Australia: The Qantas dispute: employer's lockout, ministerial intervention and Fair Work Australia's decision

Key Points:

The Qantas dispute demonstrates the need for legislative change to make it easier for an affected party to apply for suspension or cooling-off of protected action.

The jurisdiction of Fair Work Australia (FWA) to suspend or terminate protected action under the five grounds provided for under the Fair Work Act 2009 (Cth) was discussed in the April issue of the Employment Law Bulletin.¹ It explored how FWA has administered their powers in 18 decisions handed down to date. This article examines the decision of FWA in Re Minister for Tertiary Education, Skills, Jobs and Work­place Relation (Qantas),² one of the 10 successful applications, which was brought in dramatic circum­stances by the federal minister under section 424(1)(d) of the Fair Work Act.

The Qantas dispute: background

On Saturday, 29 October 2011 Qantas issued a media release announcing that from 8:00 pm on Monday, 31 October 2011, it would lock out, in effect, all of its licensed engineers, ramp staff and baggage handlers and Australian and international pilots. The media release went on to state that aircraft currently in the air would complete their sectors but that there would be no further Qantas domestic departures or international departures anywhere in the world. Qantas stated that the lockout would continue until the relevant unions (the Australian Licensed Aircraft Engineers Association (ALAEA), the Transport Workers Union (TWU) and the Australian and International Pilots Union (AIPA)) dropped their "extreme demands that have made it impossible for agreements to be reached".³

The lockout was a bona fide "employer response action" legally brought under the Fair Work Act. For legal purposes, it was "in response" to protected action being taken by all three unions; being one hour stoppages proposed by the ALAEA, the various work bans and stoppages proposed by the TWU, and a ban on comply­ing with Qantas' in-flight announcements taken by the AIPA.⁴ In reality, the lockout was a response to a "slow-bake" tactic engineered by the ALAEA and TWU. The tactic was to notify Qantas of a pending stoppage, and after Qantas had cancelled flights and rearranged schedules, cancel the stoppage.⁵ The costs incurred by Qantas because of this tactic had reached $68 million and approximately $15 million per week in loss of revenue. Approximately 7,000 passengers had been affected and 600 flights had been cancelled.⁶

Practitioners and Human Resources professionals in aviation will be attuned to the crucial importance labour cost commands in the industry. As Doganis observes:

"because the unit price of labour differs significantly between airlines — even neighbouring airlines on the same conti­nent — labour cost is a major factor in differentiating costs between competing airlines. In short, reducing labour costs is critical because they are the highest single cost and because they are a major cost differentiator between airlines."⁷

Sue Bussell, Group General Manager of Industrial Relations for Qantas, has stated that labour cost:

"rather than any particular ideological or political perspec­tive, drives Qantas' industrial relations policy as the airline addresses how to best operate under the rules that apply on any given day. Our objective is to maintain a competitive advantage and to provide a sustainable rate of return to fund investment, maintain job security and reward investors."⁸

The protected action taken by the union parties leading up to the proposed lockout was in pursuit of aforementioned job security. According to Qantas, it was pursued by the three unions in a number of ways:

1. in relation to the ALAEA:
2. 1. that Qantas build a fully tooled and staffed heavy maintenance facility;
   2. that third party labour providers be controlled and restricted;
   3. that Qantas' access to productivity improve­ments, including those conferred by technology and regulatory changes, be restricted;
   4. that other unions' members in competition with the ALAEA be excluded from undertaking certain functions;

2. in relation to the TWU:
3. 1. that third party labour providers be controlled and restricted;

3. and in relation to AIPA:
4. 1. that terms and conditions of employment of employees who work for other companies (whether associated entities of Qantas or not) be regu­lated by Qantas; and
   2. that terms and conditions of other Qantas employees, including those who reside over­seas, be overridden or supplemented by the agreement at hand.⁹

Considering the wide scope of these claims, their likely negative impact on Qantas' flexibility and profit­ability, as well as the questionable legality of some of them,¹⁰ is unsurprising that Qantas vigorously opposed their inclusion in the agreements throughout the 14 months of negotiations. Viewed in this context, it is tolerably clear that Qantas instigated the lockout to force a termination so that the agreements could be arbitrated by FWA where it thought better outcomes could be achieved rather than through bargaining with the unions.

The hearing before FWA

Qantas' lockout, and its obvious consequences for the economy, forced the hand of the Federal Minister to intervene in dramatic circumstances in the evening of Saturday, 29 October 2011. FWA listed the matter before a Full Bench (Giudice J, Watson SDP and Roe C) for 10:00 pm that night, and initial arguments were heard until 2:00 am the following morning. The matter resumed on 2:00 pm that afternoon and judgment was handed down at 2:00 am on Monday, 31 October 2011. The Minister and the four respondents (ie. Qantas and the three unions) were joined by the Victorian, New South Wales and Queensland Governments, as well as the Australian Council of Trade Unions (ACTU), who all intervened to make submissions.

