In the recent decision in Applications by CPB Contractors Pty Limited & John Holland Pty Ltd, the Fair Work Commission (FWC) considered whether greenfields agreements could be entered into for a major Victorian infrastructure project.
The decision examines the fine line between an employer undertaking preparatory steps in the course of establishing a new enterprise, and conducting an established enterprise, for purposes of eligibility to enter into greenfields agreements under the Fair Work Act 2009 (Cth) (FW Act).
The West Gate Tunnel Project, due for completion in 2022 and currently one of the largest infrastructure projects in Australia, will provide Victorians with an upgraded West Gate Freeway, an alternative to the West Gate Bridge, and overall greater access to the Port of Melbourne (the Project).
Undertaken by the Victorian Government and Transurban, the Project is presently at its ‘design and construct’ phase, and is to be completed by the successful tenderer and joint venture partners, CPB Contractors Pty Ltd (CPB) and John Holland Pty Ltd (John Holland) (collectively, the Joint Venture).
Since its appointment, the Joint Venture has been seeking to negotiate and enter into greenfields agreements with relevant unions. Applications were made to the FWC in late 2018 for approval of agreements between the Joint Venture and the Australian Workers Union and the Construction, Forestry, Maritime, Mining and Energy Union. These unions, along with the Communications, Electrical and Plumbing Union, opposed approval of the agreements.
THE LEGAL FRAMEWORK
The FW Act allows for the making of greenfields agreements by an employer or employers that are single interest employers (single-enterprise agreement), with one or more relevant employee organisations.
The agreement must relate to a genuine new enterprise that the employer or employers are establishing or propose to establish, and the employer or employers must not have employed any persons necessary for the normal conduct of that enterprise that will be covered by the agreement. Two or more employers are single interest employers if they are engaged in a joint venture or common enterprise, and a genuine new enterprise includes a genuine new business, activity, project or undertaking.
Under amendments to the FW Act enacted in 2015, an employer that is a bargaining representative for a proposed greenfields agreement may give written notice to each employee organisation that is a bargaining representative for the agreement and state that the period of six months, beginning on a specified day, is the notified negotiation period for the agreement. The specified day must be a day later than the last day on which the employer gave such notice to any employee organisation. These amendments were introduced to address concerns from employers, especially in the resources sector, that some unions were holding out for a deal only on their terms in greenfields agreement negotiations.
A greenfields agreement is made either:
- when it has been signed by each employer and relevant employee organisation(s) that it is expressed to cover; or
- as between the relevant employer or employers with each of the employee organisations that were bargaining representatives for the agreement, when an application is made to the Commission for approval of the agreement.
The latter situation, opened up by the 2015 amendments and previously untested, requires there to be:
- no signed agreement as between the employer and employee organisations;
- a notified negotiation period for the agreement to have ended;
- the employer(s) to have given the employee organisations a reasonable opportunity to sign the agreement; and
- the employer(s) to have made an application to the FWC for approval of the agreement.
To approve the proposed greenfields agreement, the FWC must be satisfied that:
- the relevant employee organisations are entitled to represent the majority of the employees to be covered by the agreement, in relation to the work to be performed under the agreement, and it is in the public interest to approve the agreement; and
- on an overall basis, the agreement provides for pay and conditions that are consistent with the prevailing pay and conditions within the relevant industry for equivalent work.
THE APPLICATIONS BY CPB AND JOHN HOLLAND
Following its successful tender, the Joint Venture provided written notification to the relevant unions of a notified negotiation period in relation to a Tunnelling Agreement and a Civil Surface Works Agreement. Whilst subsequent negotiations took place, the Joint Venture scheduled works it considered preparatory to the establishment of its new enterprise including site establishment, foundation works and services relocation. During this period, the Joint Venture also executed a Design and Construct subcontract (the Contract), to provide the design and construction works for the Project.
Bargaining meetings and negotiations with the unions failed, leading the Joint Venture to give fresh notice of a negotiation period in respect of both Agreements. There were further attempts to reach agreement whilst the Joint Venture continued with works, including the appointment of a panel of approved labour providers and mobilising workers through a labour hire company for a particular zone of the Project.
On 9 November 2018, upon the expiration of the second 6 month notified negotiation period and being unable to reach agreement with the relevant unions, the Joint Venture applied to the FWC for approval of the Tunnelling Agreement and the Civil Surface Works Agreement. The unions opposed the approval of the Agreements primarily on the basis that they did not relate to a genuine new enterprise of the Joint Venture.
Gostencnik DP agreed that neither Agreement related to a genuine new enterprise that the Joint Venture was establishing, or proposing to establish, and consequently the FWC did not have jurisdiction to approve the Agreements. Rather, as at the date the Agreements were made (in this case, 9 November 2018), the new enterprise had already been established.
