Australia: Monthly Update—Australian Labour & Employment - June 2016

Last Updated: 16 June 2016
Article by Adam Salter


In this month's Update, we focus on a number of recent developments which have attracted a great deal of media attention and are likely to significantly alter the landscape of labour & employment law in Australia. These include the ruling of the Fair Work Commission ("Commission") to increase the national minimum wage and the Coles decision recently handed down by the Full Bench of the Commission regarding the "better off overall test". We also revisit an issue discussed in last month's Update (the granting of legal representation before the Fair Work Commission) in a commentary that examines the broader implications of recent decisions involving section 596 of the Fair Work Act 2009 (Cth) and the effectiveness of that provision in affording parties procedural fairness.


Fair Work Commission's Expert Panel Lifts the National Minimum Wage by $15.80 per Week

In a highly anticipated ruling that will directly affect more than 1.86 million employees, the Fair Work Commission Expert Panel has decided to lift the minimum wage by $15.80 per week, bringing it to $672.70 (an increase of 2.4 per cent). The ruling will affect not only those workers whose wages are set by award rates, but those under enterprise agreements (as these are required to leave workers better off than the award entitlements). As part of its annual review of the national minimum wage and minimum wages in modern awards, the Expert Panel cited a number of compelling economic factors in support of its decision, including on-trend economic growth, stronger labour market conditions and historically low levels of inflation and wages growth.

While various union groups were hoping for a substantial increase of $30.00 a week, employer and industry groups called for more modest increases of no more than 2 per cent, for fear that higher increases could adversely affect employment figures and lead to job cuts. In response to a submission by the United Voice union, the Commission also signalled that it would hold a preliminary hearing (as part of the 2016–17 review) into whether the Expert Panel should adopt a medium-term target for the national minimum wage.

Fair Work Ombudsman Inquiry into Housekeeping Services in Australian Hotels Uncovers Potential Contraventions of Fair Work Act 2009 (Cth) and Leads to Enforceable Undertakings

This month the Fair Work Ombudsman ("Ombudsman") completed its inquiry into the procurement of housekeeping services by a number of Australian four- and five-star hotel operators.

The resulting report uncovered a range of potential contraventions of the Act, many of which arose from a lack of awareness of employers as to the applicable industrial instrument. For instance, it was found that some workers were incorrectly paid under the Hospitality Industry (General) Award 2010 rather than the Cleaning Services Award 2010, whilst others were paid a flat rate for each room they cleaned. Consequently, the Ombudsman recovered more than $57,000 for over 120 underpaid workers. Of even greater concern to the Ombudsman was that many of the housekeepers interviewed were young, overseas workers who had a limited understanding of their workplace entitlements and so were particularly vulnerable to exploitation.

Legal Background. As outlined in previous Updates, the Ombudsman is increasingly cracking down on employers who mischaracterise employees as independent contractors (intentionally or otherwise) and thus fail to provide them minimum workplace protections. However, this recent inquiry demonstrates that the practice is still prevalent within the commercial cleaning sector.

In its report, the Ombudsman made a clear distinction between "misclassification" by employers (which is unintentional) and "sham contracting" (which it defined as "the deliberate misrepresentation of [an] employment relationship as [an] independent contracting arrangement"). While either conduct may constitute a contravention of the Act, the latter will likely lead to the imposition of harsh penalties and compensation orders.

Findings. The Ombudsman investigated the arrangements of Oaks Hotels & Resorts Limited ("Oaks") and its wholly owned subsidiary, Housekeepers Pty Ltd ("Housekeepers"). Oaks was the sole principal contractor for Housekeepers and had expressly set up the company to provide housekeeping services. The Ombudsman found that the two entities were engaging workers as subcontractors under contracts for service when, at law, they were properly characterised as employees. As a result, they allegedly failed to afford the housekeeping workers their minimum entitlements under the Act and the Hospitality Award in respect of wages and conditions, including prescribed penalty rates, annual leave and sick leave entitlements.

Both Oaks and Housekeepers agreed to enter into enforceable undertakings on 9 May 2016 after the Ombudsman threatened to launch legal action in respect of the alleged breaches of the Act. As part of these enforceable undertakings, Oaks recognised that its operating model led to its workers being vulnerable to exploitation and acknowledged its responsibility to ensure its entities and individuals act in compliance with the relevant workplace legislation. It undertook, amongst other things, to implement changes to its labour engagement practices by ensuring that all individuals engaged by Oaks to perform cleaning work are, or will be, engaged as employees, not independent contractors and that any underpaid workers are repaid their full entitlements. Housekeepers gave similar undertakings and, in addition, undertook to provide its directors with workplace relations training and to make a donation of $20,000 to the Cleaning Accountability Framework to fund education about workplace rights.

The Ombudsman's inquiry report also contained general recommendations to the subsector as a whole. This included a recommendation that other named hotel and resort operators enter into compliance partnerships with the Ombudsman (which are formalised through Proactive Compliance Deeds) as a means of publicly demonstrating their commitment to compliance with Australian workplace legislation. As a result of the inquiry, the Ombudsman entered into three Enforceable Undertakings and issued eight letters of caution, six compliance notices and two infringement notices in total.

