The Full Bench of Fair Work Australia (FWA) has resolved confusion about dispute settlement clauses in enterprise agreements made under the Fair Work Act (FW Act) by overturning a previous decision that dispute clauses must contain access to arbitration.

The Full Bench decision was published today.

Section 186(6) of the FW Act specifically requires that FWA must be satisfied that all enterprise agreements 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.

An agreement cannot be approved by FWA without such a clause.

While section 186(6) requires that an agreement must include a dispute settlement clause, there is no specific requirement that the dispute clause must provide for compulsory arbitration as a final stage in the dispute settlement process.

Background - the Woolworths trading as Produce and Recycling Distribution Centre decision

In the decision at first instance , Fair Work Australia Commissioner Smith refused to approve an agreement because the agreement did not provide for compulsory arbitration.

The proposed agreement contained a dispute settlement clause which allowed either party to refer a dispute to FWA for conciliation and if the dispute was not resolved at this stage, with the agreement of both parties, the dispute would be referred to FWA for arbitration.

Commissioner Smith determined that he could not be satisfied that the requirements of section 186(6) had been met because the proposed dispute settlement clause only allowed for arbitration by agreement of both parties.

In order for FWA to be satisfied that the requirements of section 186(6) have been met, Commissioner Smith required that there must be a procedure in the agreement that ‘requires or allows’ FWA or another independent person to ‘settle disputes’ by way of arbitration.

Commissioner Smith considered that settlement of disputes under the FW Act means appointing or fixing permanently a final outcome.

A dispute clause that only provides for mediation or conciliation does not provide for the settlement of disputes within the meaning adopted by Commissioner Smith.

In coming to this decision that access to arbitration is a prerequisite to the approval of an agreement, Commissioner Smith determined that the requirement for a dispute settlement clause under the FW Act goes further than the old provisions under WorkChoices which did not require arbitration as a last resort.

The Appeal

In good news for employers the Full Bench rejected Commissioner Smith’s decision that “access to arbitration is a pre-requisite” in enterprise agreement dispute clauses.

The Full Bench specifically considered that the FW Act provides it with powers to deal with disputes and that these powers may be limited by the dispute resolution provisions in an enterprise agreement, including in relation to arbitration. On this basis the Full Bench was not prepared to accept that “access to arbitration is a pre-requisite” for a disputes clause.

The Full Bench also rejected that the model dispute clause is evidence of a requirement for arbitration in a dispute resolution clause because such a clause is a model clause only and not mandatory. In stead the Full Bench found that the model dispute clause supports the view that arbitration is not a requirement in dispute resolution clauses in enterprise agreements.

The Commonwealth and employer associations intervened in the appeal, generally supporting Woolworths interpretation of section 186(6) of the Act.

A number of unions supported the SDA position. The ACTU opposed the appeal and contended that the view adopted by Commissioner Smith was appropriate under the FW Act.

Implications for employers

Employers should consider whether it is appropriate for them, based on their industrial relations strategy and objectives, to include a dispute clause in their enterprise agreements which do not include an arbitrated outcome as a last resort step so as to avoid a third party from making a binding decision on matters which can impact on significant employment related issues.

Employers should obtain advice about the implications of the Woolworths decision if they have concerns about dispute settlement clauses in agreements.

Woolworths Ltd trading as Produce and Recycling Distribution Centre [2010] FWA 30 (21 January 2010)

Woolworths Ltd trading as Produce and Recycling Distribution Centre [2010] FWAFB 1464 (26 February 2010)