Federal Court rules on the interaction between the Victorian Construction Code and implementation guidelines and the adverse action provisions

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28 May 2013

The CFMEU has successfully challenged a key aspect of State Government regulation of industrial relations in the building and construction industry, with the Federal Court finding in two separate decisions that implementation of the Victorian Government’s Construction Code and Implementation Guidelines involved unlawful adverse action and coercion against the employees of two bidders for government-funded work.

The decisions have been keenly anticipated, both as a measure of the extent to which State Governments can pursue industrial relations objectives through procurement policy, and also as an indicator of the extent to which industrial laws need to factored into commercial contract negotiations involving labour supply. These decisions illustrate the increasing significance of the general protections provisions in Part 3-1 of the Fair Work Act 2009 (FW Act) in everyday commercial contexts such as large-scale tender and contractor selection processes. The two decisions are likely to be appealed, and it remains to be seen whether this particular extension of the reach of the general protections will be upheld.

For further background to the Victorian Guidelines and the National Building Code, see our earlier Corrs in Briefs.[1]

Background

The proceedings concerned two Victorian Government projects: the $630 million Bendigo Hospital Project and the Circus Oz project in Melbourne. In each case the Victorian Construction Code Compliance Unit (CCCU) had informed two bidders for work on the projects that their enterprise agreements were not compliant with the Victorian Guidelines due to the fact that they contained certain ‘union-friendly’ provisions, and encouraged them to bring their agreements into line with the Guidelines.

In the Bendigo Hospital matter:

  • The Victorian Government sought bidders for the Bendigo Hospital project, which included construction, facility management and maintenance services.  Lend Lease was a member of one of two shortlisted consortia for the project, and during the tender process it concluded an enterprise agreement with employees.  Just prior to the agreement being approved by Fair Work Australia (FWA), CCCU advised Lend Lease that aspects of the agreement did not comply with the Guidelines. 
  • There were lengthy discussions between Lend Lease and CCCU in the course of which Lend Lease offered to provide a number of undertakings to the State Government. However, the CCCU remained of the view that it could reconsider its non-compliance assessment only if Lend Lease varied its enterprise agreement.
  • In late December 2012, the CFMEU filed an application in the Federal Court alleging that the State of Victoria had taken adverse action against Lend Lease and its employees by refusing, or threatening to refuse, to engage it on the Bendigo Hospital Project. 
  • Whilst the matter was before the Court the Lend Lease consortium won the tender, and as a result the CFMEU modified its claim to focus only on the threat of adverse action rather than the exclusion of  Lend Lease from the Bendigo Hospital Project.

In the Circus Oz matter:

  • Eco Recyclers Pty Ltd (Eco), a tenderer for demolition works on the Circus Oz project, was advised by CCCU that its enterprise agreement, though approved by FWA, did not comply with the Guidelines.  Eco was then informed by the principal contractor for the project, McCorkell Constructions Pty Ltd (McCorkell), that it could not continue to tender for the work.
  • Following discussions with CCCU, Eco tried to obtain the approval of its employees to vary the agreement to remedy areas of non-compliance. The changes were approved by employees, but the CFMEU opposed the variations and commenced proceedings in the Federal Court alleging that the State of Victoria and McCorkell had breached the adverse action and coercion provisions of the FW Act by refusing, or threatening to refuse, to engage Eco because it was not compliant with the Guidelines.

Summary of Findings

On 17 May 2013 Justice Bromberg handed down his decisions in both cases.[2] He found that the State of Victoria had:

  • taken adverse action against employees of Lend Lease by threatening to refuse to engage or make use of the services of Lend Lease for the construction of the Bendigo Hospital because the employees were entitled to the benefit of the Lend Lease enterprise agreement; and
  • taken action against Eco with intent to coerce Eco and its employees to exercise their workplace right to vary the Eco enterprise agreement.

McCorkell was also found to have taken adverse action against employees of Eco by refusing to engage or make use of the services of Eco in relation to the demolition works for the Circus Oz Project because the employees were entitled to the benefit of the Eco agreement. However, the Government was found not to be an accessory to McCorkell’s breach.