Restricted Legal Representation Before the Fair Work Commission

Under section 596 of the Fair Work Act 2009 (Cth) ("Act"), a lawyer can appear on behalf of a party in a matter before the Commission only if leave is granted or if the lawyer works as a party's in-house counsel or for a trade union or peak industry body. While designed to reduce the cost and complexity of workplace disputes and to ensure a fairer outcome for both employees and employers, in practice section 596 of the Act has not delivered those outcomes.

Efficiency, Costs and the Achievement of a Fair Outcome. It has been argued that the absence of lawyers in matters before the Commission may create fairer and more cost-effective outcomes and save unnecessary formality. However, experience suggests that the absence of legal representatives imposes an additional administrative burden on the Commission (and hence increased public costs) and also creates substantive fairness concerns insofar as all material factual intricacies and pertinent legal decisions may not be drawn to the Commission's attention. The potential for lawyers to improve, rather than inhibit, efficiency and fairness in hearings has been recognised by the Commission in several recent decisions.

Appearing as of Right: In-House Counsel and Lawyers Employed by Trade Unions and Peak Industry Bodies. The ability of in-house lawyers and lawyers employed by trade unions, peak councils and other similar organisations to appear as of right in matters before the Commission under section 596(4) of the Act is anomalous. Why should the same right not also be provided to other parties, such as non-unionised employees and small business employers that do not have the benefit of an in-house legal team?

Despite the anomaly, and notwithstanding previous decisions to the contrary, the Commission has sensibly recognised in more recent cases that an employer cannot automatically be considered to be on an equal bargaining footing with an employee during a hearing simply because it can rely on its dedicated human resources team. For example, in Wilcox v Holcim (Australia) Pty Ltd, [2016] FWC 2359, the Commission granted leave for a large employer with specialised human resources personnel to have legal representation because the personnel were not legally qualified and also lacked any detailed understanding of the Act and advocacy experience. Further, some of the key personnel would have had to perform the dual roles of advocate and witness during the hearing, imposing an unfair burden for individuals without any legal knowledge or experience.

Conclusion. The Commission's recent decisions indicate that employers will likely be granted leave for legal representation where their in-house personnel do not have legal qualifications or procedural or advocacy experience and/or are required to act as both witnesses and advocates during a hearing.

Nevertheless, to address procedural inefficiency and substantive fairness concerns, reforms to section 596 of the Act may be warranted. Even if the restriction on legal representation is not removed entirely, more clarity needs to be provided, particularly for employers, as to the circumstances when leave for legal representation will be granted.


Fair Work Commission Confirms that Coles Supermarkets Underpaid Workers After Negotiating Agreement with Union that Led to Penalty Rates and Casual Loadings Below the Minimum Award Entitlements

The Full Bench of the Commission has considered an appeal against a decision approving an enterprise agreement that was negotiated between Coles and the Shop, Distributive and Allied Employees Association ("SDA"). The Full Bench was not satisfied that the Coles Store Team Enterprise Agreement 2014-17 ("Agreement") passed the "better off overall test" ("BOOT").

Factual Background. The Commission approved the Agreement on 10 July 2015, having been satisfied that it passed the BOOT. Two appeals of that decision were brought by Duncan Hart (a student and part-time employee) and the Australasian Meat Industry Employees Union and were heard together.

The Agreement provided a higher hourly rate than the relevant rate under the General Retail Industry Award 2010 ("Award") but applied lower penalty rates for evenings, weekends and public holidays. The Agreement also provided various benefits for employees, including additional penalties for ordinary hours, rest and meal breaks, payment when on annual leave, wage increases, pre-approved leave arrangements, blood donor leave, defence service leave, accident makeup pay, carer's leave, compassionate leave, emergency services leave, natural disaster leave, redundancy pay, enhanced well-being, support for non-work activities, support for domestic violence and support for care responsibilities.

Legal Background. Under section 193(1) of the Act, an enterprise agreement passes the BOOT if the Commission is satisfied, as at the test time "that each award covered employee, and each prospective award covered employee, for the agreement would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee".

The Full Bench noted that it was well established that this test requires: (i) the identification of terms which are more beneficial for an employee; (ii) the identification of terms which are less beneficial for an employee; and (iii) an overall assessment of whether an employee would be better off under the agreement.

Decision. The Full Bench considered the impact on Mr Hart and seven other employees who worked at Coles stores in Northcote and Benalla in Victoria and found that on base wages alone, the lower penalty rates for evenings, weekends and public holidays meant they lost between $142 and $3,506 annually under the Agreement. The Full Bench considered that the monetary loss was potentially significant for those who work primarily at times which attract lower penalty rates under the Agreement, for example, part-time and casual employees.

