Good Faith Bargaining - Your New Obligations Begin On 1 July!

One of the controversial aspects of the Fair Work Act 2009 is the obligation imposed on parties to bargain in good faith when negotiating an enterprise agreement. These reciprocal obligations on the negotiating parties will enable Fair Work Australia (FWA) (the body which replaces the Australian Industrial Relations Commission) to play a significant role in the agreement–making process.

In some cases, the process of reaching a new enterprise agreement (an agreement covering an employer and its employees) may proceed without difficulty, but from an employer's point of view the new laws will provide unions with a wide range of new powers that allow them to take control of the bargaining process – far more so than the limited requirement in s. 335 of the Workplace Relations Act 1996 (the WR Act) for an employer when negotiating an employee collective agreement to "meet and confer" with its employees' bargaining agent.

Just what does the Fair Work Act mean by "good faith bargaining?"

An employee who will be covered by an enterprise agreement is entitled to appoint a bargaining representative (which will always be a union in the case of union members unless they appoint some other person).

The Fair Work Act states that "bargaining representatives" must comply with a range of good faith bargaining (GFB) requirements, and these "bargaining representatives" would include the employer; a union party; or an individual who an employee has appointed as their representative. The specific GFB requirements (in section 228) are:

• Attending and participating in meetings at reasonable times

• Disclosing relevant information (other than confidential or commercially sensitive information) in a timely manner

• Responding to proposals made by other bargaining representatives in a timely manner

• Giving genuine consideration to the proposals of other bargaining representatives for the agreement, and giving reasons for the bargaining representative's responses to those proposals, and

• Refraining from capricious or unfair conduct that undermines freedom of association or collective bargaining.

Importantly, the GFB rules do not mean that bargaining representatives are under an obligation to make concessions during bargaining or to reach an agreement.

Can a union or employees force an employer to bargain?

There is no formal "commencement" of a bargaining period (as previously applied under the WR Act). The original Bill had included a provision indicating that employers were obliged to "recognise or bargain" with another bargaining representative for an agreement, but this requirement was removed in final changes. The result is that there is no statutory obligation on an employer to "recognise" the other bargaining representative, but a failure to do so could have implications.

While an employer would be subject to the s. 228 GFB requirements throughout a bargaining process (e.g. to attend a meeting or to disclose information) they can only be "enforced" by FWA making a bargaining order. A bargaining order can only be made in specific circumstances: eg where the employer itself has initiated bargaining; or where a union party has obtained a majority support determination (indicating that a majority of employees wish to bargain) or a scope order (defining who is to be covered by the agreement). What this means is that no sanction could generally be imposed upon an employer who simply ignored the other bargaining representative or refused to comply with GFB requirements – at least until these further steps in the process have taken place.

Strategically there may be some advantage for employers in seeking to delay the bargaining process, and there would always be an opportunity for it to make submissions to FWA about whether a majority support determination or scope order should be made. Both these orders are ultimately subject to a test of "reasonableness". It is therefore possible for an employer to delay or prevent a bargaining order being made and "push back" the point that it must comply with the GFB requirements.

So what happens if an employer refuses to bargain?

An employer's failure or refusal to bargain would essentially require a union bargaining party to demonstrate that it has enough support for a new agreement. If an employer refuses to bargain, a union bargaining representative may apply to FWA for a majority support determination.

FWA must make such an order if satisfied that a majority of employees want to bargain, and that it is reasonable in all the circumstances to make the determination. FWA is entitled to use any method it considers appropriate to form this view - which may be a ballot, petition or even a show of hands. A representative of FWA may visit a worksite to establish that a majority of employees who will be covered by the agreement do indeed want to bargain. It also raises the prospect of organisational disputes at worksites as employer and union parties engage in an ongoing conflict about whether this "majority" actually exists. Also, obtaining a majority support determination may prove difficult where there are two or more competitor unions on site.

Breach of GFB Requirements

Needless to say, the "obligatory" GFB requirements have the potential to cause endless disputes between employers and employee bargaining representatives: just what is meant by "meetings at reasonable times"?; what specific information is "relevant"?; what information is "confidential" or "commercially sensitive"?; when will a party's response or disclosure be "timely"?; and what level or degree of consideration is necessary to constitute "genuine" consideration? What is troubling to employers is the subjectivity of the requirements.

FWA may be required to make an assessment of an alleged breach, and this is likely to be difficult in a hard-fought bargaining dispute.

