Key points

• Throughout negotiations for an enterprise agreement, bargaining representatives must comply with the good faith bargaining requirements set out in the Fair Work Act 2009 (Cth). These requirements include a prohibition on bargaining representatives engaging in capricious or unfair conduct that undermines collective bargaining or freedom of association.1

In the first decision of its kind, a Full Bench of the Fair Work Commission has found that an employer’s conduct in retrenching employees as part of a restructure aimed at minimising loss and damage caused by the employees taking protected industrial action was not in breach of the employer’s good faith bargaining obligations.

Background

A subsidiary of Anglo Coal, Capcoal Management Pty Ltd (Capcoal), operates an open cut black coal mine in Queensland (Mine).

From July 2016, Capcoal implemented a plan to uncover enough coal to meet its customer demands by simultaneously using two pieces of equipment—a shovel and a dragline (Mine Plan). Where both pieces of equipment are being used simultaneously, the shovel must work ahead of the dragline to a planned schedule (Schedule). The dragline can also operate on its own, and is more cost effective to operate than the shovel.

Since February 2014, Capcoal and the Construction, Forestry, Mining and Energy Union (CFMEU) had been negotiating for a replacement enterprise agreement.  

On 19 August 2016, Capcoal employees who were members of the CFMEU started taking protected industrial action by means of work stoppages.

Almost all of the Mine's shovel operators were members of the CFMEU. As a result of the protected industrial action, there were not enough employees to operate both the dragline and the shovel.

Given that the dragline is more cost effective to operate than the shovel, Capcoal decided that the employees that had attended work would operate the dragline. As the shovel was not used, it fell behind the Schedule of the dragline. The shovel eventually reached a point where it could not be operated and was parked for a period of several months.

Capcoal decided that it needed to adjust the existing Mine Plan in order to meet the requisite coal production levels. Rather than parking the shovel on a temporary basis, Capcoal revisited an earlier plan to park the shovel permanently, which would provide a cost saving of approximately $40 million to the company. However, parking the shovel permanently would result in a surplus of employees its the revised operational requirements.

In September 2016, Capcoal advised the CFMEU that it was considering making up to 90 positions redundant due to the parking of the shovel as a consequence of an "unplanned delay" to the Schedule. Thereafter, Capcoal refused to provide the CFMEU with an explanation for the "unplanned delay" and denied that the unplanned delay or the parking of the shovel had anything to do with the protected industrial action. In November 2016, the Acting General Manager of the Mine notified the CFMEU that Capcoal had decided to park the shovel and make 83 positions redundant. The CFMEU contended that the decision to park the shovel was made in response to the employees taking protected industrial action, as Capcoal had advertised positions for contractors at the Mine at the same time.

The CFMEU applied to the Fair Work Commission (Commission) for a bargaining order on the basis that Capcoal had acted contrary to its good faith bargaining obligations by engaging in capricious or unfair conduct that undermined freedom of association or collective bargaining. In support of its case, the CFMEU relied upon the causal connection between the protected industrial action and the decision to permanently park the shovel and retrench 83 employees.

The CFMEU also alleged that during the consultation process, Capcoal was dishonest and untruthful about the reasons why the shovel had fallen behind the dragline and whether the shovel would be parked permanently. Capcoal said that the reason why it made the decision to park the shovel permanently and restructure its business, as opposed to resuming use of the shovel in the future, was because of the significant costs savings that this option presented.

The CFMEU's application raised several novel questions about the proper construction of the good faith bargaining provisions in the Fair Work Act 2009 (Cth) (FW Act).

Conduct that is capricious or unfair must also undermine collective bargaining or freedom of association

Deputy President Asbury dismissed the CFMEU's application, finding that conduct that is capricious or unfair will not, of itself, constitute a failure to meet the good faith bargaining requirements. To establish a failure to bargain in good faith, the conduct must be capricious or unfair, and must also have the effect or likely effect of undermining freedom of association or collective bargaining.

However, the Deputy President held that in order for the Commission to make a bargaining order in relation to conduct alleged to be in breach of the good faith bargaining requirements, the Commission does not need to be positively satisfied that freedom of association or collective bargaining are actually being undermined. Rather, it will be sufficient for the Commission to be reasonably satisfied that freedom of association or collectively bargaining will likely be undermined by capricious or unfair conduct.

Capcoal contended that if an employer subjected to protected industrial action which was causing loss and damage made a decision not to pay employees a discretionary bonus, which would otherwise have been paid, the employer's conduct would not be in breach of its good faith bargaining obligations. The Deputy President agreed with this argument and said that the reason for the employer refusing to pay the bonus might include the loss and damage caused by the industrial action. The refusal to pay the bonus might also cause the employees to rethink their strategy with respect to taking protected industrial action and would also adversely impact the employees who were counting on the bonus.

However, the Deputy President held that this conduct, although unfair in the ordinary sense of the word, would not undermine collective bargaining or freedom of association, and would be insufficient to show that the employer was not meeting its good faith bargaining obligations. Nonetheless, if the conduct was sufficient to make employees abandon their bargaining position, the Deputy President held that the conduct could be conduct which undermined freedom of association or collective bargaining.

It’s the reasons that matter, not the causal connection

The Commission accepted that there was a connection between the protected industrial action and Capcoal's decision to make the employees taking that action, who were members of the CFMEU, redundant. The Deputy President said that the connection was that the protected industrial action created an environment which prompted Capcoal to change its operations at the Mine.

