a retrospective determination was made, if that conduct would not have contravened the award or minimum wage order at the time. These are precisely the consequential provisions one would expect to find in connection with a conferral of power on a tribunal to alter rights and liabilities retrospectively. The absence of any provision addressing the consequences of a retrospective termination of an enterprise agreement is a further clear indicator that Parliament did not intend to confer such power.
[43] Fifthly, the conclusion that s 227 does not confer retrospective power on the Commission is reinforced when one considers the application of common law presumptions of statutory interpretation. There is a presumption that, if Parliament intends to interfere with fundamental rights or depart from the general system of law, it will express that intention with ‘irresistible clearness’. 19 The presumption derives from the principle of legality which concerns the relations between the branches of government. In Electrolux Home Products Pty Ltd v Australian Workers' Union,20 Gleeson CJ said:
‘The presumption is not merely a common-sense guide to what a Parliament in a liberal democracy is likely to have intended; it is a working hypothesis, the existence of which is known both to Parliament and the courts, upon which statutory language will be interpreted. The hypothesis is an aspect of the rule of law.’ 21
[44] A statute is also prima facie to be read as having prospective operation only and will not be construed as attaching ‘new legal consequences to facts or events which occurred before its commencement’. 22 The presumption against retrospectivity, which may also be viewed as a dimension of the principle of legality,23 can be rebutted if the contrary intention appears ‘with reasonable certainty’.24 In Australian Education Union v Fair Work Australia,25 French CJ, Crennan and Kiefel JJ said:
‘In a representative democracy governed by the rule of law, it can be assumed that clear language will be used by the Parliament in enacting a statute which falsifies, retroactively, existing legal rules upon which people have ordered their affairs, exercised their rights and incurred liabilities and obligations.’ 26
[45] These presumptions are applicable in the present case. Retrospective termination of the Agreement would interfere with the fundamental rights of the employers and employees covered by the Agreement, for example, the right not to be exposed to a civil penalty for conduct that was lawful at the relevant time, and the right of employees to be paid in accordance with a legally enforceable industrial instrument. It would recast the legal rules upon which the employers and employees covered by the Agreement have ‘ordered their affairs’. There is no clear language in s 227 that Parliament intended the Commission to have such power.
[46] In relation to the presumption against retrospectivity, I note that the particular retrospective termination of the Agreement sought by Mr Kelly does not rely on the Act having retrospective effect, because the date of operation proposed by Mr Kelly is 25 June 2017, which is after the time when the Act came into force. However, if s 227 authorises the possibility of backdated termination of an enterprise agreement, it must do so for any application made under these provisions. Sections 225-227 apply also to expired instruments that were made under the Workplace Relations Act 1996 (WR Act). 27 On Mr Kelly’s interpretation, s 227 would allow the Commission to specify, as the operative date for the termination of an expired WR Act agreement, a day that was after the nominal expiry date of that agreement but before the commencement of the Fair Work Act (for example, a WR Act Agreement that nominally expired on 30 June 2008 could be terminated with effect from 1 July 2008). This would purport to have the Fair Work Act itself operate with retrospective effect. But there is no textual basis in s 227 or elsewhere in the Act to conclude that the presumption against retrospectivity is rebutted.
[47] A sixth reason for rejecting the contention that s 227 authorises retrospective termination of an enterprise agreement is that, in the absence of any provisions addressing the obvious potential consequences of such a decision, it would be incompatible with the object of the Act, in so far as that object seeks to encourage enterprise-level collective bargaining (see s 3(f)). If an enterprise agreement were susceptible to retroactive termination years later, the incentive to bargain collectively would be undermined, as there would be no certainty that agreed terms would continue to apply after the nominal expiry date until such time as a new agreement is made. The object of Part 2-4 of the Act would also be compromised. That object is to provide for a ‘simple, flexible and fair framework that enables collective bargaining in good faith’ (s 171). There is nothing fair about terminating an expired enterprise agreement with retrospective effect in the absence of provisions addressing the consequences of this, including exposure to civil penalties for conduct that was lawful at the relevant time. And there is nothing fair or simple about applying new employment regulation to the past in the absence of exceptional circumstances.