The Commission confirmed that its jurisdiction depended upon establishing, on the balance of probabilities and in light of all of the evidence, that a greenfields agreement relates to a genuine new enterprise the employer is establishing or proposing to establish, and the employer has not employed any persons necessary for the normal conduct of that enterprise, that will be covered by the agreement. The FWC’s focus is on the objective character and nature of the enterprise to which the proposed greenfields agreement will apply, and its novelty when compared to the employer’s business, to be determined at the time the agreement is made.
Gostencnik DP was satisfied that the entities comprising the Joint Venture were single interest employers and that its business was an ‘enterprise’ within the meaning of the FW Act. Despite reliance by the unions upon works completed prior to the Joint Venture being awarded the tender by the entities comprising it, the relevant enterprise for the Commission’s consideration was the package of works for which the Joint Venture was successful tenderer and for which the Contract was executed, being the design and construction of the tunnels, freeway upgrade, bridges and elevated roadways and other works pursuant to the Contract.
Whilst in this case the execution of the Contract was considered the start of the genuine new enterprise, the Commission recognised this might not always be the case where a contract is conditional or does not include items that require immediate performance.
The Commission agreed with the Joint Venture that there are critical distinctions between three stages of work performed by a genuine new enterprise, being:
- Initial planning work prior to the establishment of the genuine new enterprise (‘proposing to establish’ that enterprise).
- Preliminary or preparatory work (‘establishing’ a genuine new enterprise).
- The substantive work of the enterprise after it is established (at which point it can no longer be considered a genuine new enterprise).
The ultimate task for the Commission was to assess whether the activities of the Joint Venture since the execution of the Contract, and relevantly at 9 November 2018, were preparatory works done in establishing the new enterprise or (in contrast) works of an established enterprise. The FWC identified the true purpose of the Joint Venture to be delivering the works required pursuant to the Contract in exchange for commercial reward. Whilst the Commission did not accept the unions’ submission that any greenfields agreements should have been in place ‘long before the first shovel was turned’, it similarly rejected the Joint Venture’s contention that it was still establishing a genuine new enterprise by completing preliminary and preparatory work.
The Commission found that in a commercial context there will be a point in time where the actual activity intended to be performed for commercial reward will commence, and at that time, the enterprise is established. In relation to the Joint Venture, that point had been reached and construction had ‘well and truly’ commenced.
Progress reports prepared by the Joint Venture supported this conclusion and confirmed that, as at the date approval of the Agreements was sought:
- it had completed significant piling work
- it had claimed payment for executed works in an amount exceeding $800 million;
- 20% of the time estimated for completion had elapsed; and
- the total head count of those working on the Project was 1,643.
Gostencnik DP concluded that, as a jurisdictional requirement for approval of the Agreements was not satisfied (the existence of a genuine new enterprise), the Agreements could not be approved.
IMPLICATIONS FOR EMPLOYERS
This decision highlights that employers preparing for the commencement of a new business, activity, project or undertaking need to carefully consider the timing of negotiations with relevant employee organisations, in light of any actual or likely contractual obligations they may have to complete work and meet project deadlines.
Additional consideration should be given to the nature of activities able to be completed (without commencing the actual work or business of the new enterprise) whilst attempting to negotiate an enterprise agreement – especially where agreement is unlikely and it will be necessary to invoke the statutory six-month negotiating period before making an application to the Commission for approval of the agreement.
More broadly, the unions involved in this case have used it to argue that the rules for greenfields bargaining introduced by the 2015 amendments were simply intended to advance employers’ interests, and that the Joint Venture sought to use the amendments to force an ultimatum on the unions and keep them out of the West Gate Tunnel project.
However, it should be noted that the option made available to employers by the 2015 amendments – to initiate the six-month negotiating period, then (if no deal is reached) apply to the FWC for approval of their proposed agreement – has been little-utilised in practice.
A review of these new provisions in late 2017 supported the retention of a mechanism to resolve protracted greenfields bargaining disputes, but recommended that the six-month negotiating period should be reduced to three months:
… the six-month period is too long to be a satisfactory circuit breaker. This concern is exacerbated when the period before a notification and the period after an application to the Fair Work Commission to approve an agreement are taken into account. It represents an unreasonable period of uncertainty which has the real potential to stop or disrupt a major resource development proposal from proceeding or to severely disrupt and delay these projects or businesses that wish to participate in them.
The Federal Government has not yet acted to implement the review’s recommendations. In the pre-election context, the union concerns expressed above are likely to feed into the ACTU’s wider ‘change the rules’ narrative. Unions can be expected to push Labor to take steps to change the greenfields bargaining framework. The ALP has not specifically addressed this issue in its policy pronouncements to date.
Overall, it is worth keeping in mind the review report’s endorsement of the continued need for effective and efficient greenfields bargaining processes: