• Enterprise agreements negotiated under the Fair Work Act 2009 (Cth) must contain a procedure for the settlement of disputes between the parties about matters arising under the agreement, or in relation to the National Employment Standards.
  • Historically, many collective agreements have included procedures which give power to the industrial tribunal to conciliate in relation to a dispute, but do not go as far as automatically permitting the tribunal to impose a binding decision on the parties (unless the parties otherwise agree in relation to that specific dispute).
  • However, in a significant departure from that position, a single member of Fair Work Australia has decided that dispute resolution procedures in enterprise agreements must allow a third party (either Fair Work Australia or another independent body) to arbitrate in relation to the dispute.  

Background

Under the previous Workplace Relations Act 1996 (Cth) (WR Act), there was no requirement for compulsory arbitration as the final stage in the dispute resolution procedure in a collective agreement. This position was confirmed in a number of decisions by the Australian Industrial Relations Commission.

The general consensus to date about the position under the Fair Work Act 2009 (Cth) (FW Act) has been that it was the same. However, there has been some argument that the slight changes in emphasis under the FW Act might be construed to require that dispute resolution procedures must give FWA the ability to arbitrate.

The decision

On 21 January 2010, Commissioner Smith of Fair Work Australia (FWA) refused to approve a Woolworths enterprise agreement on the ground that the agreement did not comply with the requirements for approval under the FW Act. In particular, he decided that he could not be satisfied (in accordance with section 186(6)) that the agreement contained a term about settling disputes, because it did not permit a third party (such as FWA) to arbitrate if the dispute could not be resolved by the parties.

The proposed enterprise agreement contained a dispute resolution procedure which:

  • allowed either party to refer the dispute to FWA for conciliation, and
  • allowed the parties to agree to have the matter arbitrated by FWA (that is, FWA could not arbitrate unless both parties agreed with that course).

Commissioner Smith decided that:

  • before approving an enterprise agreement, FWA must be satisfied that there is a procedure in the agreement which ‘requires or allows’ FWA (or another independent person) to ‘settle disputes’
  • the provisions in the FW Act about dispute resolution procedures are different to those contained in the pre-Work Choices WR Act, which had been interpreted as not requiring disputes to be resolved by arbitration as a last resort
  • in order to be able to ‘settle disputes’, either FWA or the independent person must be able to ‘direct’ or ‘appoint’ a final result. That is, ‘settling disputes’ means that a third party must be able to impose an outcome on the parties, and
  • as a result, where the procedure left it for the parties to agree on whether FWA could arbitrate on a particular dispute, the procedure did not ‘require or allow’ FWA to settle the dispute. Without a power to arbitrate, it could not be said that a third party could ‘settle’ the dispute—and so the agreement did not comply with the approval requirements in the FW Act.

Implications for employers

This decision is obviously a significant one for many employers, especially:

  • those currently in, or about to commence, bargaining for an enterprise agreement. Employers should expect bargaining representatives (such as unions) to be aware of the decision of Commissioner Smith, and in many cases to press for the inclusion of a compulsory right of arbitration in the disputes resolution procedure. Until the position is clarified, it leaves employees in the difficult situation of not knowing whether to concede this claim or oppose it, and
  • those employers who have already entered into enterprise agreements under the FW Act which do not give FWA (or another third party) the power to arbitrate in relation to a dispute. It is possible that such agreements might need to be reviewed, and if the decision of Commissioner Smith is upheld, the status of those agreements may be uncertain.

At present, there is some doubt about whether the decision is correct (particularly given the existing authorities and the scheme of the FW Act).

It is, however, important to note that:

  • other members of FWA may not necessarily consider that the decision is binding on them when approving enterprise agreements, and
  • we understand that the employer is appealing the decision to a Full Bench of FWA. It seems likely that, given the important implications for employers and employees currently in negotiations and for those enterprise agreements which have already been approved, the hearing of that appeal will be expedited and a decision given by the Full Bench in the near future.

Given that Commissioner Smith’s decision is an unexpected and significant departure from the previous position, it is possible that it may be overturned on appeal. We will be watching this closely and keeping clients updated.