Australia: Federal Court quashes enterprise agreement voted up by only three employees

In Construction, Forestry, Mining and Energy Union v One Key Workforce Pty Ltd [2017] FCA 1266 (8 November 2017) (CFMEU v One Key), the Federal Court of Australia (FCA) has limited the ability of employers to enter into an agreement with a limited number of employees where the agreement is expressed to cover a much broader range of workers.

Prior to the decision in CFMEU v One Key, there appeared to be few restraints imposed on employers who entered into an agreement with a small group of employees before dramatically increasing the number of workers employed under it.

Employers considering such an approach will now need to consider the implications carefully before proceeding.

In handing down its decision, the FCA indicated that it will critically examine the actions of an employer ahead of a vote to determine if 'all reasonable steps' have truly been taken to explain the terms and effect of a proposed enterprise agreement to employees. Employers who fail to take such steps may in future find that the Fair Work Commission (FWC) will refuse to approve the proposed agreement.

In this article, we examine the extent of the limits this decision may have imposed on the enterprise agreement-making process, and explore the broader lessons for employers.

THE BACKGROUND OF THE CASE

One Key Workforce (formerly RECS (Qld) Pty Ltd) is a labour hire business which provides workers to clients in a range of industries, including the black coal mining industry. Between March and August 2015, it recruited three employees, and on 25 August 2015 it held a vote for the approval of the RECS (Qld) Pty Ltd Agreement 2015 (Agreement).

Prior to the vote, the Recruitment Manager of One Key Workforce telephoned and emailed each of the three employees to explain the terms and effect of the Agreement, as required by section 180(5) of the Fair Work Act 2009 (Cth) (FW Act).

The Agreement was expressed to cover employees who would, but for the operation of the Agreement, have been covered by any of 11 named Modern Awards. However, on the day of the vote, One Key Workforce had only three employees – meaning that there were no employees falling within the coverage of most of those Modern Awards. In substantive terms, the Agreement provided (among other things) for a 0.1% allowance on the hourly base rate of pay for ordinary hours of work.

Each of the three employees who were employed on the day of the vote cast a ballot in favour of the Agreement, and One Key Workforce applied to the FWC for approval.

THE DECISION AT FIRST INSTANCE

At first instance, Commissioner Roe of the FWC approved the Agreement.1 Among other things, the Commissioner was satisfied that:

  • the employees who voted for the Agreement were 'fairly chosen' for the purposes of section 186(3); and
  • One Key Workforce had taken 'all reasonable steps' to explain the terms and effect of the Agreement by telephoning and emailing each of the employees prior to the vote.

The CFMEU does not appear to have been aware that an application for the approval of the Agreement had been made, and did not contest its approval or seek to be heard in relation to the application.

THE FEDERAL COURT DECISION

Over a year later, the CFMEU became aware that the Agreement had been approved. It applied to the FCA seeking an order for the Agreement to be quashed, or declared void.

The FCA held that the FWC did not have jurisdiction to approve the Agreement, on the basis that One Key Workforce had:

  • failed to obtain the 'genuine agreement' of the employees who would be covered by the Agreement under section 186(2)(a); and
  • failed to take 'all reasonable steps' to explain the terms and effect of the Agreement to the employees who voted on it, as required by section 180(5).

Justice Flick followed the decision in CFMEU v John Holland Pty Ltd (2015) 228 FCR 297 (CFMEU v John Holland), observing that there was nothing necessarily inappropriate in an employer entering into an enterprise agreement with a small group of employees where the agreement has the potential to cover a much larger number of employees in future. He found that the three employees who had voted in this case were 'fairly chosen'.2

Despite this, Flick J went on to find that the Agreement could not have been 'genuinely agreed to by the employees covered by the agreement', as required by s 186(2)(a).

This is because the Agreement was expressed to apply to employees who would otherwise have been covered by 11 different Modern Awards. The 'genuine agreement' of these employees was required in order to satisfy the pre-approval requirements of the FW Act. The limited agreement of the three employees who were employed at the time of the vote (who were plainly not representative of the employees that would be covered by the Agreement once it was in full operation) was not sufficient.3

Relevantly, Flick J also found that:

  • One Key Workforce had employed over a thousand additional workers within six months of the vote. In the absence of any other business rationale, the vote was 'unquestionably' intended to preclude a genuine bargaining process, or any protected industrial action in support of bargaining claims, involving the larger group of employees.4
  • An enterprise agreement could be set aside on the basis that the legislative regime provided for by the FW Act would be subverted – in effect, on the basis that it is a 'sham' arrangement.5 Ultimately, however, his Honour did not need to decide whether the Enterprise Agreement in this case was itself a 'sham'.6

Lastly, Flick J found that One Key Workforce had failed to take 'all reasonable steps' to explain the terms and effect of the Agreement to the employees ahead of the vote for the purposes of section 180(5) of the FW Act.

The steps that had been taken were largely confined to sending an email to each of the employees, and a follow up telephone call from the Recruitment Manager. Both the email and the telephone conversation were perfunctory and amounted to little more than a recitation of the clauses of the Agreement – there was no genuine attempt to actually explain the Agreement's terms or their effect to the employees.7 As a result, One Key Workforce had failed to discharge its obligation under s 180(5) of the FW Act to take 'all reasonable steps' to explain the terms and effect of the Agreement.

For those reasons, Flick J determined that the FWC had no jurisdiction to approve the Agreement. Because of the failure to comply with the mandatory pre-approval steps, there had not been an 'agreement' within the meaning of the FW Act that was capable of being approved by the FWC.8

3 KEY LESSONS FOR EMPLOYERS

The decisions in CFMEU v One Key has a number of significant implications for employers.

  1. Following the decision in CFMEU v John Holland, many employers entered into agreements at the initial stages of a project with a small number of employees with the potential to apply to a much larger group of employees. While the decision in CFMEU v One Key does not prevent such arrangements, employers will in future need to be careful to ensure that the group of employees who are invited to vote is representative of those employees who are contemplated by the coverage clause of the enterprise agreement.
  2. Employers will need to ensure they have a genuine business reason for deciding to have a limited number of employees vote on a proposed enterprise agreement. Otherwise, they may face a claim that the agreement is merely an attempt to preclude a genuine bargaining process, or that it is a 'sham' arrangement intended to subvert the FW Act collective bargaining framework.
  3. Employers will also need to ensure they take 'all reasonable steps' to genuinely explain the terms and effect of a proposed enterprise agreement to their employees. They cannot simply summarise or recite its terms – a perfunctory process will not be sufficient.

More broadly, we have observed a number of decisions in which the FWC has been reluctant to approve enterprise agreements of this type,9albeit not expressly for the reasons stated in this decision.

At the same time, there is a growing call from trade unions and the Federal Opposition for legislative reform in this area.10 The decision in CFMEU v One Key confirms that enterprise agreements of this type will remain a controversial aspect of the current industrial relations system.

Footnotes

1 RECS (QLD) PTY LTD Enterprise Agreement 2015 [2015] FWCA 7516.

2 [2017] FCA 1266 at [115].

3 [2017] FCA 1266 at [123].

4 [2017] FCA 1266 at [124].

5 [2017] FCA 1266 at [125]-[126].

6 [2017] FCA 1266 at [126].

7 [2017] FCA 1266 at [103]-[105].

8 [2017] FCA 1266 at [91].

9 See e.g. KCL Industries Ltd [2016] FWCFB 3048; BGC Contracting Pty Ltd [2017] FWC 852 (quashed on appeal: [2017] FWCFB 2741).

10 See e.g. Corporate avoidance of the Fair Work Act 2009, Senate Education and Employment References Committee, September 2017; 'Shorten Government would outlaw "sham" enterprise deals', Workplace Express, 18 October 2017.

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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