The Minister led evidence from Mike Mrdak, Sec­retary, Department of Infrastructure and Transport and Drew Clarke, Secretary, Department of Resources, Energy and Tourism to establish the extent the extent of damage the Australian economy would suffer if the lockout proceeded. Collectively, the Secretaries testified that:

1. Qantas accounts for 65 percent of domestic aviation capacity, 20 percent international capac­ity and 80 percent of airfreight delivery services;
2. the aviation sector directly employs 50,000 Aus­tralians and the downstream effects of employ­ment in the aviation industry represents up to half a million Australians employed in tourism and other sectors;
3. in-bound tourists contribute $24 billion to the Australian economy per annum;
4. any reduction in aviation capacity has immediate and severe impacts on all sectors of the economy; and
5. if the proposed lockout was not put to an end within 24 hours, the tourism sector and the wider economy would suffer because of reduced inter­national and domestic bookings.

This evidence, not unexpectedly, went unchal­lenged.¹¹ The significance of the damage to the Australian economy was not in dispute. What was in dispute was whether FWA should suspend or terminate the lockout and the unions' protected action. The union parties argued for a suspension of 90 or 120 days. The Federal Minister's submission for termination, or suspension for 90 days in the alternative, was supported by the Queensland Government.¹²

Findings of FWA

FWA's decision to publish reasons when handing down judgment, rather than making an order and pub­lishing reasons later, meant the reasoning and legal analysis in the decision is minimalist. The decision may not be of significant precedential value for the future, but that said, the inferences drawn from it will.

Firstly, the Full Bench concluded that it was "unlikely" that the protected action that had been taken by the three unions, even taken together, was threatening to cause significant damage to the tourism and aviation indus­tries.¹³ Qantas' losses of $68 million and $15 million per week in revenue, together with the cancellation of 600 flights affecting 7,000 passengers, did not amount to damage of the requisite significance. Thus, a suspension based on the unions' protected action alone would not have succeeded.

In terms resonating with Woodside, the Full Bench opined:

"There is a need to balance this issue against the fact that protected industrial action is permissible under our system and has been now for many years and has been taken relatively frequently in the airline industry with successive bargaining rounds. It is also important that encouragement of enterprise bargaining is also part of the system. In that respect, what we have heard indicates there are still prospects for a satisfactory negotiated outcome in all three cases. The prospect of a negotiated resolution in relation to the three proposed enterprise agreements still remains."

It was Qantas' lockout, and its effect on consumers of airline passenger and cargo services, that satisfied the Full Bench that significant damage was being threatened in the tourism industry, the aviation industry and indus­try more generally.¹⁴ FWA's jurisdiction to suspend or terminate pursuant to section 424(1)(d) was therefore enlivened, and in coming to their decision to terminate, the Full Bench held:

"It is apparent that a suspension of all action on an interim or short term basis is not appropriate and in the end no party supported that course. Some of the principal issues in the negotiations have so far proved very difficult to resolve. Other matters may be easier to resolve.

On the evidence there is significant uncertainty arising from the protected action initially of the unions but in particular arising from the lockout and the grounding of the airline. We should do what we can to avoid significant damage to the tourism industry.

...

We have decided that in the particular circumstances of this case, which on the evidence include the particular vulner­ability of the tourism industry to uncertainty, suspension will not provide sufficient protection against the risk of significant damage to the tourism industry and aviation in particular. Suspension is necessarily temporary — it leaves open the possibility there may be a further lockout with its attendant risks for the relevant part of the economy. That is, a risk the situation we are now dealing with will recur."¹⁵

The aftermath

By obtaining the termination, Qantas was able to bring an end to the protracted negotiations and trigger arbitration of the agreements. Since then, Qantas and the ALAEA were able to reach agreement, which was treated as a consent-based workplace determination before the Full Bench at the arbitration hearing.¹⁶ Predictably, the ALAEA did not achieve many of its bargaining objectives, and the workplace determination more or less replicates the previous Qantas-ALAEA agreement.¹⁷

At the time of writing, the TWU and AIPA have yet to reach agreement with Qantas. FWA is expected to arbitrate the Qantas-TWU agreement in March 2012 and the Qantas-AIPA agreement in April 2012.¹⁸ However, AIPA has appealed FWA' s decision to terminate to a Full Federal Court, arguing that Qantas' lockout was not a "protected" employer response action under the Fair Work Act. AIPA contend that Qantas' lockout was dispropor­tionate to the AIPA members ban on complying with Qantas' inflight announcements, and as such, was unprotected action, thereby disentitling FWA to order the termination.¹⁹ While novel, such an interpretation is not immediately evident within the scheme enacted by the Fair Work Act, and it is doubtful that a proportionality test comes within the legal meaning of "in response".

