In a landmark ruling that has realigned the dynamics of bargaining under the Fair Work Act 2009 (Cth), a Full Bench of the Fair Work Commission (FWC) has terminated 12 expired enterprise agreements during a stalemate in negotiations for their replacement: Aurizon Operations Limited: Aurizon Network Pty Ltd; Australia Eastern Railroad Pty Ltd [2015] FWCFB 540. In doing so, the Full Bench (Watson VP, Gostencnik DP and Spencer C) has rejected the notion that it is inappropriate to terminate an enterprise agreement during bargaining.

The decision signals a significant change in the FWC’s approach to the termination of expired enterprise agreements, and opens the door for employers constrained by unfavourable agreements that have passed their nominal expiry date. With the spectre of employee conditions reverting to the underlying modern award, unions and employees will face increased pressure to agree to the terms offered by employers for replacement enterprise agreements.

WHAT HAPPENED AT AURIZON?

Aurizon, formerly QR National before it was privatised by the Queensland Government, is Australia’s largest rail freight operator, employing over 6000 employees throughout Australia. In 2010, in order to allay concerns around the effect of privatisation on workers, the Queensland Government oversaw the insertion of enforceable guarantees in QR National’s enterprise agreements. The guarantees provided generous terms and conditions to employees for a period of three years, including a prohibition on forced redundancies.

The terms imposed by the State Government were in addition to a number of other unusually restrictive terms that limited Aurizon’s ability to improve efficiency and placed it at a competitive disadvantage.  These restrictive terms included:

  • strict work demarcations that regularly resulted in employees being idle for significant portions of their shift;
  • inflexible rostering arrangements;
  • limited means of drug and alcohol testing;
  • free rail travel for employees, dependents and partners;
  • recruitment restrictions with requirements to internally advertise all vacant positions; and
  • a dispute resolution clause that enabled the Unions to delay workplace changes.

The nominal expiry date of the 14 agreements was 31 December 2013, but bargaining commenced in April 2013. Initially, Aurizon sought to rationalise the existing agreements into three new agreements that provided for more workplace flexibility, while the Unions subsequently provided their claims underpinned by the prospect of nine agreements.

Following a considerable number of meetings, in June 2013 Aurizon filed a bargaining dispute with the FWC. FWC convened 14 conferences, before observing that there was a lack of willingness to move from both sides and “the likelihood of reaching agreement is virtually nil.”

On 12 May 2014, Aurizon applied under section 225 of the FW Act to have the agreements terminated. The proceedings were conducted over 7 days, and the parties led extensive evidence, including expert evidence. Amongst other matters, the evidence traversed Aurizon’s business and the market in which it operates; the history of the enterprise agreements and negotiations to date; the practical application and importance of particular provisions of the agreements and the impact on employees of the removal of particular provisions and of the termination of the agreements. Evidence was accepted from 29 witnesses.  

EARLIER APPROACH OF THE FWC – “EVERGREEN” AGREEMENTS

Under section 226, the FWC must terminate an agreement after its nominal expiry date has passed, on application by one of the parties under section 225, if the tribunal is satisfied that:

  • it is “not contrary to the public interest to do so”; and
  • it is “appropriate” to terminate the agreement, having regard to the views of those covered by it (the employer, employees and any union) and the likely effect termination would have on them.

Prior to the Aurizon decision, a number of single members of the FWC had refused to terminate enterprise agreements after their nominal expiry date where bargaining for a replacement agreement was under way.[1] The view adopted in those decisions was that termination of the enterprise agreement would substantially, and inappropriately, alter the “status quo” in bargaining – shifting the bargaining power so as to advantage one party’s position (typically, the employer seeking termination of an existing deal). It was therefore considered contrary to the objects of the FW Act, including the primacy given to collective enterprise agreement negotiations in good faith.

This approach led many employers to perceive enterprise agreements to be, in effect, “evergreen” as almost inevitably there would be negotiations on foot for a replacement agreement after the nominal expiry date of the existing agreement. In practice, this meant there was no incentive on unions or employees to agree to replacement terms where an employer’s offer was less favourable than their terms and conditions under an existing agreement or where it was perceived they could “hold out” for a better deal. There was simply very little downside in maintaining the status quo.

THE FULL BENCH DECISION IN AURIZON

In the first Full bench consideration of section 226 of the FW Act, the tribunal rejected the reasoning adopted in the earlier decisions. Specifically, the Full Bench rejected the proposition that it will not be appropriate to terminate an agreement that has passed its nominal expiry date if bargaining for a replacement agreement is ongoing.

