In BGC Contracting Pty Ltd v AMWU and Ors [2017] FWC 2741, a Full Bench of the Fair Work Commission has upheld the legitimacy of an employer decreasing rates for future employees in its new enterprise agreement, while preserving enterprise agreement rates for current employees, in order to improve business competitiveness and respond to a market downturn.

This finding may provide some scope for employers to revise rates of pay and conditions in response to declining market conditions.

BGC Contracting (a provider of contract mining services) sought Fair Work Commission (FWC) approval of its new Enterprise Agreement (Agreement). In order to remain cost competitive in the market, BGC Contracting determined that it required lower wages and conditions. The Agreement preserved the rates and conditions of existing employees in individual common law contracts (Contracts) which would operate together with the Agreement for existing employees and conditions of employment in the Agreement for new employees were reduced. Employees approved the Agreement, but FWC approval of the agreement was challenged by the unions.

First instance decision – agreement not approved due to ‘insufficient stake’

At first instance, the FWC declined to approve the Agreement for various reasons, including that the employees who approved the Agreement did not have a ‘sufficient stake’ in it.

Deputy President Binet referred to KCL Industries Pty Ltd [2016] FWCFB 3048 (KCL), in which the FWC held that genuine agreement of employees to an enterprise agreement requires that there be no obvious separation between the content of the agreement and the characteristics of those who have entered into it. Binet DP found that here the employees were asked to vote for an agreement containing terms and conditions that would apply to future employees and would have little relevance to, or impact on, the existing employees as a result of the favourable terms of the Contracts.

‘Insufficient stake’ finding overturned on appeal

BGC appealed this decision and the appeal was upheld on multiple grounds. In respect to the ‘sufficient stake’ finding, the Full Bench distinguished this case from KCL and said that BGC:

  • faced market challenges due to an industry downturn and this was explained to employees
  • sought employee support on the basis that the Agreement would affect their interests by enabling BGC to cope with competitive market pressures, sustain its operations, expand into new industries and win work
  • explained to employees that existing rates of pay and conditions were implemented during a booming mining industry and record iron ore prices, but that these were no longer sustainable in today’s market and would limit its ability to win work and impact its ability to sustain its current operations.

In light of the above, the Full Bench were not satisfied that the employees had ‘insufficient stake’ in the Agreement. The first instance decision of Binet DP was quashed and the FWC will again consider approval of the Agreement.

Lessons for employers

The Full Bench decision may provide scope for employers facing legitimate market challenges to revise existing ‘boom time’ or unsustainable agreement pay rates and conditions when making new agreements. However, approval of this approach will depend upon the circumstances of each case and how the interests of employees are said to be, and are in fact, affected by a new agreement.