However, the Commission held that the question of whether the industrial action contributed to or constituted the delay, which led to the decision to park the shovel, was not a basis for the Commission to find that the retrenchments of the employees were because they were taking protected industrial action or because they intended to do so in future. The Commission was satisfied that the decision to park the shovel and restructure the workforce was taken for legitimate business reasons which included a significant cost saving. The Deputy President said that there was insufficient evidence to find that the basis for the redundancies was contrived or fabricated, or that the parking of the shovel was a temporary ruse aimed at reducing the number of union members at the Mine.

Accordingly, the fact that the absence of employees from work, which subsequently led to the parking of the shovel, was the result of the employees taking protected industrial action, did not lead to a conclusion that the restructure and retrenchment was implemented because the employees were taking industrial action or because they intended to do so in the future.

Noting that prolonged stop-work action presents risks to both employers and employees, the Deputy President accepted Capcoal's evidence that the redundancies were due to commercial opportunities only identified after the employees went on strike, and stated that, "It is not unfair for an employer suffering loss and damage as a result of employees taking industrial action to decide, on legitimate business grounds, to restructure its business to manage or offset that loss and damage, and to decide to make employees redundant in the process".

Accordingly, the Commission held that this was not capricious or unfair conduct that undermined freedom of association or collective bargaining, and dismissed the CFMEU's application.

State of mind of person alleged to have breached the good faith bargaining obligations is relevant, but not determinative

Deputy President Asbury also held that the state of mind of the person who is alleged to have engaged in the capricious or unfair conduct is relevant to but not determinative of, whether they have breached their good faith bargaining obligations. While the Deputy President accepted that Capcoal's communications to the CFMEU about its decision were at best disingenuous, she did not accept that this was an indication that Capcoal was guilty of formulating a plan to dismiss CFMEU members because they had engaged in protected industrial action, given her finding that Capcoal had a legitimate business case for the restructure.

However, Deputy President Asbury warned Capcoal that there may be a breach of the good faith bargaining obligations in the future if Capcoal was found to have replaced the retrenched employees with labour hire employees or contractors. This is because it would be open for the Commission to find that the restructure was capricious or unfair and undermined collective bargaining by reducing the number of CFMEU members who may otherwise have remained in employment.

The CFMEU appeal

The CFMEU appealed the Deputy President's decision to a Full Bench of the Commission.

The Full Bench considered that employers will be at risk of breaching their good faith bargaining obligations if they make employees redundant during enterprise bargaining negotiations without having legitimate business reasons for doing so. However, the Full Bench agreed with the Deputy President's finding that Capcoal's decision to park the shovel and implement the restructure was a "legitimate response to the commercial and operating circumstances" that flowed from the industrial action.

As part of the appeal, the CFMEU raised the argument that the FW Act provides employers with rights to respond to protected industrial action that is causing loss and damage, such as applying to suspend or terminate the action. The CFMEU argued that this right did not extend to terminating the employment of employees engaging in protected industrial action. The Full Bench rejected this submission and said that "employees who engage in protected industrial action are 'protected' in that their action is not unlawful under the Act and that they are immune from certain civil and criminal liability for engaging in the action." However, the Full Bench held that this did not mean that employers are unable to respond to protected industrial action, or to the circumstances created by such action, by acting in a manner that addresses its legitimate business interests.

The Full Bench therefore held that the Deputy President was correct in finding that Capcoal's actions were not unfair or capricious, and dismissed the CFMEU's appeal.

Federal Court weighs in

The Full Bench's decision came a week after separate Federal Court proceedings brought by the CFMEU against Capcoal, alleging that Capcoal took unlawful adverse action against the employees because they had taken protected industrial action, in breach of the general protections provisions of the FW Act.

In an interlocutory decision, Justice Katzmann of the Federal Court said that there was a reason to believe Capcoal's purported redundancy assessments were "not bona fide". Justice Katzmann accepted the CFMEU's submission that it could be inferred from the evidence that "the value of the employees to Capcoal only diminished after they became involved in union activities and, in particular, the protected industrial action". Having found that unlawful adverse action may have occurred, the Court reinstated two employees to the Mine pending final determination of the proceeding. If the Federal Court's final determination is consistent with its interim decision, it will likely prompt the CFMEU to lodge further adverse action applications seeking to have the other retrenched employees reinstated.

The Federal Court's final determination is expected in the coming months— watch this space.

Bottom line for employers

• If an employer suffers loss and damage because of protected industrial action and undertakes a restructure because of the circumstances that flow from the industrial action, the employer will not have engaged in unfair or capricious conduct undermining freedom of association or collective bargaining, breaching the employer's good faith bargaining obligations, if the employer can demonstrate it has valid business and operational grounds for restructuring.

• The fact that an employer's conduct adversely impacts on the position of a bargaining representative does not mean that it is conduct which undermines collective bargaining. In order to establish a breach of the good faith bargaining requirements, the Commission must be satisfied that the bargaining representative has engaged in conduct that is capricious or unfair and that the conduct undermines collective bargaining or freedom of association.

• While the Full Bench has confirmed that protected industrial action leading to loss and damage which causes restructuring and job losses will not necessitate a finding that the employer has breached good faith bargaining obligations, the interim Federal Court decision highlights that there is still an unresolved tension determining adverse action applications that involve employees taking protected industrial action. Employers should take care to ensure that they have legitimate business reasons which justify their conduct.