It is too early to infer whether Qantas has emboldened other employers to exercise their ability to lockout in response to protected action, despite such claims.²⁰ That said, a lockout followed by an application to terminate it occurred in Schweppes Australia v United Voice²¹ (Schweppes), approximately one and a half months following Qantas. In that case, Schweppes sought termination of its lockout to force a workplace determination of a pro­tracted dispute concerning shift patterns, which had resulted in various forms of protected action taken by employees.²² It was an inventive, and perhaps ironic, application as Schweppes initiated the lockout then sought to terminate it on the ground that it would cause significant economic harm to employees. Despite its inventiveness, it failed on evidentiary grounds as Schweppes was not able to furnish direct evidence of employee harm to FWA. A petition signed by a large majority of locked-out employees showed that the employees made arrangements to be able to meet their financial commit­ments.²³ However, termination was eventually ordered upon FWA's own motion, after 58 days of lockout, as canvassed in Part I of this article.

Conclusion

Qantas' high risk, high reward strategy to lockout their employees is symptomatic of the high bar to relief established by the Fair Work Act, as typified by decisions such as Woodside and Schweppes. It is clear that Qantas had been suffering severely as a consequence of the slow bake executed by the unions, and it is unfortunate that Fair Work system was unable to adequately respond. In the view of the authors, the Qantas dispute demonstrates the need for legislative change to make it easier for an affected party to apply for suspension or cooling-off of protected action.

A fine balance is required to provide respite from protected action while allowing parties to use it as a coercive tool, in a policy sense. As Kaufman SDP in Schweppes aptly articulated:

"For over a century, prior to the WorkChoices amendments to the Workplace Relations Act 1996, the 'rude and barbarous expedient of strike and lockout' was replaced by the power of the Australian Industrial Relations Commis­sion and its predecessors to settle industrial disputes by compulsory arbitration. The wheel has almost come full circle as Fair Work Australia no longer has that power, except in certain confined circumstances, one of which is the making of a workplace determination after protected industrial action has been terminated.

...

Enterprise bargaining is now the primary means whereby employers and employees secure terms and conditions of employment beyond, or different from, those contained in modern awards. Importantly, to advance their claims, employees are entitled to take protected industrial action, provided that certain procedural steps have been taken. Protected industrial action in support of claims for an enterprise agreement, as authorized by the Act, is the only lawful mechanism available to employees to achieve improve­ments in wages and conditions that an employer is not otherwise prepared to agree to."²⁴

At the time of writing, the Gillard Government has appointed a review panel (consisting of Emeritus Professor Ron McCallum, former Federal Court Justice Michael Moore and Reserve Bank Board Member John Edwards) to report on the operation of the Fair Work Act, including the provisions considered by the authors in this article. That review, in conjunction with the Qantas dispute, has firmly replaced Australia's industrial rela­tions system back on the national agenda. The panel is due to report to Government by 31 May 2012. It remains to be seen whether legislative change will emerge from that review.

Footnotes

¹Dr G Smith and L Howard "Terminating and Suspending Industrial Action in the Post-Qantas Environment" (2012) ELB 17(10).
²Re Minister for Tertiary Education, Skills, Jobs and Workplace Relation [2011] FWAFB 7444.
³Qantas, "Qantas Responds to Industrial Action" (Media Release, 29 October 2011).
⁴Minister's Form F37 Application in Qantas, Attachment 1.
⁵Such a tactic is permissible under the Fair Work Act: see Re Boral Resources (NSW) Pty Ltd (2010) 193 IR 286; [2010] FWAFB 1771.
⁶Qantas, above n 2.
⁷Rigas Doganis, The Airline Business (Routledge, 2nd ed, 2006) 119, cited in Sue Bussell and John Farrow, "Continuity and Change: The Fair Work Act in Aviation" (2011) 24(3) Journal of Industrial Relations 392, 393.
⁸Bussell and Farrow, above n 7, 393.
⁹Qantas, Qantas Group Submission to the Review of the Fair Work Act (17 February 2012) Fair Work Act Review.
¹⁰As "permitted matters" allowed to be included in agreements under the Fair Work Act: see s 172(1)(a). The legality of the unions' claims is outside the scope of this paper. See generally Australian Industry Group v ADJ Contracting Pty Ltd [2011] FWAFB 6684, which is subject of a Full Federal Court appeal at the time of writing.
¹¹Qantas at [9].
¹²Qantas at [10].
¹³Qantas at [10].
¹⁴Qantas at [10].
¹⁵Qantas, [12]–[13], [15].
¹⁶ALAEA v Qantas Airways Ltd [2012] FWAFB 236.
¹⁷C/f ALAEA v QantasAirways Ltd [2012] FWAFB 236 at [11] and [17] for a comparison between the claims that remained outstanding after the lockout and what was eventually agreed. On the whole, Qantas was more successful during this nego¬tiating period.
¹⁸Workplace Express, "Qantas-TWU arbitration to begin in March, pilots in April, as ALAEA asks members to consider status quo on job security", Workplace Express (online), 25 November 2011.
¹⁹Workplace Express, "Pilots' union challenges FWA's Qantas ruling", Workplace Express (online), 10 November 2011.
²⁰Ewin Hannan and Amanda O'Brien, "Firms get Qantas 'bottle' as Schweppes locks out 150", The Australian (online), 16 December 2011.
²¹Schweppes Australia v United Voice [2011] FWA 9329.
²²Schweppes at [16], [22].
²³Schweppes at [64].
²⁴Schweppes at [54]–[55].

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.