Australia: Full Bench in Aurizon turns tide on enterprise agreement terminations

In brief

• A recent decision of the Full Bench of the Fair Work Commission has overturned previous authority and rejected the notion that it will generally be inappropriate to terminate an expired enterprise agreement during bargaining.
• Rather, the Full Bench held that terminating an agreement may actually promote the objects of the Fair Work Act, particularly where the terms of the agreement are restrictive and do not deliver productivity benefits.
• In certain circumstances, this may mean that termination of expired agreements is now a viable 'plan-B' for employers who are faced with a bargaining deadlock, particularly when attempting to wind back unsustainable terms and conditions. Termination of the existing agreement in these circumstances incentivises unions and employees to make reasonable compromises.
• As always, pre-bargaining planning is vital. The decision highlights that employers must be well prepared with strong evidence about the business’ case for change before making such an application. In this case, Aurizon was able to point to the relatively unique historical context of its privatisation in 2010.

Full Bench terminates Aurizon enterprise agreements

A Full Bench of the Fair Work Commission has made orders under section 225 of the Fair Work Act 2009 (Cth) (Act) terminating 12 expired enterprise agreements (Agreements).¹ The orders were made following an application by three employing entities forming part of the Aurizon group of companies (Aurizon). The agreements contained highly restrictive terms that, on Aurizon’s evidence, seriously impacted the business’ competitiveness. Aurizon made the application having reached a bargaining deadlock when attempting to negotiate for replacement agreements containing more acceptable terms and conditions.

Importantly, in reaching its decision, the Commission has rejected the notion that it will generally be inappropriate to terminate enterprise agreements during bargaining. In doing so, the Full Bench has expressly overturned reasoning which has guided the Fair Work Commission’s approach to the termination of enterprise agreements since the decision in Re Tahmoor Coal Pty Ltd.²

In particular, the Full Bench held that the termination of an enterprise agreement may actually promote the objects of the Act (specifically, bargaining for enterprise agreements that deliver productivity benefits), particularly where the terms of the expired agreement do not deliver such benefits.

The Aurizon case represents the first time that a Full Bench of the Fair Work Commission has considered the operation of section 226 of the Act in detail. Not surprisingly, the unions have challenged the decision in the Federal Court, which will hear the case on 21 May 2015, meaning employers are likely to get further guidance or clarity on the proper construction of the provision before the end of the year.

Termination of enterprise agreements under the Fair Work regime

Under section 226 of the Act, the Fair Work Commission must terminate an expired enterprise agreement on the application of an employer, employee or union covered by the agreement, if doing so is not contrary to the public interest, and is appropriate in all the circumstances. When considering the appropriateness of the termination, the Commission must have regard to the views of those covered by the agreement, and the effect that the termination would have on them.

Aurizon’s bargaining campaign

Aurizon was negotiating replacements for 14 enterprise agreements, the terms of which were highly restrictive and uncompetitive, for example including the following provisions:

• no forced redundancies,
• a requirement to advertise almost all roles internally,
• extensive leave entitlements,
• generous paid time for 'signing on' and 'signing off' at the start and end of shifts,
• restrictive labour demarcations,
• free or discounted travel cards,
• prescriptive and inflexible requirements around rostering, hours of work and drug and alcohol testing, and
• restrictions on the implementation of change through the dispute settlement procedure.

Importantly, these terms and conditions had not solely arisen through a traditional process of bargaining. Rather, they were (in part) mandated by a guarantee given by the Queensland Government as part of the privatisation of Queensland Rail in 2010 (which ultimately became Aurizon). The Government’s guarantee extended for a period of three years, which had ended by the time the Agreements expired on 31 December 2013.

Further, the number of enterprise agreements resulted in a range of complex and inconsistent entitlements which were administratively burdensome for Aurizon to apply. Aurizon presented comprehensive evidence to the Fair Work Commission about the financial impact of the Agreements on its business and competitive position in the market.

Aurizon’s bargaining objective was to consolidate the scope of the agreements, reduce the number of instruments which it had to apply, and negotiate away the overly restrictive terms contained within them. The unions strongly opposed this, so Aurizon sought the assistance of the Fair Work Commission through a bargaining dispute application under section 240 of the Act.

On 4 March 2014 (at which point bargaining had continued for around 10 months), having conducted 14 conferences as part of Aurizon’s bargaining dispute application, Asbury DP issued a statement that said "the way in which the negotiations have proceeded… indicates that the likelihood of reaching agreement is virtually nil".