The GFB requirements are reciprocal in nature. While most of the discussion to date has been about what use might be made by unions requiring employers to disclose information during the course of bargaining obligations, unions themselves will also be subject to the obligation to disclose "relevant" information – which may be about cost of living changes on a union's membership, and other bargaining outcomes in an industry. It may not be acceptable for a union to assert "this is our industry demand" or "we got 4 plus 4 from the employer across the road". Employers may be able to utilise the provisions in a proactive way to force unions to justify their position in negotiations, and to prevent them from making unsubstantiated or misleading claims.

A bargaining representative may apply to the FWA for a bargaining order during the bargaining process. Such an order may be made where FWA is satisfied that a bargaining representative has failed to meet the GFB requirements, or that the bargaining process is not proceeding efficiently or fairly because there are multiple bargaining representatives for the agreement. In such cases the applicant is required to give written notice to the relevant bargaining representatives who are arguably not complying with good faith obligations setting out its concerns, and providing them with an opportunity to address the issue.

A FWA order is required to specify action the bargaining representative must take to comply with the good faith bargaining requirements, or else cease engaging in action that amounts to capricious or unfair conduct. A failure to comply with a bargaining order is a contravention of the Fair Work Act and could result in a financial penalty. It may also be a factor to be considered if an application is made for the suspension or termination of protected industrial action.

"Last resort" arbitration – Can FWA intervene if bargaining representatives cannot agree?

On its face, the Fair Work Act states that the GFB requirements do not oblige a party to "make concessions during bargaining" or to reach agreement. However, FWA is empowered to make a serious breach declaration if satisfied that contravention of the GFB requirements is serious and sustained, and has undermined bargaining for the agreement. It must also be satisfied that the other bargaining representatives have exhausted all avenues to reach agreement; that an agreement on the terms that "should be included" will not be reached in the foreseeable future; and it is "reasonable" to make the declaration. Once made, a serious breach declaration can then trigger a bargaining related workplace determination, which is essentially an arbitrated determination being imposed upon the parties in dispute. (These declarations may put into effect Government policy articulated in late 2008 that arbitration would be available in bargaining disputes where there had been "serious and persistent breaches of good faith bargaining requirements", and all other reasonable alternatives for reaching agreement had been exhausted).

The effect of a serious breach declaration is that it immediately results in a "post-declaration negotiating period", which lasts for a period of 21 days. At the conclusion of this period FWA (sitting as a Full Bench) must make a bargaining related workplace determination as quickly as possible. The FWA determination must include a range of "agreed terms", various "core" and "mandatory" terms specified in the legislation, and those terms FWA considers deal with the matters still in dispute between the parties at the end of the post declaration negotiating period.

In its public comments, the Government insists that any such arbitrated outcome (or "last resort arbitration") would only arise in the "rarest of cases", and the provisions will be seldom used as the threshold to trigger arbitration is a high one.

In its submission to the Senate Inquiry considering the Fair Work Bill, the Department of Education, Employment and Workplace Relations suggested that the requirements concerning serious breach declarations "will apply only in the most extreme cases where there is a complete lack of good faith by a bargaining representative and unwillingness to participate in the bargaining process". However, the actual language of the Fair Work Act is more permissive, allowing an arbitrated outcome being made where there is a contravention or contraventions of bargaining orders that are "serious and sustained" and these have "significantly undermined bargaining" for the agreement.

This aspect of the legislation must be regarded as something of a victory for the trade union movement. In 2006 the ACTU released a draft policy paper after examining collective bargaining systems in a number of overseas jurisdictions and strongly supported the concept of a final arbitral step as part of a bargaining system, in cases where there was no prospect of the parties reaching an agreement in a hard-fought bargaining contest, and taking account of matters like the public interest and whether either party had engaged in acts of bad faith.

As a result of these provisions FWA is invested with power to intervene in a bargaining dispute and to impose an arbitrated determination upon parties at an enterprise. Even if the "last resort arbitration" powers are used rarely, their spectre ensures that GFB obligations will be well and truly part of the Australian industrial relations system. How this operates in practice is sure to be one of the most closely watched features of the Fair Work Act.

Would you like to know more?

Deacons will be holding seminars nationally in June on the Fair Work Act, where we will present a detailed analysis of the new Fair Work Act and provide a written summary of the new laws, allowing quick navigation through the changes.

The following table outlines the dates and times of these sessions around the country. Click here to receive an invitation to this event.

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.