[48] Even if there were power under s 227 for the Commission to specify that the termination of an enterprise agreement commences from a date that is in the past, I would not exercise the power in the present case. I would approach the use of any power to alter legal obligations with retrospective effect with caution, and on the basis that such power should only be exercised in exceptional circumstances. This would seem to me to be required by s 577, which requires the Commission to exercise its powers in a manner that is ‘fair and just’, and s 578, which states that the Commission, when performing functions or exercising powers under the Act, must take into account not only the object of the Act and of the relevant Part, but also ‘equity, good conscience and the merits of the matter’ (s 578(b)).
[49] Mr Kelly contended there were discretionary reasons, underpinned by these very considerations in ss 577 and 578, that would favour the exercise of retrospective power. He said that the Agreement did not pass the better off overall test either at the time it was approved, or at the time it was varied. He also said that McDonald’s did not bring all of the relevant information to the attention of the Commission when it was varied. However, these contentions could have been raised with the Commission at the relevant time. They might have formed the basis for an appeal, or application for judicial review of the decisions to approve or vary the Agreement. But no such proceedings were ever initiated. I would not consider it appropriate in the present case effectively to reopen aspects of proceedings that have been determined by the Commission.
[50] Mr Kelly contended that a discretionary consideration in favour of retrospective termination was that McDonald’s enjoyed an unfair competitive advantage because of the low rates and conditions in the Agreement. However, there is no evidence of any such competitive advantage. It is not clear over which competitors McDonald’s is said to enjoy an advantage, what the circumstances of those competitors are, or whether the source of any advantage derives from industrial regulation or some other matter.
[51] Mr Kelly also contended that McDonald’s deliberately sought to ‘depress’ conditions of employment. It is not clear to me exactly what the vice is said to be. It can be assumed that McDonald’s did not wish to pay more than a market rate for the relevant work. The Act sets a statutory floor for that market, comprised of the award safety net, the National Employment Standards, the ‘better off overall test’, and other relevant protections. McDonald’s made and then varied an enterprise agreement under the Act, with the approval of the Commission consequent upon its satisfaction that the various statutory requirements, including the better off overall test, were met. No-one has challenged the Commission’s decision to approve the Agreement or to vary it.
[52] Mr Kelly says that it is unfair that he and others have worked under an Agreement that is less beneficial than the Award, and that this unfairness should be undone by a retrospective order. I would note however that any employee, including Mr Kelly, or indeed RAFFWU on behalf of an employee, could have brought an application to terminate the Agreement at any time since 25 June 2017, but none was made until May 2019.
[53] In my view, the discretionary considerations invoked by Mr Kelly in favour of the exercise of retrospective termination of the Agreement would be outweighed by the fundamental unfairness of changing the rules retrospectively. Since the nominal expiry date of the Agreement some two and a half years ago, the employers and employees have, in the language of the passage from Australian Education Union v Fair Work Australia referred to above, ‘exercised their rights and incurred liabilities and obligations’ by reference to the terms of the Agreement. Rights and liabilities have arisen directly under that instrument. At least in one respect, further rights and liabilities appear to have been created in connection with the Agreement, as it was in the context of the application of the Agreement that the employers decided to afford the over-Agreement payment. 28 A retrospective order in the present case would require past compliance with conditions of employment that did not apply at the time as a matter of law, and that were not understood to apply at the time. It would create exposure to liability for civil penalties for non-compliance with the Award in respect of conduct that was lawful. Such an order would be unjust.
[54] The circumstances of the present case contrast starkly with those in Dee Enterprises, where the employer mistakenly believed that the agreement had already been terminated. The retrospective termination in that case effectively validated the employer’s erroneous but apparently bona fide belief as to its legal obligations following the earlier application to terminate the agreement. In Catalina Country Club, the effect of the retrospective order was to disengage a wage increase required by the agreement which put at risk the ongoing employment of employees. The application was made prior to that increase taking effect under the agreement, although the decision was made after that time. Neither of these decisions involved what would occur in the present matter, namely the wholesale historical rewriting of the legally applicable employment conditions that the parties have actually applied and understood to apply since the nominal expiry date of the agreement.