Despite lengthy and comprehensive negotiations, Aurizon had been unable to reach agreement with the bargaining representatives on the changes sought.

The termination decision

The Full Bench commenced its consideration of the legislative scheme by acknowledging that the Act clearly did not intend that enterprise agreements should operate in perpetuity.3 Rather the Act sets out a number of courses that would bring the operation of an agreement to an end, with termination being one of them.

Further, it held that there is nothing in the Act suggesting that the "promotion and delivery of productivity benefits at an enterprise level is primarily or exclusively to be achieved through enterprise bargaining … rather than by other means".⁴ The Full Bench also concluded that "[c]ontinuing the operation of an agreement that has passed its nominal expiry date may impede rather than enable an enterprise agreement to deliver productivity benefits at an enterprise level".⁵

The Commission’s reasoning was seemingly influenced by the fact that many of the restrictive terms within the Agreements were imposed on Aurizon as part of the privatisation process, and that the rail freight industry had changed since this occurred. The Full Bench also ruled that the changes sought by Aurizon related to work practices that were "clearly inefficient and out of step with the needs of a flexible and productive [enterprise] that can [adapt] to changing economic and competitive environments".⁶

The Commission was not persuaded by the unions’ argument that termination was not appropriate given the effect that termination would have on their bargaining position (ie, that they would then be negotiating from a lower base). Rather, the Commission noted that "the Unions and employees will have available to them the full arsenal of tools under the Act to exert legitimate industrial pressure on Aurizon" (particularly given the bargaining power of the employees and unions).⁷

It was also significant that Aurizon had not proposed to reduce wages, but was instead seeking to remove restrictions on productivity and efficiency. Relevantly, Aurizon had offered undertakings that it would maintain core terms and conditions for employees (which were above those contained in the relevant award) for up to six months, in the event that the Fair Work Commission terminated the Agreements. These undertakings were taken into account by the Commission when considering whether or not termination was appropriate in the circumstances.

The Commission decided to terminate each of the 12 Agreements, effective 18 May 2015 (to allow some time for the parties to reconsider their bargaining positions).

The termination of the Agreements significantly changes the bargaining dynamic for Aurizon. Instead of focusing on the past, the parties can now bargain from a clean slate. It will inevitably remove the impasse – particularly given Aurizon can immediately start implementing many of the initiatives that the Agreements had prevented. The unions in turn have an incentive to get moving and make reasonable compromises.

Relevance to your bargaining round

This decision potentially turns the tide. Whilst employers’ primary goal will always be to reach an agreement that is acceptable to all parties quickly and efficiently, this is often not possible. Rather, the parties need to look at alternatives in order to legitimately apply pressure on other bargaining participants within the framework of the Act. Employees and unions generally use protected industrial action. Employers on the other hand are often hesitant to respond with a lock out.

Accordingly, it is essential that pre-bargaining planning explores this question – 'What is "plan B", and how do we get there?' Applying to terminate an enterprise agreement may now be a viable 'plan B' strategy (but not the only one) where agreement is unable to be reached, and the employer is looking to remove unnecessarily unproductive and restrictive agreement terms. Unions will be mindful of this.

However, the evidence required for such an application is extensive (including expert evidence), so pre-planning is extremely important.⁸ Further, employers will have to point to an operational (or other) reason that justifies the 'appropriateness' of the termination (here, it was the privatisation of the company, the 'extensive' nature of the restrictions in the Agreements, and the fact that many of the restrictive terms and conditions were forced upon the employer).

Given the unions’ challenge to the Aurizon decision in the Federal Court, employers should continue to closely monitor the progress of the review proceedings and make appropriate adjustments if necessary to their bargaining strategies at the relevant time.

Written by Paul Burns, Partner, Rohan Doyle, Partner and Brad Popple, Solicitor

¹ Aurizon Operations Limited; Aurizon Network Pty Ltd; Aurizon Eastern Railroad Pty Ltd [2015] FWCFB 540.

² (2010) 204 IR 43. See also Royal Automotive Club of Victoria [2010] FWA 3483; and SDV (Australia) Pty Ltd [2013] FWC 5385.

³ at [126].

⁴ at [139].

⁵ at [141].

⁶ at [172].

⁷ at [159].

⁸ see paras [7] to [9]; and [28] to [32].