Australia: Binding aspirational statements in enterprise agreements

It is common to find aspirational statements in enterprise agreements. Often they are simply intended to extol organisational aims, rather than create binding obligations. Although permissible, the danger of such statements is that they might be construed as creating binding obligations, which carry with them penal consequences for non-compliance.

This is amply demonstrated by the decision of the majority of the Full Court of the Federal Court in National Tertiary Education Union v La Trobe University [2015] FCAFC 142 (8 October 2015).

THE LITIGATION

The appellant (NTEU) and the respondent (La Trobe) were covered by an enterprise agreement known as the La Trobe University Collective Agreement 2014 (Agreement).

Clause 74 of the Agreement provided as follows:

The University is committed to job security. Wherever possible redundancies are to be avoided and compulsory retrenchment used as a last resort. The University reserves the right to use the agreed redundancy procedures and provisions set out in this Agreement when all reasonable attempts to mitigate against such action and to avoid job loss have been unsuccessful.

Section 50 of the Fair Work Act 2009 (Cth) (FW Act) prohibits a person from contravening a term of an enterprise agreement.

The NTEU alleged that (in breach of section 50) La Trobe had implemented a proposed restructure with the consequence that 280 employees of La Trobe would have their employment terminated for redundancy. The NTEU alleged that in the implementation of the proposed restructure La Trobe should have taken, but failed to take, specified action in contravention of cl 74 of the Agreement:

  • not to use compulsory redundancies other than as a last resort;
  • to ensure that redundancies were avoided wherever possible; and
  • to make reasonable attempts to mitigate against compulsory redundancies and to avoid job losses.

THE ISSUE WAS THE PROPER CONSTRUCTION OF CL 74

The key issue determined by the Federal Court was:

Whether, on its true construction, Clause 74 imposed any and, if so, what binding obligations on the University.1

It was not in dispute that the first sentence of cl 74 was aspirational. As to the remainder, Tracey J at first instance concluded that the second and third sentences of cl 74, either separately or collectively, did not impose obligations on La Trobe. The NTEU's application was, therefore, dismissed. The NTEU then appealed to a Full Court of the Federal Court.

REASONS FOR ALLOWING THE APPEAL

A majority of the Full Court (Bromberg and White JJ, with Jessup J dissenting) allowed the NTEU's appeal.

In essence, Bromberg J allowed the appeal for the following reasons:

The second sentence [of cl 74] deals with method. It identifies the means or mechanism by which the overarching goal [in the aspirational first sentence] is to be effected or carried into practice ... The words specify what is to be done (redundancies are to be avoided) and what is not to be done (compulsory retrenchment is only to be used as a last resort) and when and in what circumstances that is to occur ("wherever possible"). In that context, there is nothing aspirational conveyed by the word "are" in the phrase "are to be avoided". Nor does a direction made in that context that something only be done as "a last resort" connote an aspiration ... It imposes a stringent limitation upon action otherwise available.
The ... reservation of La Trobe's rights in the third sentence would be unnecessary if the second sentence left those rights unaffected ... It would not have been necessary for La Trobe to have reserved its rights as against something that was merely aspirational. The qualified nature of the reservation in the third sentence [when all reasonable attempts to mitigate] is also couched in prescriptive rather than aspirational terms ... .2

Bromberg J rejected the contention that the expression 'wherever possible' in the second sentence of cl 74 of the Agreement was too vague and uncertain. Instead, the expression recognised that the content and extent of the limitation would shift with the prevailing circumstances.3

Bromberg J noted that a 'reasonable endeavours' or 'best endeavours' clause in a legal contract serves a similar purpose of conditioning the extent of an obligation to the prevailing circumstances; that reasonableness is often used as a standard or criterion to qualify a legal obligation; and that the FW Act is replete with examples of this, including provisions with penal consequences. For these reasons, his Honour also rejected the contention that the expression in the third sentence of cl 74, 'all reasonable attempts to mitigate', did not create any legal obligation.4

White J agreed with Bromberg J's overall conclusion that cl 74 of the Agreement imposed binding obligations on La Trobe.5

White J also emphasised the fact that it did not seem plausible that, by the third sentence of cl 74, La Trobe would have sought an express acknowledgment of its rights if the second sentence was purely aspirational.6

IMPORTANCE OF THE NTEU DECISION FOR EMPLOYERS

It is common for parties to include aspirational statements in an enterprise agreement that are intended to be enforceable obligations or entitlements. However, employers should carefully consider the ramifications of doing so.

As observed by White J:

It is in the very nature of these agreements that they are intended to establish binding obligations. The manner of making such agreements is subject to detailed prescription and their operation is contingent upon approval by the Fair Work Commission, the obtaining of which is itself a matter of detailed prescription. In my opinion, it is natural to suppose that parties engaging in this detailed process intend that the result should be a binding and enforceable agreement.7

With this in mind, care should be taken when drafting an agreement to make it evident that a statement that is intended to be aspirational is only that and nothing more. Express language could be used to make it clear that a statement is not intended to create any obligation, albeit that it is a term of the agreement. Also, consideration could be given to 'quarantining' aspirational statements in a preamble or recitals to the agreement rather than in the main body of the agreement.

Footnotes

1 National Tertiary Education Union v La Trobe University [2014] FCA 142 at [17].

2 National Tertiary Education Union v La Trobe University [2015] FCAFC 142 at [67]-[68].

3 Ibid at [71]-[74].

4 Ibid at [75]-[76].

5 Ibid at [102] et seq.

6 Ibid at [113].

7Ibid at [108].

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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