Fair Work Australia (FWA) has ruled that a provision guaranteeing a right of arbitration by an independent third party is an “essential ingredient” for dispute resolution clauses in enterprise agreements.

Facts

Woolworths Ltd applied for approval of the SDAEA Mulgrave Produce and Recycling Enterprise Agreement 2009-2012 made between it and its employees. The Shop Distributive and Allied Employees Association intended to become bound by the agreement, and supported its approval.

Commissioner Smith, who heard the application, identified a problem with the dispute resolution procedures clause, which included a process of conciliation followed by arbitration by FWA. However, the clause provided that arbitration could only go ahead if Woolworths’ Director of Human Resources and the employee or the employee’s representative agreed to the arbitration. Commissioner Smith described the clause as giving the parties “a power of veto” which could prevent the dispute from being settled.

Decision

Commissioner Smith was not satisfied that the agreement met the requirements of section 186(6) of the Fair Work Act 2009 (the Act) and accordingly refused to approve the agreement.

Section 186(6) requires agreements to contain a term which provides a procedure that “requires or allows” FWA, or another independent third party, to “settle disputes” about matters arising under the agreement or the National Employment Standards.

Woolworths’ argument relied upon the use of the words “requires or allows” (emphasis added). It was submitted that these words indicate that there is a degree of choice and that arbitration by FWA or another independent third party was not intended to be a compulsory component of dispute resolution procedures.

Commissioner Smith disagreed. He said that if section 186(b) could be read so as to mean that there is no obligation to include arbitration, or indeed any process, then this would also mean that there would be a discretion as to whether to include a dispute resolution procedure at all.

Because the inclusion of a dispute resolution clause is a requirement for the approval of enterprise agreements, Commissioner Smith reasoned that the section could not be interpreted in the way that Woolworths suggested.

Woolworths further relied upon the wording of section 739(4) of the Act, which states that “[i]f…the parties have agreed that Fair Work Australia may arbitrate (however described) the dispute, Fair Work Australia may do so”, to support its argument.

However, Commissioner Smith held that this section is referring to the parties agreeing that FWA as opposed to another independent third party will be the arbitrator, and not an agreement as to whether there will be arbitration at all.

Commissioner Smith further supported his conclusion by stating that the use of the word “settle” in section 186(6) of the Act implies that the dispute resolution process must end in the matter being settled, that is definitively decided. In the Commissioner’s view, “It would be difficult to place a construction upon this language which read into the meaning of settle as including not to settle.”.

Commissioner Smith also had regard to the model dispute resolution clause in the Fair Work Regulations, which grants FWA the power to arbitrate and found that its terms reinforced his view about the intended meaning of section 186(6) of the Act.

Commissioner Smith concluded that although parties need not use the model dispute resolution procedures, some form of compulsory arbitration must be part of any dispute resolution procedures that parties construct on their own.

Implications of the Decision

Woolworths has appealed against Commissioner Smith’s decision.

It remains to be seen what view is taken by the Full Bench on the appeal, and in the meantime by other FWA members who hear applications for approval of agreements. Until the issue is clarified by the Full Bench employers will need to provide a right of arbitration in their agreements or else risk them being rejected.