[55] A further matter to which I would attach weight is that employees who have received payments under the Agreement that exceed those in the Award might become retrospectively exposed to claims by their employers seeking to recoup those excess amounts. In this regard, I note that McDonald’s is not the only employer covered by the Agreement, and that there are hundreds of franchisee-employers. It is entirely possible that some employers might seek to off-set newly created, backdated Award obligations arising from a retrospective termination of the Agreement by demanding employees repay above-Award amounts paid under the Agreement. Legal action against employees might be taken even in the absence of claims by those employees against the relevant employer. In this regard I note the strong opposition expressed by the SDA to any outcome that would put its members or other employees at risk of liability to repay wages previously earned under the Agreement.
[56] Finally, a retrospective termination of the Agreement would require a colossal reconstruction exercise, whereby the Award would need to be applied to the particular hours worked by more than 100,000 employees over the past two and a half years, after which this information would then need to be compared with the periodic payments made to employees in line with the Agreement, in order to establish whether there was any shortfall. This would be a difficult and burdensome task, and a further dimension of the unfairness that would arise if the historical employment obligations at McDonald’s were to be rewritten.
[57] In conclusion, there is no power for the Commission to terminate the Agreement with retrospective effect, and even if there were such power, I would not exercise it in this case.
[58] It remains for me to specify the day from which the termination of the Agreement will operate.
[59] Mr Kelly’s alternative contention was that the ‘specified day’ should be the date of the Commission’s decision to terminate the Agreement. The SDA said that the specified day should not be more than 21 days after the decision. Both contended that the employers’ arguments about the various preparations they need to make in order to commence applying the Award should not be accepted or did not justify a specified date of 3 February 2020. They pointed to clause 1.4 of the 2019 Agreement, which stated that the agreement would commence operation 21 days after the Commission’s decision to approve the Agreement. The employers’ application for the Commission to approve the 2019 Agreement under s 185 was lodged on 14 June 2019. Mr Kelly and the SDA contended that the Agreement could potentially have been approved by the Commission soon after that date. They submitted that there are minimal differences between the proposed 2019 Agreement and the Award, and that if the employers were ready for quick implementation of the 2019 Agreement earlier in the year, they should now be ready, or soon be ready, to apply the Award.
[60] McDonald’s submitted that the date of commencement of operation should have regard to the complexity of the payroll, rostering, administrative and other changes that will need to be made in order to apply the Award to all employees previously covered by the Agreement. The employers maintained that, although the 2019 Agreement stated that it would apply from 21 days following a decision of the Commission to approve the agreement, they had anticipated the approval process taking up to five months, and that the reconfiguration of the payroll system to accommodate the 2019 Agreement was only anticipated to be completed in November 2019. 29 They also contended that, whilst there are similarities between the 2019 Agreement and the Award, there are also significant differences.
[61] It is reasonable that, in specifying a day for the purpose of s 227, an appropriate period of time should be allowed for the employers to prepare their businesses to apply the Award properly to all of their employees. The Agreement has a vast coverage, applying to some 300 employers in 985 separate restaurants and to over 109,000 employees around the country, 30 all of whom will become covered by the Award on the specified day. The fact that so many businesses and employees are affected points to the possibility of complexity associated with the preparations for the implementation of new employment regulation, and also to the possibility of far-reaching implications in the event those preparations are inadequate.
[62] Mr Paterson gave extensive evidence about the arrangements that the employers need to put in place in order to ensure compliance with the Award, including in relation to the need to reconfigure the payroll systems, the rostering system, and the time recording system, as well as the need to train managers and enter into new individual arrangements with part-time employees in relation to hours of work and also breaks.
