Almost a year ago a significant decision of the Federal Court found clauses in an enterprise agreement (Agreement) between the Country Fire Authority (CFA) and the United Firefighters Union of Australia (UFU) to be unconstitutional and unenforceable. The Full Federal Court has since disagreed.

The Full Federal Court decision in United Firefighters’ Union of Australia v Country Fire Authority [2015] FCA FC 1 means public sector agencies that voluntarily enter into an enterprise agreement should assume all of its terms are enforceable.

WHY DOES THIS CASE MATTER?

Twelve months on and the tables have again turned for the public sector. The decision has clarified that clauses of existing enterprise agreements that constrain:

  • the agencies’ capacity to employ staff on a fixed term or casual basis
  • the circumstances in which redundancies might occur, or otherwise go to the ‘number and identity of persons the State wishes to employ’

will be enforceable, at least for those agencies that are constitutional corporations.

FIRST INSTANCE DECISION

The case involved a challenge by the CFA to the enforceability of a number of clauses in the Agreement relating to:

  • a requirement on the CFA to employ an additional 341 firefighters over a six year period (an obligation the CFA did not meet)
  • a constraint on the CFA’s capacity to restructure its work classifications, implement redundancies or recruit laterally.

The case involved consideration of the High Court’s decision in Re Australian Education Union; ex parte Victoria(1995) 184 CLR 188 (Re AEU). This well-known decision was an example of the application of what is known as the ‘Melbourne Corporation principle’, which in essence prohibits the Commonwealth’s legislative power from operating in such a way as to impose a special burden on a State, or to curtail a State’s capacity to function as a government.

At first instance, Murphy J accepted the UFU’s argument that the CFA was a ‘trading corporation’ for the purposes of the Constitution but upheld the CFA’s challenge that the clauses in question governing recruitment were invalid and unenforceable by reason of the implied constitutional limitation in Re AEU.

Critically, whilst accepting that a unilateral exercise of Commonwealth power would infringe this principle, the UFU argued both at first instance and on appeal that where the State (through CFA as its agent) has voluntarily entered into an agreement dealing with these matters, then the constitutional principle is not enlivened.

However, Murphy J held that the principle applies to an enterprise agreement approved by the Commission, even where it has been voluntarily entered into by the agency of the State.

It is this element that was successfully challenged by the UFU on appeal.

THE DECISION OF THE FULL FEDERAL COURT

The Full Court considered that the Melbourne Corporation principle does not apply to invalidate clauses of an enterprise agreement voluntarily entered into by an agency of the State that is a trading or financial corporation.

The Court held that the relevant provisions of the Fair Work Act 2009 (FW Act) did not impose some special disability on Victoria, nor do they, in circumstances where the CFA voluntarily agreed to make the Agreement, curtail the State’s capacity to function as a government. The constraints that were contained in the Agreement were not there due to the exercise of Commonwealth power; rather, they were due to the CFA having chosen to enter into an Agreement in those terms.

DEFINING A TRADING OR FINANCIAL CORPORATION

The impact of the decision will be profound, at least for those agencies of the State that are trading or financial corporations. Critically, The Full Court upheld the first instance decision that the CFA was indeed a trading or financial corporation, even though the total revenue it derived from such activities was less than 3% of its overall revenues. The amount in question (approximately $13 million) was still ‘substantial’ and this was held to be sufficient to render the CFA a constitutional corporation.

LESSONS FOR PUBLIC SECTOR AGENCIES

  • Wherever a corporatised agency of the State engages in activities that involve trading, provided they are ‘not insubstantial’ or peripheral, then it is likely the entity will in fact be a constitutional corporation. That means the FW Act will apply to that entity due to the exercise of the Commonwealth’s corporations power, rather than by virtue of any referral of power by the State of Victoria.
  • The Re AEU or Melbourne Corporation principle will not apply to render invalid and unenforceable clauses voluntarily entered into by the agency concerned. Public sector agencies need to treat existing agreements as enforceable, and to approach future enterprise bargaining on the basis that ‘if you make your bed, you lie in it’.

WATCH THIS SPACE…

The new Victorian State government had committed, prior to the election, to legislate to ensure public sector agreements are enforceable and can be approved, even when ‘containing otherwise excluded subject matter’. Therefore, it is unlikely that there will be any appeal from the Full Court decision.

The position may be different for agencies of the State that are not constitutional corporations, and to which the FW Act therefore only applies to the extent that power has been referred by the State of Victoria under the Fair Work (Commonwealth Powers) Act 2009 (Referral Act).

Unlike the Melbourne Corporation or Re AEU principle, the terms of the Referral Act are clear and unequivocal in their application: matters pertaining to the number, identity or appointment (other than terms and conditions of appointment) of those public sector employees have not been referred to the Commonwealth. There are even broader categories of power that have not been referred in some specific cases, such as law enforcement officers.

Unless and until the Referral Act is amended, applying its decision in Parks Victoria v The Australian Worker’s Union & Ors [2013] FWC FB 950, the Commission arguably still lacks jurisdiction to approve enterprise agreements containing terms going to matters that have never been referred to the Commonwealth – even though it has done so in the past.

The Premier’s open letter to the CPSU foreshadows changes to the Referral Act, however it remains to be seen if and when these changes are made, and what they will involve in terms of their impact on public sector bodies.

In the meantime, the reverberations from the Full Court decision will be felt in the Victorian public sector for many years.