The Fair Work Ombudsman (FWO) has failed in a test case in which it attempted to prosecute Jetstar and two foreign based companies for failing to pay minimum award entitlements to cabin crew working on flights within Australia.1
In May 2012, the FWO commenced Federal Court proceedings alleging contraventions of the Fair Work Act 2009 (Cth) (FW Act) by Valuair Limited, Tour East (T.E.T.) Ltd (TET) and Jetstar Airways Pty Ltd (collectively, the Respondents).
The alleged contraventions related to work performed by four employees of Valuair and four employees of TET, who worked on aircraft operated by Jetstar between Australian ports between February and July 2011 inclusive.
The FWO alleged that Valuair (incorporated and based in Singapore) and TET (incorporated and based in Thailand) failed to provide these employees with wage and superannuation entitlements that they were entitled to under the Aircraft Cabin Crew Award 2010 (Aircraft Award).
The FWO also sought to prosecute Jetstar under the ‘accessorial liability’ provisions in the FW Act, alleging that Jetstar was “involved in” the contraventions of the Aircraft Award by Valuair and TET. The FWO sought penalties and declarations against each of the Respondents, as well as backpay to the employees.
The cabin crew performed work on domestic Jetstar flights, as well as between:
- one international location and another international location; and
- Australian airports which immediately preceded or followed an international flight that they had worked on.
The cabin crew employed by TET were paid the equivalent of approximately AUD292 per month. The cabin crew employed by Valuair working on Jetstar flights were paid the equivalent of approximately AUD614 per month.
The alleged underpayments ranged from AUD262.07 to AUD1804.23.
The FWO restricted its case to the domestic flights, arguing that work undertaken on flights to and from an Australian port was work to which the FW Act applied.
The Respondents argued that the FW Act, by which the Airport Award is given its legal force, did not apply here as Valuair and TET were not ‘national system employers’ within the meaning of the FW Act, and the cabin crew employed by them (who were provided to Jetstar) were not ‘national system employees’ to which the FW Act applied.
The Respondents also argued that the Aircraft Award only applies to employment relationships that may be said to be “in and of Australia” and that the performance of some work in Australia was insufficient to activate the application of the Aircraft Award.
Justice Buchanan dismissed the FWO’s application, agreeing with the Respondents that the FW Act did not apply to the work that the eight cabin crew performed on domestic flights.
A ‘national system employer’ is defined in the FW Act to include “a constitutional corporation, so far as it employs, or usually employs, an individual”.
His Honour accepted that Valuair and TET were constitutional corporations, but said that an appropriate connection with Australia must be identified in order to trigger the application of the FW Act (and in turn a modern award). An alternative construction, His Honour said, would render every foreign corporation throughout the world a ‘national system employer’, regardless of any connection with Australia.
Importantly, it was not just the work that the cabin crew were undertaking that Justice Buchanan said must be “in and of Australia” in order for the FW Act and Aircraft Award to apply. Rather, it was the employment relationship as a whole. To this end, His Honour was critical that the FWO’s case focused almost squarely on the fact that the Airport Award applied to work of the nature that the cabin crew were undertaking, and the fact that the work undertaken by the cabin crew on domestic flights was done solely in Australia.
In holding that the employment relationships between the eight cabin crew and their employers were not “in and of Australia”, his Honour considered the following factors:
- TET and Valuair were foreign corporations;
- the cabin crew employees were not residents of Australia;
- the contracts of employment were made outside Australia and regulated by the laws and practices of either Singapore or Thailand;
- wages, tax, social security and other liabilities on both the employers and employees were acquitted outside Australia;
- tours of duty commenced and finished at the home base outside Australia (the cabin crew would always be returned to their home base after working on domestic flights); and
- the time on duty in Australia represented only a small proportion of the working time performed by the cabin crew and was transient.
As their employment relationship was not “in and of Australia”, the cabin crew were found not to be ‘national system employees’ to which the FW Act and the Aircraft Award apply.
Given his findings that Valuair and TET had not contravened the FW Act or the Aircraft Award, it was not necessary for Justice Buchanan to deal in any detail with the allegation that Jetstar were involved in the contraventions.
In his judgment, Justice Buchanan also expressed discontent with the FWO’s pleadings, which provided that the Aircraft Award applied only to the cabin crew when they were working on domestic flights (a small portion of their total workload).
His Honour commented that an award will not usually apply to a contract of employment in some partial or fragmented way and the FWO’s case, which sought to establish what he described as “some form of partial award application to a minority of duties,” was “artificial and unsatisfactory.”
Bottom line for employers
A constitutional corporation must have an appropriate connection with Australia in order to be a ‘national system employer’ for the purposes of the FW Act.
An employee’s coverage under the FW Act and a modern award requires not only a consideration of the work being performed by an employee for an employer, but also a consideration of the employment relationship as a whole.
While a modern award applies to an employee’s work, awards are intended to apply to, and supplement, contracts of employment in a comprehensive way. It is unlikely that a modern award will apply to only a very minor part of an employee’s role which is otherwise not regulated by an award.
This case is the latest in a number of recent instances where the FWO has sought to initiate proceedings against companies under the accessorial liability provisions in the FW Act.
Companies which engage workers through labour hire organisations, but which retain an active role in the rostering, direction or organisation of these workers, need to be conscious of not only the ‘sham contracting’ provisions in the FW Act but also the accessorial liability provisions. Under these provisions a company found to be “involved” in a contravention of the FW Act can be treated in the same way as the company found to have directly engaged in the contravention.