Fair Work Australia resolves dispute clause confusion in
The Full Bench of Fair Work Australia (FWA) has resolved
confusion about dispute settlement clauses in enterprise agreements
made under the Fair Work Act (FW Act) by
overturning a previous decision that dispute clauses must contain
access to arbitration.
The Full Bench decision was published on 26 February 2010.
Section 186(6) of the FW Act specifically requires that FWA must
be satisfied that all enterprise agreements contain a procedure
for the settlement of disputes between the parties about
matters arising under the agreement, or in relation to the National
An agreement cannot be approved by FWA without such a
While section 186(6) requires that an agreement must include a
dispute settlement clause, there is no specific requirement that
the dispute clause must provide for compulsory arbitration as a
final stage in the dispute settlement process.
Background - the Woolworths trading as Produce and Recycling
Distribution Centre decision
In the decision at first instance , Fair Work Australia
Commissioner Smith refused to approve an agreement because the
agreement did not provide for compulsory arbitration.
The proposed agreement contained a dispute settlement clause
which allowed either party to refer a dispute to FWA for
conciliation and if the dispute was not resolved at this stage,
with the agreement of both parties, the dispute would be referred
to FWA for arbitration.
Commissioner Smith determined that he could not be satisfied
that the requirements of section 186(6) had been met because the
proposed dispute settlement clause only allowed for arbitration by
agreement of both parties.
In order for FWA to be satisfied that the requirements of
section 186(6) have been met, Commissioner Smith required that
there must be a procedure in the agreement that 'requires or
allows' FWA or another independent person to 'settle
disputes' by way of arbitration.
Commissioner Smith considered that settlement of disputes under
the FW Act means appointing or fixing permanently a final
A dispute clause that only provides for mediation or
conciliation does not provide for the settlement of disputes within
the meaning adopted by Commissioner Smith.
In coming to this decision that access to arbitration is a
prerequisite to the approval of an agreement, Commissioner Smith
determined that the requirement for a dispute settlement clause
under the FW Act goes further than the old provisions under
WorkChoices which did not require arbitration as a last resort.
In good news for employers the Full Bench rejected Commissioner
Smith's decision that "access to arbitration is a
pre-requisite" in enterprise agreement dispute
The Full Bench specifically considered that the FW Act provides
it with powers to deal with disputes and that these powers may be
limited by the dispute resolution provisions in an enterprise
agreement, including in relation to arbitration. On this basis the
Full Bench was not prepared to accept that "access to
arbitration is a pre-requisite" for a disputes
The Full Bench also rejected that the model dispute clause is
evidence of a requirement for arbitration in a dispute resolution
clause because such a clause is a model clause only and not
mandatory. In stead the Full Bench found that the model dispute
clause supports the view that arbitration is not a requirement in
dispute resolution clauses in enterprise agreements.
The Commonwealth and employer associations intervened in the
appeal, generally supporting Woolworths interpretation of section
186(6) of the Act.
A number of unions supported the SDA position. The ACTU opposed
the appeal and contended that the view adopted by Commissioner
Smith was appropriate under the FW Act.
Implications for employers
Employers should consider whether it is appropriate for them,
based on their industrial relations strategy and objectives, to
include a dispute clause in their enterprise agreements which do
not include an arbitrated outcome as a last resort step so as to
avoid a third party from making a binding decision on matters which
can impact on significant employment related issues.
Employers should obtain advice about the implications of the
Woolworths decision if they have concerns about dispute settlement
clauses in agreements.
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