Australia: Strategies for building contractors to ensure industrial arrangements are Building Code 2016 compliant

Last Updated: 7 September 2017
Article by Ben Keenan

From today, no building contractor will be eligible to tender for Commonwealth funded building work unless their industrial instrument is compliant with the requirements of the Code for the Tendering and Performance of Building Work 2016 ("Code 2016").

This alert will examine options available to building contractors for ensuring their industrial instrument is Code 2016 compliant in light of two recent decisions of the Fair Work Commission ("FWC").

OBSTACLES TO CODE 2016 COMPLIANCE

From 2 December 2016, building contractors submitting expressions of interest or tenders for work on projects with certain levels and forms of funding from Commonwealth government entities will become covered by Code 2016, regardless of whether or not the contractor is actually awarded the contract. In order to be eligible to tender for and be awarded building work to which Code 2016 applies, a contractor and its employees must be covered by an industrial instrument that is compliant with Code 2016. Certain industrial instruments are deemed to be compliant with Code 2016, including all modern awards and registered enterprise agreements made before 25 April 2014.

However, many contractors in the building industry are subject to an enterprise agreement made on or after 25 April 2014. From 1 September 2017, those contractors will be ineligible to tender for building work to which Code 2016 applies if the enterprise agreement contains a clause that contravenes the prohibited content provisions at section 11 of Code 2016. The majority of the content prohibited by section 11 is what is colloquially known as "union friendly" clauses, being content that is commonly found in the template enterprise agreements offered to contractors by unions such as the Construction, Forestry, Mining and Energy Union ("CFMEU").

Examples of prohibited content include clauses in enterprise agreements that grant union officials unfettered access to building sites, require contractors to consult with the union before engaging subcontractors or that otherwise restrict the contractor's ability to determine when, where and by whom work is performed within the contractor's business.

If a contractor is currently covered by an enterprise agreement with prohibited content made on or after 25 April 2014, what options are available to them for securing an industrial instrument that is compliant with Code 2016?

VARYING OR REPLACING A NON-COMPLIANT ENTERPRISE AGREEMENT

One option available to contractors covered by an enterprise agreement with prohibited content is to seek to vary the existing agreement to remove the non-compliant content, or replace the agreement entirely with a new, Code 2016 compliant enterprise agreement. When determining whether to vary or replace a non-compliant enterprise agreement, consideration should be given to whether the existing agreement has passed its nominal expiry date ("NED"). Where the agreement has passed its NED, it should be replaced by a new agreement.

However, if the existing agreement has not yet passed its NED, it will be simpler to seek to vary the agreement than to go through the process of replacing it with a new, Code 2016 compliant agreement.

AMENDMENT CLAUSES

Commonly, the CFMEU will be covered by existing agreements that are non-compliant with Code 2016. Until recently, the CFMEU was refusing to negotiate with contractors to vary existing agreements to achieve compliance with Code 2016. This was in spite of the CFMEU previously agreeing to include a clause in several versions of its template enterprise agreement issued after 25 April 2014 that committed to making any amendments necessary to ensure the agreement complied with future versions of the building code ("Amendment Clause").

In the recent decision of Laing O'Rourke Australia Construction Pty Ltd T/A Laing O'Rourke v Construction, Forestry, Mining and Energy Union1, a contractor attempted to rely on an Amendment Clause in its existing enterprise agreements in a novel manner.

After making an unsuccessful attempt to negotiate the necessary variations with the CFMEU, Laing O'Rourke applied to the FWC seeking a determination that, consistent with the commitment of the parties embodied in the Amendment Clause, all clauses in the existing agreements that had been identified by the Australian Building and Construction Commission ("ABCC") as non-compliant with Code 2016 should be interpreted in future to operate in such a manner as to make them compliant with Code 2016.

Essentially, Laing O'Rourke were seeking an order that the existing agreements be interpreted as though the non-compliant clauses had been varied to make the agreements Code 2016 compliant without requiring the parties to go through a formal application to vary the existing agreements. Laing O'Rourke relied upon the presence an Amendment Clause in both agreements as its basis for seeking the determinations.

Applying the established rules for interpreting enterprise agreements at common law, the FWC ruled that it could only apply the interpretation sought by Laing O'Rourke to the non-compliant clauses if the wording of those clauses permitted such an interpretation. Regrettably for Laing O'Rourke, the FWC determined that no such interpretation of the non-compliant clauses was possible in this case.

