Australia: Coverage in employee Agreement making


Two recent decisions have provided further guidance on the issue of agreement coverage under both the former Workplace Relations Act 1996 (WR Act) and the current Fair Work Act 2009 (FW Act).

Pilbara Iron Company (Services) Pty Ltd v Construction, Forestry, Mining and Energy Union [2012] HCATrans 37 (10 February 2012)

On 10 February 2012, the High Court of Australia refused an application by Pilbara Iron Company (Services) Pty Ltd (Pilbara) for special leave to appeal the decision of the Full Court of the Federal Court (Full Court) in Construction, Forestry, Mining and Energy Union v Pilbara Iron Company (Services) Pty Ltd [2011] FCAFC 91.

The key issue was whether Pilbara had sufficient prospects of successfully establishing that the Full Court had erred in finding that the coverage clause under the Pilbara Iron Employee Agreement (PIEA), which applied to employees employed by Pilbara on or after 28 July 2008, was not made with employees in a single business or 'part' of a single business, and as a result that the PIEA did not come into operation as a workplace agreement under section 347A of the WR Act.

Pilbara argued that there was no requirement that an agreement be made with 'all' employees in a single business or 'part of a single business'.

Pilbara submitted that the Full Court had made serious errors in its judgement, including by interpreting section 327 of the WR Act as requiring an agreement to be made with identifiable employees in an identifiable 'part' of a single business, where the WR Act prescribed no such requirement. Pilbara further submitted that the appropriate criterion to identify a 'part of a single business' was simply something 'less than the whole of the business', and that identifying the relevant employees to be covered by the agreement by reference to their commencement date was a relevant definition and description.

Counsel for Pilbara noted that the Full Court seemed to 'examine some sort of sociological underpinning' for the purpose of section 327 of the WR Act, a reference to the Full Court's comments that its interpretation of section 327 was supported by the underlying legislative purpose of the WR Act, being an increased emphasis on collective negotiation.1

Pilbara submitted the consequences of the Full Court's decision were matters of 'great concern in industrial relations', particularly in the mining industry, as the decision had implications for at least 20 other industrial agreements, and thousands of employees.

In response, the CFMEU submitted that the Full Court had not erred in its interpretation of section 327 of the WR Act, and that a part of a business must be 'rationally selected', such as by reference to a geographically, operationally or organisationally distinct part of the business. The CFMEU also argued that the matter was not of particular significance, given that the WR Act had been repealed and that 13 of the 20 agreements referred to by Pilbara had passed their nominal expiry date.

Justices Gummow and Heydon held that Pilbara had insufficient prospects of success on appeal to warrant the granting of special leave.

Implications for employers

While the WR Act has been repealed, employers with WR Act agreements which are still being applied in the workplace will need to review the coverage clauses in those agreements to ensure that those coverage clauses meet the interpretation of section 327 given by the Full Court. Where agreements do contain coverage clauses similar to the clause in the PIEA there is a significant risk that those agreements may be successfully challenged particularly by unions seeking to engage in bargaining.

Newlands Coal Pty Ltd v Construction, Forestry, Mining and Energy Union [2011] FWAFB 7325; Newlands Coal Pty Ltd [2012] FWAFB 721

A Full Bench of Fair Work Australia (FWA) has approved the Newlands Coal Surface Operations Agreement 2010 (Agreement), almost 18 months after it was first rejected by Commissioner Roe of FWA.

The Agreement was initially approved by the majority of the Full Bench (Hamberger SDP and McCarthy DP), before the CFMEU appealed to the Federal Court, seeking writs of certiorari and mandamus, on the basis that the Full Bench had made jurisdictional errors of law in approving the Agreement.

The relevant issue was in relation to the Agreement's coverage clause, which provided an 'opt out' mechanism, so that the Agreement would not apply to employees who, at any time, elected in writing not to be covered by the Agreement.

On appeal, Katzmann J held that 'there are no statutory limits on the class of employees who may be covered by an agreement, save for those imposed by sections 186 and 187' (of the FW Act), and that the opt out clause was not inconsistent with the coverage provisions set out in section 256A of the FW Act. However, the Court found that the Full Bench majority had fallen into jurisdictional error by misapplying the Better Off Overall Test (BOOT) and by failing to properly consider section 186(3A) in determining whether the group of employees covered by the agreement was 'fairly chosen'.

After the matter was remitted back to FWA, Hamberger SDP held that the Agreement would not meet the BOOT unless an undertaking was provided to the effect that employees who opted out of the Agreement would receive conditions better overall than if the modern award applied to their employment, as at the time the Agreement was filed with FWA, and that prospective employees would not have their employment made conditional on agreeing to 'opt out' of the Agreement.

In considering the 'fairly chosen' requirement in section 186(3A), Hamberger SDP held that a group of employees that is not 'geographically, operationally or organisationally' distinct can still be fairly chosen, and noted in this case that the employees who elected to 'opt out' of the Agreement had the choice to do so or not. On that basis, Hamberger SDP held that the group covered by the Agreement was 'fairly chosen'.

Deputy President McCarthy agreed with Hamberger SDP's findings, save that he did not consider that it was necessary for Newlands to provide undertakings in order for the BOOT to be satisfied, as the BOOT would not apply and would not be relevant to employees who had opted out of the Agreement. Commissioner Blair again dissented from the majority decision.

The Agreement was approved with undertakings on 25 January 2012.

Implications for employers

The final decision by FWA in this matter confirms that opt out clauses are permissible under the agreement making provisions of the FW Act, and potentially present employers with a far more useful mechanism to move employees outside the scope of an enterprise agreement, as compared to Individual Flexibility Agreements (IFAs), which are subject to several conditions and can be terminated by an employee on 28 day's notice.

Given this matter was under the FW Act, rather than the WR Act, the findings of the Full Court in Construction, Forestry, Mining and Energy Union v Pilbara Iron Company (Services) Pty Ltd [2011] FCAFC 91 were not applicable. It is unclear whether, if faced with a similar clause as in the Pilbara Agreement under the FW Act, FWA would find that such a clause would be considered 'fairly chosen', however the comments of Hamberger SDP indicate that if employees have an element of choice whether to be covered by an agreement, then this will support a finding that the group of employees is fairly chosen.


1CFMEU v Pilbara Iron Company (Services) Pty Ltd [2011] FCAFC 91 at [38].

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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