The Full Bench also considered whether the benefits provided in the Agreement could make up for the loss. This was, however, not the case, as some of the benefits could not be quantified or had been overstated. Therefore, the Full Bench found that each employee and prospective employee was not "better off overall" under the Agreement.

As a result, Coles was given the opportunity to remedy the failure by giving an undertaking to make an adjustment in payments to employees who would not otherwise be better off (for example, employees working a sufficiently high proportion of penalty shifts). Alternatively, they could provide an undertaking limiting the number of penalty hours that could be worked by employees. The Full Bench held that should Coles not provide an appropriate undertaking, it would make an order allowing the appeal and quashing the decision to approve the Agreement.

In a recent response to the decision, Coles has indicated that it will not be providing any undertakings, citing the impracticality of the Commission's proposals. Instead, the 77,000 workers covered by the impugned Agreement will revert to a previous enterprise agreement that dates back to 2011. However, Coles indicated it would preserve wage and penalty rates (as contained in the Agreement) and honour a previously agreed-upon pay rise of 1.5 per cent.

Lessons for Employers. This decision is a cautionary tale for employers with similar enterprise agreements, as it confirms that in determining whether an enterprise agreement passes the BOOT under section 193(1) of the Act, the interests of those employees most adversely affected by an agreement will be taken into account. The fact that the majority of workers will be better off overall is not sufficient to satisfy the test. All employees must be better off overall when an agreement is compared to the relevant award.

Federal Circuit Court Orders University Academic to Pay More Than $130,000 for Vexatious Dismissal Claim

The Federal Circuit Court of Australia ("FCCA") has ordered an academic to pay her former employer, the University of Sydney, more than $130,000 for bringing claims for unfair dismissal in the Commission and the FCCA. Part of the monetary sum consisted of a $103,000 costs order for instituting the FCCA proceedings vexatiously and without reasonable cause.

Factual Background. In March 2014, Ms Simin Maleknia filed an unfair dismissal claim under the Act in the Commission against her former employer, the University of Sydney. However, the Commission dismissed the proceedings because her application was filed out of time. Her employment as an academic had been terminated in December 2013, at the end of a fixed-term contract with the University. Ms Maleknia appealed to the Full Bench of the Commission but failed on appeal and was ordered to pay the university $1,240 in indemnity costs. The Commission also made a further costs order of $17,823 due to Ms Maleknia's attitude and conduct throughout the proceedings.

On 15 May 2015, Ms Maleknia filed a claim in the FCCA for unfair dismissal under the Act. The University brought a motion for summary dismissal of those proceedings. Separately, the University filed a claim in the FCCA on 17 December 2015 for Ms Maleknia's failure to pay the respective Commission costs orders.

Legal Background. Under section 611(2) of the Act, the Commission may order costs where an application has been made vexatiously or without reasonable cause or where it should have been reasonably apparent that the application had no reasonable prospect of success. As section 611 is a civil remedy provision, any failure to comply with such an order is subject to civil remedies under the Act.

In relation to civil remedies, section 545(1) provides that the FCCA may make an order if the court is satisfied that a person has contravened a civil remedy provision. Further, section 545(2)(b) provides that such an order may involve an award of compensation for loss that has been suffered by a person because of the contravention.

In addition, section 570(2) provides for the making of costs orders by courts, including the FCCA, where: (i) the court is satisfied that the party instituted the proceedings vexatiously or without reasonable cause; or (ii) the court is satisfied that the party's unreasonable act or omission caused the other party to incur the costs.

Decision. In relation to the Commission costs orders, the FCCA was satisfied that it was appropriate to order that Ms Maleknia pay $19,063 in compensation in respect of the loss suffered by the University due to her failure to comply with those orders (i.e. the sum of the Commission costs orders), and $492.07 in interest. Further, the FCCA made an order under section 570(2)(b) that Ms Maleknia pay the University's costs in the amount of $11,000, due to her unreasonable act or omission in failing to comply with the Commission costs orders.

In a separate decision, the FCCA dismissed Ms Maleknia's claim for unfair dismissal and noted that "the proceedings were on their face, vexatious and included allegations of a kind entirely extraneous to the Fair Work Act 2009." In particular, Ms Maleknia failed to appear in court on a number of occasions and filed voluminous material, including a 180-page application and a 600-page affidavit. The FCCA found that due to the unreasonable conduct of Ms Maleknia, she had caused the University to incur loss in respect of costs incurred in defending those proceedings. This was enough to satisfy the FCCA that Ms Maleknia had instituted the proceedings vexatiously and without reasonable cause within the meaning of section 570(2)(a), and it ordered she pay costs in the amount of $103,000, which were the party/party costs incurred by the University.

Lessons for Employers. These decisions highlight some of the circumstances where costs may be awarded against an employee in proceedings brought under the Act in the FCCA, in contrast to the ordinary rule that each party bear its own costs. Where an unfair dismissal claim is brought by an employee, an employer may be able to seek an order for costs under section 570(2), should the employee's application be found to have been brought vexatiously or without reasonable cause.

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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Adam Salter
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