Workers at embattled steelmaking and iron ore mining company Arrium have accepted a new enterprise agreement that provides for a 10 percent pay cut. Arrium entered voluntary administration in April of this year, and since that time, there have been around 250 job losses coupled with reductions in hours for the remaining employees at the Whyalla steelworks and iron ore mine in South Australia. The enterprise agreement was negotiated by union representatives and put to a formal vote before approximately 1,600 workers this month. It was the second time the agreement had been presented to employees, after it was narrowly rejected in late August 2016. The previous enterprise agreement expired at the end of August 2016.
The new enterprise agreement, which runs for four years, contains a 10 percent pay cut in the first year, a pay freeze in the second year and 3 per cent increases in the third and fourth years. The agreed pay cut is intended to provide greater security for the workforce and assist administrators in attracting a new buyer for the business (possibly from overseas). Indeed, it has been regarded by the administrators as a critical part of the sale process. Meanwhile, both major political parties have pledged to provide financial support to the company to ensure the survival of the mining industry in South Australia.
In a surprising decision that is likely to have far-reaching implications, the Full Bench of the Fair Work Commission ("Commission") has ruled that, in calculating redundancy payments, the employee's period of continuous service must take into account certain periods of prior casual employment.
The employer, Forgacs Engineering Pty Ltd ("Forgacs"), and its employees were covered by an enterprise agreement ("Agreement"). As part of a large-scale redundancy, Forgacs calculated redundancy payments for workers, some of whom were employed on a permanent basis but had prior contiguous periods of casual service. In doing so, Forgacs counted the prior casual service for the purpose of long service leave, but not for calculating notice or severance payments. At first instance, the Commission held that Forgacs had acted correctly in not counting periods of casual service as "continuous service." On appeal, the Full Bench of the Commission overturned the decision.
The Agreement in question specified that redundancy payments should be calculated by reference to periods of "continuous service," a term defined in section 22 of the Fair Work Act 2009 (Cth) ("Act"). The Commission observed that, while it might seem contrary to "industrial justice" to allow an employee who has received a casual loading to have the same period of employment counted toward severance payments, neither the Agreement nor section 22 of the Act excluded a period of regular and systematic casual employment from the definition of "service" or "continuous service." As a result, where a worker completes a period of regular and systematic casual employment and immediately thereafter commences permanent employment, the earlier period should be included in the calculation of that worker's years of continuous service. In dissent, Commissioner Cambridge disagreed with the majority's interpretation of section 22 of the Act and asserted that casual employment, by its very nature, does not count as service and is not intended to attract service-related benefits under the Act.
As a result of this decision, employers who have a practice of transitioning casual employees to permanent employment should be aware that any future redundancy entitlements may include casual periods of service completed immediately prior to the commencement of permanent employment. This decision has divided many, especially employer associations. Indeed, in a submission to the Commission as part of its four-yearly review of modern awards, the Australian Industry Group asked the Commission to reject the majority finding in this decision and follow the dissenting judgment, which is more consistent with previous authorities.
The Supreme Court of New South Wales recently considered an application for an interlocutory injunction by an employer who sought to prevent an employee commencing employment with a competitor company by relying on a restraint clause in his contract of employment.
The first defendant, Mr Guy, was employed by the plaintiff, DP World Sydney Ltd ("DPW"). On April 28, 2016, pursuant to his employment contract, Mr Guy gave notice that he had accepted a position with a competitor company. In accordance with the termination clause (clause 17), Mr Guy was required to stay at home during the three-month notice period ("gardening leave") but remain contactable and available to work. Mr Guy was informed that he would remain an employee until the notice period had elapsed and termination of his employment was effective (July 28, 2016). Thereafter, the post-employment restraint would commence for three months. In response, Mr Guy argued that the gardening leave should count toward the three-month restraint period, so that he was entitled to commence employment on July 29, 2016. DPW sought an interlocutory injunction to restrain Mr Guy from commencing employment with the competitor until October 27, 2016.
At common law, in order for a restraint to be enforced, it must be: (i) reasonable, having regard to the interests of the parties; and (ii) not unreasonable in the public interest. A restraint of trade is "reasonable" if the employer has a legitimate protectable interest and the restraint does no more than is reasonably necessary for the protection of that interest. A "legitimate protectable interest" may include an interest in trade secrets, confidential information, goodwill, and customer connections.
In relation to the restraint period commencement date, the Court held that placing Mr Guy on gardening leave did not have the effect of terminating the employment relationship, as during the notice period, neither party repudiated the contract and both acknowledged ongoing rights and obligations under it. As a result, the restraint period commenced on July 28, 2016. Therefore, the "notice period," operating in conjunction with the "restraint period," effectively produced a six-month restraint period. In relation to the validity of this six-month restraint, the Court found that Mr Guy occupied a senior position and would have been privy to confidential information and trade secrets relating to DPW's operating costs, throughput and efficiency, and client contracts. Further, any financial hardship caused by the injunction would be mitigated by DPW's offer to pay Mr Guy the equivalent of three months' salary. Having regard to Mr Guy's position, the nature of DPW's business, the small number of competitors in the market, and the confidentiality of the information, the six-month restraint was no longer than reasonably necessary to protect the legitimate interests of DPW in preserving its confidential information.
This decision provides guidance on the factors that courts will consider to be relevant in assessing the validity of a restraint of trade. While a restraint cannot protect against mere competition, it may be justifiable to prevent an employee commencing work with a competitor in order to protect the confidential information and/or trade secrets of the employer. Further, there is no hard-and-fast rule as to the permissible length of a restraint.
Article 20 of the Japanese Labor Contract Act ("Article 20"), which was enacted in April 2013, prohibits employers from establishing unreasonable differences between the working conditions of fixed-term employees and indefinite-term (namely, permanent) employees, taking into account the following circumstances: the content of the employees' duties and the responsibility that accompanies those duties ("content of duties, etc."); the extent of changes in the content of duties, etc.; the location of work; and any other relevant circumstances. Recently, there has been an increasing number of cases brought by employees against employers invoking Article 20.
In the recent Nagasawa-Unyu decision, a regular employee was rehired as a fixed-term employee upon reaching the age of retirement. The Tokyo District Court held that there was an unreasonable difference in the amount of wages paid to fixed-term employees and indefinite-term employees because the content of duties, etc. in respect of both were essentially the same. Such treatment resulted in a violation of Article 20 by the employer. This decision will affect companies that have a practice of re-employing retired employees under less-favorable employment conditions, where the content of duties, etc. remains unchanged.
Further, in the recent Hamakyorex decision, a fixed-term employee claimed that there were unreasonable differences in the allowances paid to fixed-term employees and indefinite-term employees and that this amounted to a violation of Article 20 by the employer. At first instance, the court found that the only unreasonable difference between the conditions of regular and fixed-term employees was the nonpayment of commuting allowances. However, on appeal, the Osaka High Court found that there were further unreasonable differences by way of nonpayment of four types of allowances, including food allowances. These arbitrary differences were held to be unreasonable and constituted a violation of Article 20, and the court subsequently ordered that Hamakyorex pay approximately 770,000 JPY to the plaintiff.
In both of these decisions, the courts used Article 20 to rule in favor of the fixed-term employees, including employees who had been re-employed after reaching the age of retirement. While it is common for companies to have generally established differences in the conditions of fixed-term and indefinite-term employees, as a result of these decisions, companies should carefully review their employees' working conditions to ensure there are no unreasonable differences in circumstances where the content of the employees' duties, etc. is the same.