Be careful who is left out - Scope clauses in enterprise agreements under close scrutiny

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18 September 2012

A recent decision of a Full Bench of Fair Work Australia (FWA) has called into question the common practice of enterprise agreements being made between an employer and a limited number of employees, but having the capacity to apply over time to much larger numbers of employees.

The decision in Construction, Forestry, Mining and Energy Union v John Holland Pty Ltd [2012] FWAFB 7866 (13 September 2012) also emphasises that FWA will closely scrutinise proposed enterprise agreements with “opt out”-type clauses.

Background

In January-February 2012, John Holland Pty Ltd (John Holland) negotiated a new enterprise agreement with three employees working at a hospital site. On 13 February the Western Region Agreement Western Australia 2012-2016 (the Agreement) was approved by the three employees.

However, the scope clause in the Agreement provided that its coverage would extend to all John Holland employees in Western Australia engaged in various classifications in building or civil construction, except those employees who were covered by any ‘project or site specific agreement’.[1]

At first instance, Deputy President McCarthy of FWA approved the Agreement, despite intervention and opposition from the Construction, Forestry, Mining and Energy Union (CFMEU). The CFMEU appealed against this decision.

Issues

Central to this case was whether the group of employees covered by the Agreement was ‘fairly chosen’ as required by s 186(3) of the Fair Work Act 2009 (FW Act), and whether the group was ‘geographically, operationally or organisationally distinct’ within the meaning of s 186(3A).

FWA Full Bench Decision

The Full Bench of FWA (Justice Boulton, Seputy President Hamilton and Commissioner Cloghan) granted the appeal by the CFMEU, and reversed Deputy President McCarthy’s decision to approve the Agreement.

On the first issue, as to whether the group of employees covered by the Agreement was fairly chosen within the meaning of s 186(3), the Full Bench determined that given the nature of the exclusion provision in the scope clause (see above), it would be difficult to make any definitive finding about the identity of the group of employees that would be covered by the Agreement. It was not clear which John Holland employees were, or would be, covered by any ‘project or site specific agreement’, and therefore not covered by the Agreement.

In the Full Bench’s view, at most, the group to be covered by the Agreement could be described as “comprising some John Holland employees working on some building and civil construction sites, at some locations in Western Australia”.[2] Further, the Full Bench indicated that as it was “not possible to identify with any certainty the group of employees to be covered by the Agreement, it is not possible to be satisfied that the group of employees was fairly chosen as required by s.186(3) or to apply the requirements of s.186(3A)”.[3]

Secondly, the Full Bench expressed the opinion that the Agreement reached between John Holland and the three employees potentially had application to many other employees on multiple sites. However, those other employees had not had the opportunity to participate in the bargaining process. This had the effect of undermining collective bargaining.

Citing the recent decision of another FWA Full Bench in Cimeco Pty Ltd v CFMEU and Others [2012] FWAFB 2206 (12 April 2012),[4] the Full Bench stated that: “Cimeco is authority for the proposition, amongst other things, that the selection of the group covered based on criteria which would have the effect of undermining collective bargaining ... was unlikely to be fair within the meaning of s186(3). In this case three employees on one site have bargained and agreed on an agreement with potentially very wide application to other employees who have not engaged in bargaining under Part 2-4 of the [FW] Act … .[5]

John Holland argued that those other employees could still seek to bargain. But the Full Bench noted that only some of the bargaining options under the FW Act would be available to those employees.[6] For example, they would not be able to take protected industrial action in support of their bargaining claims while the Agreement continued in operation and applied to them.

Lessons for Employers

This decision has highlighted the importance of ensuring that the group of employees covered by an enterprise agreement is chosen “fairly”. There are often a range of strategic reasons why an employer proposes an agreement with only a selected group of its employees. However, this selection will be carefully scrutinised by FWA when the agreement comes before the tribunal for approval.

In the preparation of such agreements, careful consideration should be given to whether the group of employees covered by an agreement is geographically, operationally or organisationally distinct (s 186(3A)). If it is not obviously or logically a distinct group, there is a real risk that the agreement will not be approved by FWA as it may not meet the fairly chosen requirement in s 186(3).

It has been relatively common practice in the resources and construction industries to make agreements with a limited number of employees, which have the potential to apply to a much larger group of employees over time. This approach was also adopted under predecessor legislation to the FW Act, but has been challenged and rejected in a number of decisions (eg CFMEU v Pilbara Iron Company (Services) Pty Ltd [2011] FCAFC 91[7]). The John Holland decision shows that FWA is also critical of this approach under the current legislation.

There has also been an increasing number of decisions rejecting agreements which have “opt out”-type clauses (ie clauses which enable employees covered by the agreement to opt out of such coverage during the term of the agreement).[8] FWA continues to scrutinise such clauses very closely, and their inclusion is likely to lead to an agreement being rejected by the tribunal at the approval stage. Further, the recent Report of the Fair Work Act Review Panel recommended that opt out clauses be prohibited.

Employers should carefully consider whether agreement coverage clauses that are cast in broad or imprecise terms (with the aim of covering a larger group than the employees who vote on the agreement) will succeed, given these recent decisions.


[1] CFMEU v John Holland Pty Ltd [2012] FWAFB 7866 at [24]-[25].

[2] CFMEU v John Holland Pty Ltd [2012] FWAFB at [25].

[3] CFMEU v John Holland Pty Ltd [2012] FWAFB at [25].

[4] Referred to in CFMEU v John Holland Pty Ltd (2012) FWAFB at [11], [14], [20] and [30].

[5] CFMEU v John Holland Pty Ltd [2012] FWAFB at [30].

[6] CFMEU v John Holland Pty Ltd [2012] FWAFB at [31].

[7] See our previous In Brief discussing this case here.

[8] Most recently, a five member Full Bench of FWA ruled against the validity of opt out clauses in CFMEU v Queensland Bulk Handling Pty Ltd [2012] FWAFB 7551 (3 September 2012).


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