A decision from Fair Work Australia (FWA) has caused uncertainty for employers about dispute settlement clauses in enterprise agreements made under the Fair Work Act (FW Act) since 1 July 2009.

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.

The Woolworths trading as Produce and Recycling Distribution Centre decision

In a recent FWA decision, 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 Woolworths, trading as Produce and Recycling Distribution Centre (Woolworths), decision has been appealed and the appeal was heard on Friday 5 February. The Commonwealth and employer associations intervened in the appeal.

A spokesperson for the Minister is reported to have said that the Commonwealth's intervention in the appeal was in support of the arguments put by Woolworths that the agreement is valid and that the decision is wrongly decided. The employer associations have argued that, as an important test of the integrity of the bargaining provisions of the Fair Work Act, it is entirely legitimate for agreements to restrict arbitration to circumstances where all parties have to agree to it.

Implications for employers

Many employers have opted for dispute settlement clauses that do not provide for an arbitrated outcome as a last resort step in settling a dispute to avoid a third party from making a binding decision on matters which can impact on significant employment related issues.

It is possible that the requirements under section 186(6) of the FW Act may be amended by retrospective legislation, in order to rescue existing agreements from being invalidated - as occurred following the High Court’s Electrolux decision.

The Woolworths decision now creates new issues for employers.

  • Agreements that have been approved by FWA under the Fair Work system or are pending approval may not be valid if the decision is upheld.
  • Unions might be able to initiate bargaining for a fresh agreement and seek to take protected industrial action in support of a new agreement (although it is unlikely that FWA would approve a union ballot application until the issue is resolved).
  • Unions may now seek to push for compulsory arbitration clauses in enterprise agreements currently being negotiated.
  • Employers with agreements currently before FWA for approval that do not have an express right of compulsory arbitration may be required to give binding undertakings to allow for arbitration as a last resort:
    • but it is unclear how employees covered by the agreement could give a similar undertaking, and
    • it may be possible for an employer to give an undertaking only to the extent that it is necessary to meet FWA approval requirements – so if an FWA Full Bench determines that an express right of compulsory arbitration is not required, the undertaking would not apply.

What can employers do?

Employers should obtain advice about the implications of the Woolworths decision if they have concerns about dispute settlement clauses in agreements approved under the Fair Work system since 1 July 2009 or if they are currently negotiating or seeking approval of an enterprise agreement.

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