[63] As to payroll systems, Mr Paterson said that McDonald’s operates its own system and franchisees can currently choose from five approved payroll system providers. In the course of his evidence, Mr Paterson acknowledged that one of these five systems could in fact accommodate the Award, however he said that it is not integrated with the rostering system and is not currently in use. Mr Paterson said that the work that needs to be undertaken to ensure that the employers properly comply with the Award if the Agreement is terminated includes reconfiguring and testing the payroll systems such that they align with the Award, including in respect of the following matters: changing base hourly rates of pay for all employees; addressing the hours of work that will attract penalties under the Award; changing the triggers for the payment of overtime; and reflecting changes to provisions dealing with breaks, allowances, leave, and also part-time employment. 31
[64] As to part-time employees, Mr Paterson said that under the Agreement an employer and an employee can agree, upon commencement of employment, on a minimum number of weekly hours and the employee’s schedule of availability. There is no requirement to agree to fixed shifts. Under the Award however the employer and the employee must agree on a regular pattern of work specifying at least the hours worked each day, the days of the week on which the employee will work, and the actual starting and finishing times each day. They must also agree on the timing and duration of meal breaks. And they are paid overtime for work performed outside of their agreed hours unless they agree to vary their hours in writing before the shift commences. 32 Mr Paterson said that there were some 20,168 part-time employees,33 and that in order to comply with the Award, the various employers will need to ensure that there is appropriate agreement with all of these part-time employees, and that new contracts of employment will be issued.34 Clearly there is a substantial amount of work that must be undertaken to prepare the businesses for the application of the Award only in relation to part-time employees.
[65] It is true that clause 7.4 of the 2019 Agreement would have introduced similar conditions for part-time employees to those in the Award. However, the 2019 Agreement was by no means identical to the Award. For example, the overtime provision in clause 13 of the 2019 Agreement did not replicate the requirements in clauses 26.2(b) and (c) of the Award that overtime is payable before an employee’s rostered commencement time, or after an employee’s rostered finishing time, on any one day.
[66] Mr Paterson also gave evidence that McDonald’s will need to consult with its franchisees in relation to the operational changes required at a restaurant level to comply with the Award and that franchisees, operations staff, general managers, supervisors and restaurant management teams need to be retrained so that they understand the Award and the operational changes required. He said that McDonald’s and the franchisees then need to inform employees of the changes and document them.
[67] The employers said that, in light of the fact that the termination of the Agreement is now supported by all parties, they have been working on the assumption that the Commission will terminate the Agreement. Mr Paterson gave evidence about the work that has already been undertaken to prepare the employers for the application of the Award. For example, he said that a team comprising representatives of human resources, payroll, finance and IT has been meeting several times a week on preparations to apply the Award, that this group has also been working with the external payroll system vendor to ensure the Award can be applied properly, and that training resources have already been prepared.
[68] The employers’ central contention is that 3 February 2020 is the date on which they will be ready to comply with the Award. Mr Paterson’s evidence was that he did not believe that the employers could pay employees correctly under the Award before this date. 35 His authority as McDonald’s national employee relations manager to give an informed opinion on behalf of the employers on this question was not seriously questioned.
[69] In my opinion, the fact that the 2019 Agreement was stated to commence operating 21 days after approval by the Commission does not call into question Mr Paterson’s evidence. The employers’ expectation that the 2019 Agreement could take a number of months to be approved was realistic. The application for approval of the 2019 Agreement was lodged in the Commission in late June 2019. Already at the first mention of Mr Kelly’s application to terminate the Agreement, RAFFWU made clear that it strongly opposed the application for approval of the 2019 Agreement. The approval application was allocated to Deputy President Mansini, programmed, and listed for hearing on 2 October 2019. Mr Kelly argued that the 2019 Agreement could have been approved on that day and that therefore the employers would need to have been able to implement it on 23 October 2019; and if they could do this, then they could also have implemented the Award, which is very similar to the 2019 Agreement. However, although Mr Paterson recognised it as a possibility in cross-examination, I consider that the prospect of an ex tempore decision was remote. Taking into account the much more likely prospect of final written submissions in such a significant matter, and the Commission’s timeliness benchmarks pursuant to which decisions are expected to be issued within three months, there was every prospect of any decision to approve the 2019 Agreement not being made until the new year.
