The Fair Work Act 2009 (Cth) (the FW Act) provides that in a case of “transfer of employment”,  the enterprise agreement (the name given in Australia to collective labour agreements) that applied to an employee in his/her former employment will continue to apply, subject to any order to the contrary made by the Fair Work Commission (Commission).

A party can apply to the Commission for such an order when there is or is “likely to be” a transfer of employment.

Two recent decisions of the Commission suggest that where an application is brought, before the transaction resulting in the transfer of employment is cemented, it will fail through want of jurisdiction.

Transfer of employment

Under the FW Act, a transfer of employment takes place where:

  • an employee’s employment with an employer ends; and
  • within 3 months he/she commences employment with a new employer doing substantially the same work; and
  • there has been a transfer of assets between the employers; or
  • one employer has entered into an outsourcing relationship with the other; or
  • a previous outsourcing relationship between the employers has been reversed; or
  • the employers are associated corporate entities.

Consequences

Where a transfer of employment has occurred, any enterprise agreement that applied to the employee when he/she was with the first employer will continue to apply so that the second employer is legally obliged to comply with its terms in respect of the transferring employee.

Moreover, any new employee engaged by the second employer to do the same kind of work as the transferring employee may be covered by the “inherited” enterprise agreement.

Within the Australian system of workplace relations, an enterprise agreement is an agreement between an employer and a collective of employees which stipulates conditions of employment over and above the “safety net” of minimum conditions mandated by the FW Act and any industrial award.

Application for relief

The FW Act allows for an interested party to apply to the Commission for an order which modifies the usual rule referred to above. The Commission can order that the original enterprise agreement will not have any application to the new employment, or will have such modified application as the Commission decides.

In determining an application, the Commission must have regard to a number of factors including whether employees might be disadvantaged by no longer being covered by the original agreement, any economic disadvantage to the new employer, and the degree of business synergy that exists between the potentially “inherited” agreement and any existing agreement applicable to the second employer.

Threshold question

An application of the kind referred to above can only be made if there “is or is likely to be” a transfer of employment.

Employers who are contemplating commercial transactions which might entail a transfer of employment are frequently keen to have the issue of relief determined at an early stage – so that if it is apparent that the enterprise agreement of the original employer will apply with full effect, there is a chance to modify the terms of the transaction or to withdraw from it.

The Cases

In both recent cases, the application was made before the transaction was agreed upon.  The Commission in each case was told that if the application was not granted the transactions would not proceed as the prospect of operating under the “inherited” agreement was too adverse.

The applications were declined on the basis that there was no jurisdiction because a transfer of employment was not likely.

Circular reasoning

In each case the Commission found that to accept the application would require a form of circular reasoning.

On the case put forward by each applicant, there would be no transfer of employment and no transferring employees unless the Commission exercised its jurisdiction to make the orders. But the Commission cannot exercise the jurisdiction unless it first finds that there is likely to be a transfer of employment.

Therefore, the applications effectively asked the Commission to conclude that the facts which are the necessary prerequisite to the exercise of jurisdiction are established by the likelihood that the jurisdiction will be exercised.

The Commission found that there was a logical fallacy in this. To accept the applications would have put the Commission in the position of determining whether a transfer of employment actually occurs or not. The Commission held that this was not consistent with the intended purpose and effect of the provisions.

Significance

The issue is yet to be tested on appeal, but it looks as though employers cannot hope to use the application mechanism as way of obtaining a kind of advisory opinion before entering into a transaction that results in a transfer of employment.