In Toyota Motor Corporation Australia Limited v Marmara  FCAFC 84 (18 July 2014), a Full Court of the Federal Court (Jessup, Tracey and Perram JJ) found that a “no further claims” term of an enterprise agreement was inconsistent with the Fair Work Act2009 (Cth) (FW Act) and therefore could not prevent Toyota from proposing variations to the agreement.
In this In Brief, we examine the decision and its implications for employers with enterprise agreements containing no further claims provisions, who may wish to propose variations to improve productivity and reduce costs during the life of the agreement.
The Toyota Motor Corporation of Australia (TMCA) Workplace Agreement (Altona) (Agreement) was made under Part 2-4, Division 4 of the FW Act, and applied to employees of Toyota at its manufacturing site and warehouse in Altona.
Clause 4 of the Agreement contained a “no extra claims” component. It stated that the parties “will not prior to the end of this agreement:
- make any further claims in relation to wages or any other terms and conditions of employment; and
- take any steps to terminate or replace this Agreement without the consent of the other parties.”
In November 2013, Toyota notified employees of the need for a number variations to the Agreement. Toyota expressed a desire to bring forward part of its negotiations for a new enterprise agreement in 2015, and explained that in order to deliver scheduled pay increases it was necessary to remove certain “outdated and uncompetitive terms and conditions” from the Agreement.
29 proposed variations were therefore sent to employees (Proposed 2013 Variations). At first instance, Justice Bromberg described these as “significant” and they included:
- the removal of a 4-hour paid leave allowance to donate blood;
- the introduction of a requirement that employees must be available to work a minimum of 20 hours overtime each month;
- the removal of shift premiums paid to employees taking long service leave; and
- a reduction in the Sunday overtime rate of pay from double and a half time to double time.
Decision by Justice Bromberg at first instance
In the original proceedings before Justice Bromberg, a number of employees covered by the Agreement argued that the Proposed 2013 Variations were further claims under clause 4 of the Agreement. As a result, the Proposed 2013 Variations placed Toyota in breach of Clause 4.
After Justice Bromberg accepted the contention that the Proposed 2013 Variations were further claims under Clause 4, Toyota made three major submissions arguing that it had not actually acted in a way that put it in breach of Clause 4. These were:
- If clause 4 was given the construction proposed by the employees, it would be inconsistent with or repugnant to the FW Act.
- Clause 4 had no effect pursuant to section 253(1)(b) of the FW Act. This is because the no further claims element of the term rendered clause 4 an objectionable term under section 12 of the FW Act, and thus an unlawful term pursuant to section 194.
- Clause 4 had no effect pursuant to section 253(1)(a) of the FW Act as it was not a term about a permitted matter as defined in section 172.
Justice Bromberg rejected all three of Toyota’s submissions.
In relation to the first submission in particular, Justice Bromberg stated that the no further claims term would have been inconsistent with the FW Act if Toyota and its employees did not have the ability to vary the Agreement. However, that ability removed the potential for any “inconsistency/repugnancy and saved the term.”
Justice Bromberg therefore held that the Proposed 2013 Variations put Toyota in a position where it contravened Clause 4 of the Agreement and as a result section 50 of the FW Act, which provides that “a person must not contravene a term of an enterprise agreement.” As a result, Justice Bromberg ordered that Toyota be restrained from organising or facilitating a vote to approve the Proposed 2013 Variations.
Appeal by Toyota
Toyota appealed against Justice Bromberg’s decision, arguing that:
- His Honour incorrectly held that the Proposed 2013 Variations were “further claims” under Clause 4 of the Agreement.
- Justice Bromberg was also mistaken in concluding that the ability to remove the no further claims term from Clause 4 saved the term from being repugnant or inconsistent with the FW Act.
- Justice Bromberg erred in finding that the no further claims term in Clause 4:
- was a permitted matter under the FW Act; and
- was not an objectionable term under the FW Act.
Proposed 2013 Variations were “further claims”
The Full Court examined the question of whether the Proposed 2013 Variations amounted to “further claims” in the context of the bargaining scheme under the FW Act. In doing so, it also gave detailed consideration to the fact that the expression “further claims” had “a history in the Australian industrial relations vernacular.”
The Full Court found that this industrial relations history meant that the word “claim” in Clause 4 could not be understood in the limited sense of only covering the assertion of a right or entitlement. Rather, the word “claim” should be interpreted broadly.