[70] I do not accept the premise that the employers’ preparedness to implement the 2019 Agreement within 21 days of approval by the Commission equates to a current readiness to implement the Award. The instruments are not the same. There are differences of significance. Moreover, it is not clear that the employers ever achieved a state of final or near readiness to implement the 2019 Agreement.
[71] The employers’ arguments and evidence in support of their position that the specified date should be 3 February 2020 are directed substantially at technical, logistical, administrative and various human resources considerations, all of which affect the question of when they can reasonably be ready to apply the Award to all employees currently covered by the Agreement. Their evidence was that elements of the relevant preparation would be ready at different times. For example, Mr Paterson said that the earliest date by which the payroll systems would be configured would be 18 December 2019 36 but that equally, a rostering system that captures on-shift variations for part-time employees in a way that automatically notifies the payroll system would not be completed until late March 2020. The systems will not be perfected until after 3 February 2020. But this is the date on which the employers will be ready to apply the Award properly to all employees. This takes into account certain testing of the new arrangements and training of staff, including managers.
[72] I do not consider that the employers are taking an unreasonable or unduly conservative approach to their preparation. The stakes are high. It is of the utmost importance that, when the Award commences to apply to the workforce, McDonald’s and its franchisees comply fully with their obligation to pay all 109,000 of their workers properly. If they do not do so, they will face claims for underpayment and the imposition of penalties. Further, as a ‘responsible franchisor entity’ for the purpose of s 558A of the Act, McDonald’s carries special responsibilities and potential liability under s 558B for contraventions by franchisees of civil remedy provisions, such as s 45 which states that a person must not contravene a term of a modern award. The risk of non-compliance is heightened if there is insufficient time for the employers to implement and adequately test all of the necessary arrangements required to apply the Award.
[73] I am mindful that there are employees currently covered by the Agreement who, like Mr Kelly, will be better off once the Agreement is terminated and the Award applies, and that this is a consideration that would favour an early termination date. However, an application to terminate the Agreement could have been made soon after the nominal expiry date, and any concerns about the validity of the approval or variation of the Agreement could have been the subject of legal challenges.
[74] In any event, in my view it is not appropriate that I set a date for the operation of the termination of this Agreement that is premature, in the sense that it predates the time of the employers’ reasonable readiness to apply the Award properly to over 100,000 employees.
[75] I accept the evidence of Mr Paterson about when the employers will be ready to apply the Award properly, and the preparations they must undertake to put themselves in that position. Mr Paterson was a credible witness. He answered questions candidly and without an eye to forensic advantage. He made concessions. It was suggested in the final submissions of Mr Kelly and the SDA that Mr Paterson was exaggerating the work that was needed to be done in order to prepare for the Award’s application. This particular proposition was not put to him. In my assessment, he was not exaggerating. It was suggested to Mr Paterson that the differences between the 2019 Agreement and the Award were minor. He replied that they may appear minor but that from a payroll perspective they were difficult to manage. 37 It was put to Mr Paterson that McDonald’s could implement the Award within 21 days of the hearing date. He disagreed.38 I accept Mr Paterson’s responses. I note that neither Mr Kelly nor the SDA led evidence that contradicted Mr Paterson’s testimony.
[76] Mr Kelly and the SDA suggested that McDonald’s was delaying the implementation of the Award in order to save money. However, this takes a rather narrow view of corporate motivation. There is an obvious risk of substantial penalties and reputational damage if the employers are not ready to apply the Award on the specified date and consequently fail to pay their workers properly. If that were to occur, McDonald’s would rightly attract public opprobrium. Employers simply must pay their workers correctly. It is a legal and ethical imperative.
[77] McDonald’s seeks to have the termination of the Agreement operate from 3 February 2020 because of its desire to be ready to apply the Award properly. Nothing in the evidence suggests to me that the preparation time sought by the employers is unreasonable. There is nothing unusual about affording a period of time between the date of the decision to terminate an agreement and the operative date of the termination. Plainly this is what the prospectively exercisable discretion in s 227 is intended to accommodate, because it is to be expected that new conditions of employment and working arrangements will apply following the termination of an enterprise agreement, and proper preparations will need to be made in order to implement them. The Commission commonly exercises its discretion to allow a period of time between the decision and the specified date. For example, in Aurizon the Full Bench granted a period of just under four weeks. 39 In the present matter, the period will be just over six weeks.
[78] Finally, I return to the SDA’s contention that, if the specified day is more than 21 days from the date of the Commission’s decision, the employers should be required to commence applying certain provisions of the Award from 21 days after the decision. The employers declined at the hearing to give an undertaking in the terms proposed by the SDA. The SDA suggested that I could effectively require the employers to observe certain provisions of the Award prior to the date specified. 40 It is not clear to me what source of power would allow me to do this. If there is such power, it would be discretionary, and for the reasons given above associated with the employers’ reasonable preparations to ensure that they apply the Award correctly, I would decline to exercise it in the present case.
[79] In relation to the applications that have been made under s 225, I am satisfied that it is not contrary to the public interest to terminate the Agreement, and I consider that it is appropriate to do so taking into account all the circumstances, including those in s 226(b). I am therefore required by s 226 to terminate the Agreement.
[80] The termination will operate from 3 February 2020.
DEPUTY PRESIDENT
Hearing details:
2019
Melbourne
11 November
Appearances:
Mr J. Cullinan for Mr Kelly
Mr H. Dickson S.C. and Mr A. Gotting of counsel for the respondents
Mr W. Friend Q.C. and Ms S. Burnley for the SDA
Printed by authority of the Commonwealth Government Printer
<AE402596 PR715410>
1 AE402596
5 (2005) 139 IR 34
6 At [129]
7 Annexure A to the statutory declaration of Mr Kelly, paragraphs 8 - 13
8 Submissions of Mr Kelly, paragraphs 39 - 42
9 Annexure B to Mr Kelly’s submissions
10 See Mr Kelly’s statutory declaration, annexure A and submissions, annexure A
11 See Mr Kelly’s submissions, annexure A
13 At [11]
15 At [124]
16 (1998) 194 CLR 355
17 At 381, per McHugh, Gummow, Kirby and Hayne JJ
18 Section 146 of the Industrial Relations Act 1988 and s 146 of the Workplace Relations Act 1996 prior to the WorkChoices amendments.
19 Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252 at 259
20 (2004) 221 CLR 309
21 At 329; cited with approved in Saeed v Minister for Immigration and Citizenship (2010) 241 CLR 252 at 259
22 See Fisher v Hebburn Ltd (1960) 105 CLR 188 at 194, per Fullager J
23 Australian Workers’ Union v Registered Organisations Commissioner (No 9), [2019] FCA 1671 at [53]
24 Maxwell v Murphy (1957) 96 CLR 261 at 267 per Dixon CJ
25 (2012) 246 CLR 117
26 At [30]
27 Item 16 of Schedule 3 of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) (TCPA Act) provides that the termination provisions in subdivision D of Division 7 of Part 2-4 of the FW Act (i.e. ss 225-227) apply to a collective agreement-based transitional instrument as if a reference to an enterprise agreement included a reference to a collective agreement-based transition instrument. In short, expired WR Act agreements can be terminated under s 226 of the Act.
28 See witness statement of Scott Paterson, paragraph 64
29 PN820; witness statement of Scott Paterson, paragraph 97
30 Witness statement of Scott Paterson, paragraphs 16 and 20
31 Witness statement of Scott Paterson, paragraph 100
32 Ibid, paragraph 110
33 PN148
34 Witness statement of Scott Paterson, paragraph 112
35 PN235
36 PN225
37 PN650
38 PN665
39 [2015] FWCFB 540 at [181]
40 PN798