Australia: Victorian Government’s actions to exclude building contractors due to code non-complaint enterprise agreements have been found lawful

The Victorian Government's actions to potentially exclude building contractors from State-funded construction projects due to code non-complaint enterprise agreements have been found lawful.

State of Victoria v Construction, Forestry, Mining and Energy Union [2013] FCAFC 160, 19 December 2013

Key Points

  • In a significant win for the Victorian Government, the full Federal Court has found on appeal that the State of Victoria did not take adverse action or coerce two contractors when it indicated to them that they would not obtain work on State-funded projects due to Code non-compliant enterprise agreements.
  • Penalties previously ordered against the Victorian Government have been set aside.
  • The Court dismissed the CFMEU's cross-appeal that the Victorian Building Code and Guidelines are "invalid and of no effect".
  • Relevant State Governments are now likely to reinstate restrictions on the content of enterprise agreements in building codes which were removed following the Federal Court's decision at first instance (which found against the Victorian Government) and may bolster them further restricting union influence.

Significance of decision – A win for Government crackdown on union friendly deals

On 19 December 2013, in a highly anticipated decision, the full Federal Court unanimously overturned a decision of Bromberg J and held that the State of Victoria (State) did not act unlawfully when it indicated to contractors that they would be excluded from work on the State-funded projects because of Code non-compliant provisions in their enterprise agreements.

The significance of the decision extends well beyond the parties to the proceedings. As it currently stands, the decision will strengthen the joint efforts of the Coalition and some State Governments in the crackdown of union friendly deals and regulation of unions in the building and construction industry.

In light of what is at stake for the unions, it is hardly surprising that the Construction, Forestry, Mining and Energy Union (CFMEU) filed an application for special leave to appeal the decision with the High Court of Australia. All employers in the construction industry, particularly those heavily reliant on State-funded work, should eagerly watch this space.

Background – Selection process for work on State–funded projects

In Victoria, contractors wishing to undertake any work on State-funded projects must comply with the Victorian Code of Practice for the Building and Construction Industry (Code) and the Code's Implementation Guidelines (Guidelines). Similar building codes and guidelines have been introduced recently in New South Wales and Queensland.

The Code and Guidelines do not have statutory force however as policy documents they govern the State's selection process for contractors on State-funded construction projects. The Guidelines included prescriptions on what acceptable content is in enterprise agreements, until they were removed following the Federal Court's decision at first instance (which found against the Victorian Government).

The proceedings arose out of the Victorian Government's implementation of the Guidelines in the tender process for work on two State-funded projects - the refurbishment project for the new premises of Circus Oz (Circus Oz Project) and the construction of the New Bendigo Hospital (New Bendigo Hospital Project).

During the tender process for both projects the State through its Construction Code Compliance Unit (CCCU) advised certain contractors they would not be awarded work due to Code non-compliant provisions in their enterprise agreements.

In the case of the New Bendigo Hospital Project, Lend Lease Project Management & Construction (Australia) Pty Limited (Lend Lease) is part of the Exemplar Health consortium which was ultimately the successful bidder. However, the CFMEU argued that its appointment to the project was delayed for the reason that Lend Lease's enterprise agreement contained Code non-compliant provisions which did not comply with the Guidelines. It was therefore claimed that for the period until the appointment, the State had threatened to take adverse action against Lend Lease because of employees' workplace rights of entitlements to benefits under the agreement.

In the case of the Circus Oz Project, McCorkell Constructions Pty Ltd (McCorkell) submitted its tender for work which proposed to subcontract demolition work to Eco Recyclers Pty Ltd (Eco). The CCCU advised McCorkell that Eco's enterprise agreement, to which the CFMEU was a party, did not comply with the Guidelines due to Code non-compliant provisions and that the tender would not be accepted unless Eco's agreement was compliant.

McCorkell subsequently advised Eco it would not be engaged for the demolition work unless its agreement was varied to be compliant. In an effort to obtain the work, Eco sought to vary its agreement. However, the CFMEU intervened and commenced proceedings against both McCorkell and the State alleging they had unlawfully coerced Eco to vary its enterprise agreement and took adverse action against Eco employees because of their workplace rights of being entitlements to benefits under the agreement.

Primary judgment

In May 2013, Bromberg J of the Federal Court found that the Victorian Government had:

  1. in the case of the New Bendigo Hospital Project, contravened s. 340 of the Fair Work Act 2009 (Cth) (FW Act) by threatening to take adverse action against Lend Lease; and
  2. in the case of the Circus Oz Project, contravened s. 343 of the FW Act by coercing Eco to vary its registered enterprise agreement. Bromberg J however did not find the State had taken adverse action against Eco.

vary its registered enterprise agreement. Bromberg J however did not find the State had taken adverse action against Eco.

A total penalty of $53,000 was ordered against the State.

As a result of these judgments, the Victorian and NSW Governments issued Practice Directions which suspended the implementation of the Guidelines so far as it restricted content in enterprise agreements.

Findings of the full Federal Court on appeal – no adverse action and no coercion

In a recent decision, the full Federal Court has overturned the findings against the State and set aside the penalties.

As to the finding of threatened adverse action against Lend Lease with respect to the New Bendigo Hospital Project, the Court held that:

  • the State did not propose to enter into a contract for services with Lend Lease but with a consortium of which Lend Lease was a part, and therefore the State could not have taken adverse action against Lend Lease within the meaning of the adverse action provisions.

As to the finding of coercion of Eco to vary its agreement with respect to the Circus Oz Project, the Court held that:

  • on the balance of probabilities, the evidence showed that the State did not intend to exert pressure on Eco such that it had no choice but to vary its agreement; and
  • the primary judge was correct to find the State could not have taken adverse action against Eco as it proposed to contract with McCorkell and not Eco.

The full Federal Court also dismissed the cross-appeal filed by the CFMEU which argued that the Code and Guidelines should be found to be "invalid and of no effect" on the basis that they exceeded the power of the executive government of the State. The Court held that as they were policy documents, and had no statutory authority to mandate any conduct, they did not operate to create any rights, duties liabilities or obligations.

Implications

Government:

  • The Finance Minister of Victoria has already suggested the State will now implement the Guidelines in their original form including restrictions on the content of enterprise agreements and the NSW Government may follow suit.
  • The Federal Government has introduced legislation to resurrect the ABCC and will issue a new Federal Building Code and Guidelines which may further restrict union influence on enterprise agreement content.

Employers:

Employers seeking to obtain government building and construction should carefully check relevant Code requirements for enterprise agreements.

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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