Australia: Bar Set High For Third Party Suspension of Industrial Action

Last Updated: 28 September 2010
Article by Kathy M. Dalton

In a significant decision for businesses, the Full Bench of Fair Work Australia (FWA) has recently upheld the right of workers to resume protected industrial action notwithstanding the substantial impact of the industrial action on third parties.

In doing so, FWA has made it clear that for a third party to successfully apply for a suspension of protected industrial action it will need to show harm of an exceptional character or magnitude and such orders will only be made in very rare circumstances.


Mammoet Australia Pty Ltd (Mammoet) was engaged by Woodside Burrup Pty Ltd (Woodside) to perform heavy lifting and transport services on the Pluto Liquid Natural Gas Construction Project (Project) in Western Australia.

Mammoet is one of approximately 60 contractors performing work on the Project, including Kentz E & C Pty Ltd (Kentz), an electrical contractor. Mammoet commenced bargaining with a group of 12 employees, who were engaged as crane drivers on the Project (the Employees), under the terms of the Fair Work Act 2009 (Cth) (FW Act). The Construction, Forestry, Mining and Energy Union (CFMEU) acted as bargaining agents for the Employees.

Following six weeks of protected industrial action by the Employees involving consecutive periods of stop work by the Employees and a responsive employee lockout by Mammoet, Woodside and Kentz (the Third Parties) applied to FWA for orders under section 426 of the FW Act suspending the protected industrial action for three months on the basis that the protected industrial action threatened to cause significant harm to third parties (the Application).

FWA is required to suspend protected industrial action if action is being engaged in and it is satisfied that:

  • the industrial action is adversely affecting any employer or any employee who will be covered by the proposed enterprise agreement (section 426(2))
  • the industrial action is threatening to cause significant harm to another person other than a bargaining representative for the agreement or an employee who will be covered by the agreement (section 426(3))
  • it is appropriate to make the order, taking into account whether the suspension would be contrary to the public interest as well as any other relevant matter.

On 30 June 2010, Deputy President McCarthy issued an Order that the Employees' protected industrial action be suspended for a period of three months on the basis that the significant harm caused by the protected industrial action to the Third Parties justified the suspension.

The Appeal

On 20 July 2010, the CFMEU, with support from the Australian Council of Trade Unions, appealed the decision and Order of Deputy President McCarthy, claiming:

  • there was insufficient evidence to satisfy FWA that the industrial action was threatening to cause significant harm to a third party
  • the bar for proving significant harm had been set too low
  • the period of suspension effectively amounted to a termination of protected industrial action.

The Full Bench Decision

The Full Bench of FWA – Vice President Michael Lawler, Deputy President Ken Ives and Commissioner Julius Row – found that Deputy President McCarthy exercised his discretion under section 426 contrary to the objects of the FW Act, which emphasise enterprise level-bargaining, and the purpose of section 426 which is prefaced on the "right" of employees to take protected industrial action.

Following an examination of the Explanatory Memorandum, the Full Bench considered that the intent of section 426 was that protected industrial action would only be suspended in "exceptional" circumstances. The Full Bench considered that significant harm must be construed to mean:

"harm that has an importance or is of such a consequence that it is harm above and beyond the sort of loss, inconvenience or delay that is commonly a consequence of industrial action. In this context, the word "significant" indicates harm that is exceptionalin its character or magnitude even when viewed against the sort of harm that might ordinarily be expected to flow from industrial action in a similar context. In this way, an order will only be available under section 426(3) in very rare cases."

In this context, the Full Bench noted that the harm complained of by the Third Parties was not "out of the ordinary" and constituted the sort of harm likely to be complained of in any situation where industrial action affected the progress of a major construction project. In this case, evidence demonstrated that Woodside would suffer losses of A$3.5 million for each day the Project was delayed, however, the Full Bench noted that it would cost a "trivial" A$100,000 to bridge the gap between the 7% backdated pay increase sought by the Employees and the 5% on offer to resolve the dispute. The Full Bench upheld the right of the Employees to resume protected industrial on the basis that the protected industrial action constituted a "mere delay" of the sort that is common place on large construction projects.

Importantly, in considering the impact of the suspension on the Third Parties, the Full Bench placed significant reliance on the fact that a three month suspension of protected industrial action would likely terminate the ability of the Employees, who had six to eight weeks left on the Project, to take protected industrial action. The Full Bench pointed out that the absence of a right of arbitration, where industrial action is terminated under section 426 was an important consideration in exercising its discretion. In these circumstances, the Full Bench considered that the period of the three month suspension was "manifestly excessive and inappropriate."

Further factors cited by the Full Bench included the lack of clarity regarding which parties would ultimately bear the cost of the delays caused by the protected industrial action as well as an absence of evidence that the Third Parties to the dispute had considered alternative options to mitigate the effect of the protected industrial action.

Implications for employers

This decision sets the bar high for businesses seeking to rely on section 426 to obtain relief from the adverse consequences of protected industrial action taken by employees of another employer.

FWA has made it clear that it will not deprive employees of the right to take protected industrial action under section 426 except where there are exceptional circumstances including clear, substantive evidence of significant harm to a third party(s).

In addition, FWA has reinforced that, even where a party is successful in obtaining an Order pursuant to section 426, the purpose of section 426 is merely to provide a "temporary respite" to third parties, and the provision cannot be relied upon to obtain a quasi-termination of industrial action. This will make it very difficult for third parties to justify extended periods of suspension. In light of the limits imposed by FWA on the application of section 426, businesses, particularly in industries that rely on the industrial stability of other contractors, will need to look at alternative strategies and contingency planning in the event that protected industrial action of another party has the potential to harm their operations.

In circumstances where a third party is being impacted by protected industrial action, prior to making an application under section 426, it will be necessary to consider:

  • whether the threatened financial and practical impact of the protected industrial action on the business is 'out of the ordinary' or gives rise to 'exceptional circumstances'
  • whether the business has the ability to mitigate any threatened harm
  • the expected duration and nature of the protected industrial action
  • the status of negotiations.

This outcome runs counter to that which came to be expected out of decisions flowing from the secondary boycott provisions of the Trade Practices Act 1974. Clearly the Full Bench has decided that the words in section 426, namely "significant harm" are a game changer. As is usually the case, outcomes will depend on the facts of each case. What is clear is that if FWA is prepared to countenance adjectives such as "exceptional" as qualifying the legislative notion of "significant harm" then the game has changed.

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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