The Full Court therefore agreed with the submissions of the Toyota employees that the “no further claims” aspect of Clause 4 is:
- an “important element of the supporting mechanisms implicit in the scheme of collective bargaining for which the FW Act provides”; and
- “delivers stability and predictability in the matter of terms and conditions of employment, generally regarded as essential characteristics of a successful business in a market economy.”
The no further claims term was repugnant to and inconsistent with the FW Act
The Full Court considered the question whether the “no further claims” element of Clause 4 was repugnant to or inconsistent with the FW Act
Their Honours provided a detailed analysis of the provisions governing the making and operation of enterprise agreements under the FW Act, and in particular the provisions in Division 7 of Part 2-4 which allow for the variation of enterprise agreements.
The Full Court stated that because it was clear that the intention of the legislature was to provide employers and employees with a mechanism to vary enterprise agreements before their nominal expiry date, an employer such as Toyota could put to its employees a request to vary an enterprise agreement.
In this context, a term of an enterprise agreement, such as the “no further claims” provision in Clause 4, “which states or has the effect that the employer may not so proceed must necessarily be inconsistent with or repugnant to the FW Act to that extent”.
The ability to remove or vary the no further claims provision did not save it
The Full Court then considered whether Justice Bromberg was correct in his conclusion that the ability to remove or vary the no further claims provision saved it from being repugnant to or inconsistent with the FW Act. Justice Bromberg had based this conclusion on the fact that the terms of Clause 4 “do not exclude the capacity of the parties to effectuate a variation to (clause 4) itself ... by removing it.”
However the Full Court found that Justice Bromberg had based this reasoning on “an analysis of the law that would be applicable to a different set of facts.” Their Honours stated that there was actually no proposal to remove the no further claims provision from the Agreement, and that the no further claims provision could not be saved from invalidity by the fact that: “Toyota might have, in effect, arrived at the desired destination by a different route, one which involved first requesting its employees to agree to the removal of the provision itself”.
No further claims term about a permitted matter and not objectionable
The Full Court’s conclusion that the no further claims provision was repugnant to or inconsistent with the FW Act meant that it was unnecessary to consider Toyota’s arguments about Justice Bromberg’s conclusions on the permitted matter and objectionable term points. Despite this, their Honours examined these grounds of appeal.
First, the Full Court agreed with Justice Bromberg that the no further claims term was about a permitted matter in the sense that it pertained to the relationship between Toyota and its employees.
Secondly, the Full Court also rejected Toyota’s argument that the no further claims term was an objectionable term.
Using the Acts Interpretation Act 1901 to interpret agreements
Section 46 of the Acts Interpretation Act 1901 (Cth) (1901 Act) provides that legislative instruments which are “made” by an “authority” are to be interpreted by reference to that legislation. This means, for example, that the 1901 Act applies to the interpretation of modern awards which are “made” by the Fair Work Commission under the FW Act.
However, the Full Court rejected the proposition that the 1901 Act applied to the interpretation of enterprise agreements due to the fact that such agreements are “made” by the employer and the relevant employees – not by the Commission. It seems to follow that enterprise agreements are to be interpreted by reference to contractual principles rather than those which apply to awards or other instruments made under statutory authority.
Key points for employers
The decision confirms that “no further claims” provisions which undermine Part 2-4 of the FW Act will not operate to prevent employers from proposing variations to enterprise agreements, which may include proposals relating to reducing pay and conditions.
Employers covered by enterprise agreements with no further claims provisions can now review their enterprise agreements for the purposes of assessing potential variations which may be proposed to employees.
However employers should note that the phrase “claims” will be interpreted broadly, and will cover variations of the type proposed by Toyota. This means that it would be necessary to observe any provisions in enterprise agreements relating to consultation before putting proposed variations to employees.
It should be noted that the decision in this case does not mean that “no extra claims terms” in agreements no longer serve any useful purpose. On the contrary, whilst such clauses cannot be used to prevent employers (or employees/unions) from proposing amendments to agreements in the manner contemplated by Subdivision A of Division 7 of Part 2-4, they can still be relied upon to prevent ‘extra claims’ being pursued by means other than through formal variation of an agreement – for example by seeking to negotiate ‘over award’ entitlements which would not formally be made part of the agreement.