A Full Bench of the Fair Work Commission (FWCFB) has held that the Fair Work Act 2009 (Cth) (FW Act) provisions requiring State Governments to consult with unions over proposed redundancies are unconstitutional.

Implications for employers

This decision confirms that, notwithstanding that most Australian States have referred their industrial relations powers to the Commonwealth, the States as employers may not be bound by certain provisions of the FW Act.

This is a particularly important issue in the context of State government restructuring, privatisations and asset sales. In particular, asset sales and other transactions affecting State Government employees are currently in process, or being considered, across Australia. This decision is a timely reminder that such transactions can raise very complicated legal issues. To avoid costly litigation and penalties, those involved in such transactions should, as early as possible, consider how legal issues arising from the interplay of the State and Federal industrial relations systems may affect them.

Background: law

Australian States (with the exception of Western Australia) have referred the majority of their industrial relations powers to the Commonwealth. This enables the FW Act to cover all private sector employers and employees in those States. It also means that the FW Act applies in many respects to most State public sector employees.

Among other things, section 786 of the FW Act requires that an employer consult with employees and their unions if it has decided to terminate the employment of 15 or more employees.

However, in the case of public sector employers and employees, it is also important to note that there is an implied limitation on Commonwealth legislative power. Essentially, Commonwealth legislation is unconstitutional to the extent it intrudes on the functions or powers of the States in a way which is inconsistent with their status as distinct constitutional entities. The most relevant statement of the implied limitation in the industrial relations context was the decision of the High Court in Victoria v The Commonwealth (Industrial Relations Act Case) (1996) 187 CLR 416 (Industrial Relations Act Case). In that case, the High Court held that the Commonwealth could not intrude on the right of a State to determine the number and identity of the persons who it wishes to employ, the terms of appointment of such persons, or the number or identify of the persons whom is wishes to make redundant. The High Court held that orders requiring the State to consult with unions over proposed redundancies clearly impaired these rights.

Background: facts

In April 2013, the Queensland Government (QLD) accepted a recommendation of its Commission of Audit to transition the Accommodation, Support and Resite Services Unit (ASRS Unit) of the Department of Communities, Child Safety and Disability Services to the private sector. In December, QLD invited organisations to submit an expression of interest to take over the management of the ASRS Unit.

The AWU argued this invitation revealed that QLD had made a decision to terminate the employment of a large number of employees working in the ASRS Unit. The AWU contended the State had failed to comply with its obligation to consult under section 786 of the FW Act.

The AWU brought proceedings in the Fair Work Commission, seeking orders under section 787 of the FW Act that, among other things, consultation take place.

In response, QLD noted that it had not already identified the number and identity of employees to be made redundant. Relying upon the Industrial Relations Act Case, QLD argued that the implied limitation on Commonwealth legislative power with respect to State Government employment meant that the provisions of the FW Act did not apply to the proposed outsourcing.

The AWU argued that the Industrial Relations Act Case should be distinguished, because sections 786 and 787 allow orders to be made after a decision had been made to make employees redundant, whereas the legislation under consideration in the Industrial Relations Act Case (former section 170FA) allowed for orders to be made where termination of employment was merely contemplated.

Decision at first instance

At first instance, Vice President Watson found in favour of QLD, holding that section 786 did not apply to QLD as a result of the implied limitation on Commonwealth legislative power. Accordingly, an order under section 787 could not be made.

The AWU appealed to the FBFWC.

Decision on appeal

The FBFWC (comprised of Vice President Catanzariti, Senior Deputy President Acton and Commissioner Booth) agreed with Vice President Watson, holding that:

  • the AWU was wrong to suggest that former section 170FA applied only where termination of employment was contemplated. The argument that sections 786 and 787 are materially different from section 170FA cannot be sustained;
  • sections 786 and 787 infringe the implied limitation on Commonwealth legislative power. The practical effect is to interfere with a State Government’s ability to implement its powers with respect to terminating employees on redundancy grounds: the “imposition of a condition precedent requiring union consultation to the exercise of this power goes beyond simply subjecting the power to a delaying procedure or making its exercise more complex”; and
  • if sections 786 and 787 allowed the FWC to make orders requiring union consultation before the number and identity of employees to be dismissed had been determined, this would constitute interference with the State exercise of constitutional power in “a significant manner”.

The Australian Workers’ Union of Employees, Queensland v State of Queensland (Department of Communities, Child Safety and Disability Services) [2014] FWCFB 5546