The Full Bench held that the emphasis that the earlier decisions placed on the objects of the FW Act requiring collective bargaining in good faith was not inconsistent with the capacity to terminate an enterprise agreement under section 226. The Full Bench noted that to view the statute otherwise would lead to “a predisposition against the termination of an enterprise agreement that has passed its nominal expiry date”; and there is nothing to suggest that the statutory language should be so constrained.

Essentially, the Full Bench gave section 226 some work to do. As it observed:

Ultimately, it cannot be expected that terms and conditions of employment contained in an enterprise agreement with (sic) continue unaltered in perpetuity after the agreement has passed its nominal expiry date. Terms and conditions may be altered by making a new agreement or by terminating the existing agreement.

The Full Bench outlined the following further propositions on the proper interpretation of the requirements for termination of an agreement under section 226:

  • there is nothing inherently inconsistent between the termination of an enterprise agreement that has passed its nominal expiry date and the continuation of collective bargaining in good faith. Indeed, termination of an existing agreement that no longer or never has delivered productivity benefits might better support the goal of productivity outcomes through bargaining for a new agreement;
  • while the termination of agreements will disturb the bargaining position in some negotiations, this is not contrary to the objects of the FW Act;
  • unions and employees still have available to them “the full arsenal of tools under the Act to assert legitimate industrial pressure on Aurizon to bargain and to reach agreement”;
  • the FW Act sets out safety net terms and conditions of employment, including modern awards and the National Employment Standards, which provide the benchmark for whether an agreement passes the statutory “Better Off Overall Test” (not the previous enterprise agreement).

While significantly altering the prospects of an employer being able to terminate an expired enterprise agreement, the decision does not provide employers with carte blanche in this regard. In assessing the circumstances of the application in the matter before it, the Full Bench had close regard to many factors particular to Aurizon, including:

  • the expired enterprise agreements were made in unique circumstances arising from directions issued to Aurizon by the Queensland Government during the privatisation process;
  • many of the work practices under the agreements were “clearly inefficient and out of step with the needs of a flexible and productive enterprise that can adopt to changing economic and competitive environments”;
  • a stalemate had been reached in negotiations with extensive efforts made to resolve the deadlock;
  • the workplace changes that Aurizon may implement are not inappropriate. The rail freight industry is in a “dynamic state of transition”, and the economic imperative is to look for improvements and efficiencies that will not be unfair on employees. The Full Bench observed: “Ultimately it will be in the interest of employees as well as the employer if the business can enhance its competitive position, retain its market share and compete more effectively for new market opportunities”;
  • the diminution of terms and conditions currently enjoyed by employees is not an insignificant matter, nor an insignificant consideration. However Aurizon gave undertakings to maintain the wages and allowances for employees covered by the agreements for a six-month period and that went some way to address this concern. It was considered not such a significant matter to outweigh the other considerations.

The Full Bench was satisfied that the preconditions in section 226 were met—it was not contrary to the public interest to terminate each of the agreements and it was appropriate in each instance to do so.

In a final message that typified the approach taken in its decision, the Full Bench noted:  “The bargaining parties now need to set their attention on the appropriate terms and conditions of employment that focus, not on the past, but on the circumstances that prevail in 2015 and those which are foreseeable beyond”.

The terminations will take effect on 18 May 2015, just over one year after Aurizon made its initial application to terminate the agreements.

WHAT THE AURIZON DECISION MEANS FOR EMPLOYERS

Until this decision, employers have frequently lamented the capacity of negotiations to be dragged out well beyond the nominal expiry date of an existing agreement, thereby constraining the capacity to make changes required to respond to deteriorating economic and operational conditions. The Aurizon decision enhances the capacity of employers to seek to terminate enterprise agreements in those circumstances. This capacity, now with real prospects of success, will provide a clear impetus for unions and employees to reach agreement sooner.

By opening up the prospect of resetting industrial arrangements in a particular workplace, the decision alsomeans that the starting point for bargaining will not necessarily be an existing enterprise agreement that favours one side or the other.

However, it is important that employers recognise Aurizon does not mean that the FWC will “rubber stamp” applications to terminate an agreement:

  • Not all agreement negotiations will involve the specific circumstances of the employer’s position in this case, including the privatisation context, operating environment and the legacy of previous public sector terms and conditions, which were pivotal to its success in obtaining termination of the agreements.
  • It remains incumbent on employers to show why terminating an agreement is not against the “public interest”; and is “appropriate” having regard to the views and likely effects of employees, employer(s) and union(s) covered by the agreement.

What Aurizon does mean is that, from now, these statutory tests do not present as insurmountable hurdles.