In brief

  • The Federal Court has dismissed two appeals in highly anticipated decisions dealing with payment during industrial action (the Mammoet decision), and the lawfulness of contractor clauses in enterprise agreements (the ADJ Contracting decision).
  • The Mammoet decision, concerning the provision of accommodation to employees during industrial action, has significant practical implications. It may, in many cases, discourage the taking of industrial action by employees, but in some cases impose logistical and compliance difficulties for employers.
  • The ADJ Contracting decision, concerning the validity of various clauses found in many enterprise agreements, has confirmed that enterprise agreements can include clauses that require contractors to be engaged on terms and conditions that are ‘no less favourable’ than employees. This will no doubt embolden unions to pursue such claims.

‘…industrial action should be at employees’ expense’ – Federal Court

What happened?

In a decision that may have a substantial impact on the attractiveness of industrial action to employees (particularly in industries and workplaces that provide non-cash benefits such as accommodation), the Federal Court has dismissed an appeal against the Federal Magistrates Court decision in the Mammoet case.

The Federal Court was called to determine whether provision of board and lodging (accommodation) to employees constituted ‘payment’. If so, this had two consequences:

  1. the employer would be prohibited under the Fair Work Act (Act) from providing accommodation (or other related allowances) to an employee during a period in which the employee is engaged in industrial action, and
  2. withholding such accommodation (or other related allowances) is authorised under the Act, and therefore not ‘adverse action’.

What were the facts of the case?

The relevant employees were ‘fly-in-fly-out’, and were provided, at the employer’s expense, with travel between the project and their normal place of residence. The employer was also obliged to provide the employees with either suitable accommodation, or pay a specified living away from home allowance (LAHA).

On 28 April 2010, a group of employees commenced a 28 day period of protected industrial action in the form of a complete stoppage of work.

The employer had told employees that if they engaged in the action, they would not be provided with accommodation or paid LAHA during the period of the action.

The Construction, Forestry, Mining and Energy Union (CFMEU) commenced proceedings, and argued that the removal of accommodation and LAHA was a contravention of the enterprise agreement, and was also adverse action that was taken because employees exercised a workplace right to participate in protected industrial action (and therefore a breach of the Act).

At first instance, the Federal Magistrates Court held that the prohibition on payment of employees during periods of industrial action also extended to the provision of non-cash benefits such as subsidised accommodation. This view was upheld by Justice Gilmour in the Federal Court.

What does this mean for employers?

This decision has significant implications, particularly for fly-in-fly-out arrangements, and for any other workplace that relies on the provision of non-cash benefits such as subsidised accommodation. The decision may mean (depending on the circumstances) that employees who engage in industrial action are required to fly off-site (at their expense) during periods of industrial action, as the employer is prohibited from allowing access to subsidised accommodation and other benefits (ie flying the employees off-site may be the only alternative to meet this prohibition).

On one hand, it will pose a significant disincentive for employees to take industrial action. On the other, it may be logistically difficult for such employers to comply with this requirement.

Having said that, the Fair Work Review Panel has recommended a change to the Act that (if made) will reverse the effect of this decision, and require employers to continue to provide accommodation during periods of industrial action. Whether this recommendation will be given effect through legislative amendment remains to be seen.

ADJ Contracting – Appeal by the Australian Industry Group unsuccessful

What happened?

The Full Court of the Federal Court has dismissed an appeal by the Australian Industry Group (AIG) against a decision of the Full Bench of Fair Work Australia in the ADJ Contracting case.2

The case tested the legitimacy of a number of clauses that are common in Fair Work enterprise agreements, including clauses that require contractors to be engaged on terms ‘no less favourable’ than those that apply to employees under the Agreement, as well as clauses relating to right of entry, and encouragement of union membership.

What were the facts of the case?

The AIG appealed the decision of Fair Work Australia (FWA) to approve the ADJ Contracting Pty Ltd Enterprise Agreement 2010-2014 (Agreement) on the basis that the Agreement contained a number of ‘unlawful’ terms.

Central to the AIG’s case was clause 4.3(b)(v) of the Agreement, which provided that:

‘The Employer shall only engage contractors and employees of contractors, to do work that would be covered by this Agreement if it was performed by the Employees, who apply wages and conditions that are no less favourable than that provided for in this Agreement….’ [our emphasis]

The AIG’s principal argument was that clause 4.3(b)(v) was an unlawful term as it had the effect of requiring or permitting ADJ to take ‘adverse action’ against the contractor because the contractor had a workplace right or proposed to exercise a workplace right to pay wages in accordance with conditions under its own workplace instruments.

The Full Bench of FWA disagreed, and upheld the validity of such a clause. On appeal, the Full Court of the Federal Court of Australia agreed with the Full Bench and dismissed the appeal. In doing so, the Full Court has laid to rest the argument linking such clauses to a breach of the Competition and Consumer Act 2010 (Cth).

What does this mean for employers?

The remaining challenges to the validity of contractor clauses of the nature considered in the ADJ Contracting case petered out quite tamely in the Full Court appeal. The appeal decision now clears the way for unions to be emboldened in their continuing pursuit to regulate and restrict contractor engagement through prohibitive provisions in an enterprise agreement.

In this context, employers who require flexibility on the terms on which they engage contractors may legitimately be concerned (although not surprised) by this decision as it will be difficult going forward to rely on ‘legal’ reasons to resist the inclusion of such clauses in enterprise agreements. However employers should remain diligent in understanding the precise scope and operation of any contractor clause being advanced in bargaining and seek advice on compliance related issues at the earliest possible stage.

To ensure clauses that regulate contractor engagement are not included in their enterprise agreements, employers need to carefully plan their bargaining strategy well in advance of commencement of bargaining.

The combination of advance planning and a sound business case for maintaining flexibility for the engagement of contractors will ensure employers are best placed to resist union claims for restrictions on contractor engagement.

Steps that employers can take in the planning phase include:

  • carefully establishing a bargaining position that maintains flexibility 
  • developing a business case as to why such flexibility is required
  • requiring unions to give reasons as to why such a restrictive clause is required 
  • using the good faith bargaining provisions to obtain appropriate orders where union responses are inadequate, and 
  • undertaking mitigation planning for industrial action to ensure that this bargaining position can be maintained.

The battle continues…

There is no doubt that the law is becoming more settled in the space relevant to the issues covered in the ADJ Contracting appeal decision. However, the prospect for disputation around ‘contractor’ claims in bargaining remains real.

This is exemplified by the CFMEU’s appeal against the decision of SDP Richards where his Honour found that a similar clause to that confronted in the ADJ case was not ‘permitted’, because the clause sought to regulate terms and conditions of contractors that performed work that was different to the work performed by employees covered by the agreement.

The appeal before a Full Bench of FWA has apparently been adjourned indefinitely at the request of the CFMEU to allow the parties to continue bargaining. However, this case demonstrates that both employers and unions remain keen to resolve any outstanding issues relating to the validity of contractor related claims by seeking rulings from either appeal benches in FWA or in the courts.

Bargaining under the Fair Work Act – A Freehills retrospective Volume 3

Freehills’ has recently considered these issues, and other key developments in the bargaining space, in its anticipated third volume of ‘Bargaining under the Fair Work Act’.

This paper provides a comprehensive analysis of bargaining related decisions over the past 12 months and is available exclusively to Freehills’ clients on request.