Many employers might be surprised to learn that they can be bound by a decision of a Full Bench of the Fair Work Commission (FWC) that is made in error of law. Yet, this was the result for Linfox of the decision of Justice Rares of the Federal Court in Linfox Australia Pty Ltd v Transport Workers’ Union of Australia [2013] FCA 659 (21 June 2013).

In Linfox, Rares J held that the Court had no jurisdiction to review an error of law made by a Full Bench of Fair Work Australia (FWA; now the FWC), because the tribunal’s decision was made under a dispute resolution procedure in Linfox’s enterprise agreement, which entitled the Full Bench to act as a private arbitrator to determine all matters of fact and law in the course of determining a dispute.

For employers bound by similar dispute resolution procedures, the decision in Linfox means that the stakes will be high whenever an arbitration of a dispute is undertaken by the FWC - because, regardless of error, the employer will be unable to seek judicial review of an unfavourable decision.

What happened?

The Linfox Road Transport and Distribution Centres National Enterprise Agreement 2011 (Agreement) was expressed to bind Linfox Australia Pty Ltd, each of its relevant employees and the Transport Workers’ Union of Australia (TWU). After the Agreement was approved, a dispute arose between Linfox and the TWU as to the appropriate rate for payment of crib breaks.

Linfox applied to FWA under section 739(6) of the Fair Work Act 2009 (Cth) (FW Act) to have the matter determined in accordance with clause 22 of the Agreement, the dispute resolution procedure. Linfox sought a determination that the Agreement provided that scheduled overtime meal breaks be paid at the ordinary rate of pay.

The matter raised a question of law, i.e. the true meaning of clause 55 of the Agreement which related to meal breaks. Commissioner Harrison interpreted clause 55 to mean that the payment for a crib break should be at the ordinary rate.

In allowing an appeal brought in accordance with the right of appeal contained in clause 22 of the Agreement, the Full Bench disagreed with Commissioner Harrison, holding that clause 55 entitled employees to payment at overtime rates for breaks occurring outside ordinary hours. Such an outcome plainly had financial consequences for Linfox.

The company then sought a review of the Full Bench’s decision in the Federal Court, contending that the Full Bench had erred in law when it misinterpreted clause 55 of the Agreement.

The dispute resolution procedure

Clause 22 of the Agreement stated that:

22.1 Any dispute or grievance that arises at the workplace ... about the Agreement or the employment relationship shall be dealt with in the following manner:

(e) If the matter is not resolved in conciliation conducted by the FWA, the parties agree that FWA may proceed to arbitrate the dispute and/or otherwise determine the rights and/or obligations of the parties to the dispute ...

(f) The decision ofFWA will be binding on the parties subject to the following agreed matters:

(i) There shall be a right of appeal to a Full Bench of FWA against the decision ...

22.2 The decision of the Full Bench in the appeal will be binding upon the parties.

The relevant legislation

Clause 22 of the Agreement was intended to give effect to section 186(6) of the FW Act, which provides that the FWC must be satisfied that an enterprise agreement includes a term:

(a) that provides a procedure that requires or allows the FWC ... to settle disputes:

(i) about any matters arising under the agreement; and

(ii) in relation to the National Employment Standards; ...

The arbitration by FWA in this case took place under section 739(4) of the FW Act, which allows the tribunal to arbitrate a dispute in accordance with a dispute resolution procedure in an enterprise agreement.

Under section 739(5) of the FW Act, the Commission must not make a decision that is inconsistent with the legislation or a fair work instrument that applies to the parties (e.g. a modern award or enterprise agreement).

The Federal Court decision

Before the Federal Court, the TWU raised a jurisdictional point, arguing that because FWA had undertaken a private arbitral function pursuant to clause 22 of the Agreement, the decision of the Full Bench was binding and not susceptible to further legal challenge.

Linfox responded by arguing that any decision made in private arbitration was susceptible of a challenge in the Federal Court, because (under section 739(5) of the FW Act) the Commission could not make a decision inconsistent with the Agreement, but had done so here by erring in its interpretation of clause 55 of the Agreement.

Rares J rejected Linfox’s argument, stating that there was no inconsistency with the FW Act in the Full Bench’s decision, although His Honour noted that such an inconsistency might arise if a private arbitration arrived at an outcome in which one or more employees were worse off: [2013] FCA 659 at [30].

The Court disagreed with the Full Bench’s findings, holding that on a proper construction of the Agreement, crib breaks should be paid at the ordinary rate of pay: [2013] FCA 659 at [42]. Nonetheless, Rares J held that Linfox was bound by the Full Bench’s decision because:

  1. The statutory scheme under the FW Act provides for disputes arising under enterprise agreements to be settled in private arbitration by the FWC or a third party nominated by the parties to an agreement. Pursuant to that statutory scheme, the Full Bench here acted as a private arbitrator (rather than exercising the tribunal’s public law functions under the FW Act), and the function that it exercised was the agreed appellate mechanism under clause 22 of the Agreement: [2013] FCA 659 at [25]-[27].
  2. The Full Bench, acting as a private arbitrator under the Agreement, had the power to decide a question of law and, thereby, bind the parties to its findings in the resolution of a dispute: [2013] FCA 659 at [31].
  3. The parties provided in clause 22 of the Agreement for a dispute resolution procedure that would ensure that they had a mechanism to achieve binding resolutions of their disputes: [2013] FCA 659 at [32].

Rares J observed that, if Linfox’s contentions were correct, every decision by a private arbitrator or the Commission would be subjected to intense scrutiny for any error of law in the construction of the subject matter of the parties’ dispute: ‘Rather than being a dispute resolution procedure, the procedure would be a dispute protraction procedure.’ Instead, according to His Honour, the Full Bench had authority under clause 22 of the Agreement to resolve all matters of fact and law: [2013] FCA 659 at [33].

LESSONS for employers FROM Linfox

It is evident from the decision in Linfox that the express reference to a right of appeal to the Full Bench in clause 22 of the Agreement was taken to express the intention of the parties that, in addition to a single member of the Commission, the Full Bench had a power of private arbitration in relation to a dispute arising under the Agreement.

In the absence of provision in a dispute resolution procedure for an appeal to a Full Bench, a party to an agreement would need to rely on section 604 of the FW Act to bring an appeal against a decision of a single member made under section 739. However, such an appeal would only lie with the leave of the Full Bench (applying the ‘public interest’ test for leave to appeal).

If leave to appeal were granted, the appeal would then be conducted by the Full Bench in the exercise of its appellate jurisdiction under section 604 of the FW Act, and not by virtue of the dispute resolution procedure. In that event, the Full Bench’s decision in the appeal would be susceptible to judicial review: the reasoning in Linfox would most likely not apply to prevent an application for review of an error made by the Full Bench in determining an appeal under section 604.

The decision in Linfox also highlights the importance of employers giving careful consideration to the wording of a dispute resolution procedure in an agreement – a matter that needs to be addressed when negotiating the agreement with employee bargaining representatives:

  • As outlined above, section 186(6) of the FW Actrequires that an enterprise agreement must contain a provision that empowers the Commission or another person to ‘settle’ disputes.
  • To ensure that a party can seek a review by a court of an erroneous decision of an arbitrator, employers should consider expressly stating that the power of an arbitrator to settle a dispute under the dispute resolution procedure does not preclude a party from seeking such a review.
  • Before doing so, careful thought should be given as to whether leaving open the option of judicial review of an arbitrator’s decision is compatible with your organisational objectives. In some instances, it may be in the employer’s interests not to make provision for further appeal mechanisms that result in costly, lengthy legal proceedings.