General Protections Expanded

Much of the battleground over which these cases were fought involved the construction of key terms or phrases in Item 4 of section 342(1) of the FW Act which sets out the circumstances in which a principal may be found to have taken adverse action against an independent contractor. 

While the State Government argued that this section should be interpreted narrowly as a protection for contractors who work in a manner analogous to employees, Justice Bromberg disagreed and his decision again highlights just how far the general protections can go under the FW Act.

Meaning of ‘independent contractor’

The State of Victoria claimed that none of Lend Lease, Eco, or their respective employees attracted the protection of Item 4 of section 342(1) because neither company was an ‘independent contractor’ within the meaning of that section. 

The State urged that the Court should adopt a narrow view of the term ‘independent contractor’, arguing that it was intended to be restricted to an individual that is the functional equivalent of an employee in that he, she or it provides services in the form of labour which would otherwise be performed by an employee.   

In what was described as a ‘very significant expansion’ of the protections, Justice Bromberg said that while the term includes such ‘self employed individuals’ it also extends to a wide range of contractors (and their employees) who provide services pursuant to a contract that includes the provision of labour and which also includes the provision of other services. 

Justice Bromberg rejected the State’s narrow reading of the term, and found that both Eco and Lend Lease were independent contractors within the meaning of Item 4 of s 342(1) of the FW Act.

Meaning of ‘propose to enter into a contract for services’

In the Lend Lease case, the Victorian Government argued that because the draft Project Agreement was between the successful consortium and the State of Victoria, it had never proposed to enter into a contract for services with Lend Lease. 

Justice Bromberg rejected this argument on the basis that a proposed separate Builder Direct Deed to which Lend Lease would be a party was capable of being characterised as a ‘contract for services’ as it ‘includes provisions which will entitle the State to require the provision of services, including labour services, to a material extent’.

Constitutional inconsistency rejected

As noted by Justice Bromberg, the Bendigo Hospital case raised ‘some interesting and novel issues in the context of a potential clash between the application of the policies of a State and the operation of a Federal enactment’.

The State argued that sections 340 to 342 of the FW Act exceed the constitutional legislative power of the Commonwealth by reason of the Melbourne Corporation limitation because they operated so as to impair the State’s capacity to function as a government and provide major public health infrastructure.

This argument was rejected, with Justice Bromberg noting that:

‘[T]he only detrimental operation of ss 340-342 upon the State which is suggested by the evidence, is upon the State’s capacity to apply its preferred industrial relations policy. That a federal law has impinged upon a state policy which is in conflict with it, is not (of itself) an impairment or detriment for which the Melbourne Corporation limitation provides an immunity.’

Next steps

Pending the outcome of the appeals in this matter, the Victorian Government has issued a revised version of the Guidelines which incorporates a new clause 3.5 entitled ‘Relationship with Fair Work Act 2009’. This new clause makes it clear that the Guidelines do not ‘require, encourage or promote conduct that would constitute a contravention of the FW Act’ and that to the extent that a provision in the Guidelines does so, the provision is of no effect.

The new clause is complemented by Practice Direction 2013/1 – Workplace Instrument Based Conduct. The effect of this is that during the operation of the Practice Direction, section 5, section 8 and section 10 of the Guidelines do not operate and are to be disregarded in respect of ‘workplace instrument based conduct’.

The two decisions will clearly have an impact outside of Victoria. The NSW government has already adopted Guidelines along the same lines as Victoria, and the Queensland government has indicated that it will also do so.

Corrs will keep you updated on progress of this matter, including any appeal or reaction from the NSW or Queensland governments.


[1] New National Building Code Issued and given Legislative Backing; and NSW Joins Standoff Over Building and Construction Industry Guidelines.

[2] Construction, Forestry, Mining and Energy Union v State of Victoria [2013] FCA 445; and Construction, Forestry, Mining and Energy Union v McCorkell Constructions Pty Ltd (No. 2) [2013] FCA 446. 

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