Three’s (NOT) a crowd - Full Federal Court upholds enterprise agreement voted up by only three employees - Employee Rights/ Labour Relations

The Full Federal Court decision in Construction, Forestry, Mining and Energy Union v John Holland [2015] FCAFC 16 (24 February 2015) has confirmed that an employer can enter into an enterprise agreement with a limited number of employees, but with the capacity to apply over time to a wider range of employees.

BACKGROUND

John Holland Pty Ltd (John Holland) was awarded the head construction contract to build the $1.2 billion Perth Children's Hospital. At the time, John Holland employed three employees to perform building and construction work, and only expected to employ a total of 25 direct employees at the hospital site as the majority of the work was to be carried out by subcontractors.

The three employees attended a meeting in January 2012 where they each appointed themselves as a bargaining representative for purposes of negotiating a Children's Hospital enterprise agreement (Agreement) with John Holland under the Fair Work Act 2009 (Cth) (FW Act).

In February 2012, the three employees voted in favour of the Agreement. They were the only employees covered by the Agreement when it was made.

Clause 1.1 of the Agreement stated that the Agreement would bind any John Holland employees "performing building or civil construction work in Western Australia in accordance with a classification specified in this Agreement".

Clause 1.2 of the Agreement provided that if John Holland were to enter into a specific agreement at another project or site in Western Australia, then that other agreement would apply to the exclusion of the Agreement.

Notably, at the time that the Agreement was drafted John Holland was in the process of tendering for a number of other projects in Western Australia.

On 13 February 2012, John Holland lodged an application for approval of the Agreement with Fair Work Australia (as it then was), now the Fair Work Commission (FWC), under section 185 of the FW Act.

The application was opposed by the Construction, Forestry, Mining and Energy Union (CFMEU).

THE MAIN ISSUE

The CFMEU opposed the approval of the Agreement on the basis that the employees had not been "fairly chosen" as required by section 186(3) and 186 (3A) of the FW Act. To determine whether a group is 'fairly chosen' the FWC must take into account whether the group of employees was "geographically, operationally or organisationally distinct".

APPROVAL APPLICATION - DECISION AT FIRST INSTANCE

At first instance, McCarthy DP of the FWC held that the group of employees had been fairly chosen, finding that the three employees were geographically and operationally distinct, although not organisationally distinct. The Agreement was approved on 22 May 2012.

FWC FULL BENCH DECISION

The CFMEU appealed against McCarthy DP's decision.

The Full Bench of FWC set aside the original decision and concluded that the Deputy President had erred both in the application of the relevant legislative provisions and in the exercise of discretion.

The Full Bench noted that any agreement which yielded in advance to the possibility of future project specific agreements, or which was made with a very small number of employees where potential coverage was much greater, could not be approved in accordance with the requirements of the FW Act.

The Full Bench's reasoning included findings that:

The nature of clause 1.2 meant it was impossible to make any definitive finding as to the group of employees covered by the Agreement, and because of this it "was not possible to be satisfied that the group of employees was fairly chosen."
It was important to consider whether the selection of the group of employees covered by the Agreement was based on criteria that would have the effect of undermining collective bargaining. The Full Bench stated that "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 Act and will not be given an opportunity to bargain."

FIRST INSTANCE FEDERAL COURT DECISION

John Holland then applied to the Federal Court of Australia for judicial review of the decision of the FWC Full Bench.

The main ground of the appeal was that the Full Bench had erred in asking itself about the possible future size and composition of the group of employees to be covered by the Agreement, rather than identifying the chosen group from a proper construction of the Agreement.

In allowing the appeal, Justice Siopis of the Federal Court noted that the power to make an agreement under the FW Act resides in the parties to the agreement, and that an agreement is made when the majority of employees covered by the agreement vote in favour of it.

Justice Siopis also held that there was nothing in the wording of section 186(3) and (3A) which required that the term "fairly chosen" should be construed "in a manner which would not undermine collective bargaining."

APPEAL TO THE FULL COURT OF THE FEDERAL COURT

The CFMEU appealed to the Full Court of the Federal Court. The Full Court (Besanko, Buchanan and Barker JJ) unanimously dismissed the CFMEU's appeal and upheld Justice Siopis' finding. Buchanan J's judgment was endorsed by the other two judges (save for two points of qualification added by Besanko J).

The Full Court held that the "fairly chosen" test applies to an agreement's full coverage potential, rather than simply the group of employees who actually voted on the agreement at the time that it was made. As Buchanan J explained:

... [U]pon the view that the group to be considered under s 186(3) and (3A) reflects potential (not present) coverage it will often (perhaps usually) be impossible to state with much precision or certainty what that coverage may entail in a practical sense in the years to come, or how the group might at any particular point in time be composed. However, that seems to be the consequence of the legislative scheme.¹

On this basis, Buchanan J determined that: 'It was not relevant to an assessment of the question posed by s 186(3) that the Full Bench did not know how many employees would, or might, in future be covered by site specific agreements and hence excluded from the operation of the agreement. The possibility that the agreement might not apply to unknown future employees on unknown future sites did not alter the 'coverage' of the agreement ... .'²

Buchanan J also held that by entering into the agreement, John Holland had not undermined collective bargaining nor precluded future employees from participating in that process (or from exercising the related right to take protected industrial action): 'Unless the proposed agreement failed to meet a relevant statutory test there could be no basis for introducing a further, more general, requirement of the kind adopted by the Full Bench.'³

KEY LESSONS FOR EMPLOYERS

The Full Federal Court decision in CFMEU v John Holland confirms the ability for employers to validly enter into agreements at the initial stages of a project with a limited number of employees, with the potential to apply to a much larger group of employees over time, in the same manner as John Holland did in this case.
However, caution should be exercised when adopting this strategy. As Justice Buchanan notes, the circumstances in CFMEU v John Holland did not give rise to any suggestion that John Holland had restricted the number of employees eligible to vote on the agreement to manipulate the agreement making procedures. Such matters should be carefully considered by employers to ensure that it cannot by suggested that adopting such an approach was intended to, or might possibly frustrate the operation of the FW Act or prevent good faith bargaining.
Employers should also factor in the possibility of a further appeal by the CFMEU to the High Court of Australia.

Footnotes

¹[2015] FCAFC 16 at [41]; see also Besanko J's judgment at [2].

²[2015] FCAFC 16 at [64].

³[2015] FCAFC 16 at [71]; see also Besanko J's judgment at [3].

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.


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