Accordingly, any attempt to vary or replace an existing enterprise agreement with non-compliant content must follow the formal processes set out in the Fair Work Act 2009 (Cth) ("FW Act"), regardless of whether or not the existing agreement contains an Amendment Clause.

TERMINATING A NON-COMPLIANT AGREEMENT

As an alternative to varying or replacing an existing enterprise agreement with non-compliant content, contractors could consider terminating the existing agreement and reverting to the coverage of an applicable modern award.

Once again, the question of whether or not the existing agreement has passed its NED has an impact on the termination process. Where an enterprise agreement has not yet passed its NED, an employer must ask its employees to approve the proposal to terminate the agreement before applying to the FWC for an order terminating the agreement. However, where the agreement has already passed its NED, the employer can apply directly to the FWC for a termination order.

The FW Act sets out a range of criteria the FWC must consider when deciding whether to approve an application to terminate an enterprise agreement, which relevantly includes the likely effect a termination will have on all parties to the agreement. Accordingly, the FWC will generally invite all affected parties, including employees covered by the agreement and relevantly named unions, to express their views regarding the proposed termination.

Recent case law suggests that in order for an application for termination to be successful in these circumstances, it will be necessary for the employer to satisfy the FWC that there will be a significant threat to the financial viability of the employer's business if it is unable to tender for building work to which Code 2016 applies.

In the decision of Grandstand Scaffold Services Pty Ltd2, the employer, Grandstand Scaffold Services Pty Ltd ("Grandstand"), made an application to the FWC to approve the termination of an enterprise agreement that had only commenced to apply to Grandstand employees in August 2016. As the agreement had not passed its NED, Grandstand held a vote of affected employees seeking their approval of the proposal to terminate the agreement. Grandstand asserted that the employees approved the proposal by a narrow margin.

The CFMEU was also covered by the agreement and objected to Grandstand's application to terminate it. In addition to a range of concerns regarding the employee ballot process, the CFMEU alleged that the proposed termination would result in a considerable reduction in take home wages for a number of employees covered by the agreement, making any termination unfair. The CFMEU also asserted that the proper course of action was for Grandstand to negotiate with employees and the union to vary the existing agreement to achieve compliance with the requirements of Code 2016.

Grandstand's directors gave evidence that the rates of pay required under the agreement had made the company uncompetitive in the market, resulting in significant financial losses requiring a capital injection from both directors. The directors claimed that without the ability to tender for projects to which Code 2016 applied in the immediate future, Grandstand could not afford to maintain its workforce at its current levels. The directors also detailed their previous unsuccessful attempts to negotiate variations to the existing agreement with the CFMEU to achieve Code 2016 compliant status.

In approving Grandstand's application to terminate the agreement, the FWC placed greater significance on the potential loss of employment for existing employees than the possibility of a substantial reduction in their take home wages in the event Grandstand elected to revert to paying the minimum modern award wages. The FWC also reasoned that there was no guarantee negotiations with the CFMEU and employees to vary the existing agreement would result in Grandstand's industrial instrument achieving Code 2016 compliant status in sufficient time to ensure the financial viability of the business.

TIPS FOR BUILDING CONTRACTORS

When considering what action to take in order to ensure that their applicable industrial instrument is compliant with Code 2016, building contractors should consider the following:

  • What clauses in their existing enterprise agreement breach the prohibited content provisions in Code 2016? Contractors should note that the ABCC will assess existing and draft enterprise agreements for compliance with Code 2016 at no cost to the contractor.
  • Has the existing non-compliant enterprise agreement passed its NED, or is it about to do so in the near future?
  • Is the CFMEU or any other union covered by the existing agreement? If so, has the contractor consulted with them to ascertain their willingness to negotiate a Code 2016 compliant agreement?
  • If a union that is covered by the existing agreement is prepared to negotiate variations to the agreement, or a new agreement, that will achieve Code 2016 compliance, can the contractor accommodate any concessions the union may be seeking in return for its cooperation (eg. increases in hourly rates and allowances)? If the contractor believes it is not financially capable of accommodating the concessions sought, what evidence can the contractor put forward to the FWC in support of this position?
  • If the contractor is considering terminating the existing agreement and reverting to employing staff pursuant to the applicable modern award, can the contractor produce evidence that an inability to tender for Code 2016 covered work will have a significant impact on the financial viability of the contractor's business in the immediate future?

Footnotes

1 [2017] FWC 4050.

2 [2017] FWCA 3980.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions