On 6 December 2017, the High Court of Australia (HCA) handed down two decisions that will have far-reaching consequences for the approach taken in bargaining for enterprise agreements and responding to industrial disputes.

In Esso Australia Pty Ltd v Australian Workers’ Union [2017] HCA 54 (Esso Australia v AWU), the HCA held that a party negotiating an enterprise agreement cannot engage in protected industrial action where it has previously breached an order in relation to the bargaining.

In Aldi Foods Pty Ltd v Shop, Distributive & Allied Employees Association [2017] HCA 53 (Aldi Foods v SDA), the HCA held that an employer that intends to commence a new enterprise can make a non-greenfields enterprise agreement with its existing employees, even before the new enterprise has commenced operation or the existing employees have performed any work that would fall within the scope of the agreement.

Both of these decisions provide employers with potentially effective new strategies for bargaining and responding to industrial action. In this article, we examine the decisions and the lessons to be drawn.

Background: Esso Australia v AWU

The parties in Esso Australia v AWU had been engaged in a protracted round of bargaining at Esso’s Longford gas plant and Bass Strait platforms, during which the AWU took protected industrial action.

Esso obtained an order from the Fair Work Commission (FWC) under section 418 of the Fair Work Act 2009 (Cth) (FW Act), requiring the AWU to stop taking certain action, including organising a restriction on ‘the performance of equipment testing, air freeing or leak testing’, in the period from 6 March 2015 to 17 March 2015. The AWU breached that order on 6 March 2015.

Section 415(1) of the FW Act provides a broad immunity from suit for a party engaging in protected industrial action. However, industrial action will only be ‘protected’, and therefore subject to that statutory immunity, if it satisfies a series of common requirements set out in section 413 of the FW Act.

Esso sought a declaration from the Federal Court of Australia (FCA) to the effect that, as the AWU had breached the FWC order, any further action organised by it was not ‘protected industrial action’, as it could not satisfy the requirement of s 413(5) of the FW Act.

Relevantly, section 413(5) provides that a person organising or engaging in industrial action “… must not have contravened any orders that apply to them and that relate to … the agreement or a matter that arose during bargaining for the agreement”.

Esso also claimed that, as any such action was not ‘protected industrial action’ subject to the statutory immunity, it amounted to unlawful coercion in breach of sections 343 and 348 of the FW Act.

The AWU argued that section 413(5) only required that it not be in breach of an order that remained in place at the time that it took the protected industrial action under challenge. In this case, the relevant order had expired on 17 March 2015, and as a result, the union should not be prevented from taking protected industrial action after that date.

The AWU also argued that ‘coercion’ could only be established if Esso could demonstrate that the union knew or intended that its conduct was unlawful, illegitimate or unconscionable at the time of the breach. On this basis, the conduct of the AWU organisers could not have amounted to coercion, as they genuinely believed at the time that they were organising lawful industrial action.

The FCA declined to make the declarations sought by Esso, but found that the AWU had breached sections 343 and 348 FW Act.[1] On appeal, the Full Court of the FCA (FCAFC)accepted the AWU’s arguments in relation to section 413(5), but did not overturn the finding in relation to coercion.[2] Esso appealed to the HCA on the section 413(5) issue, and the AWU appealed on the coercion question.

The HCA Decision: Esso Australia v AWU

The HCA held by a 4:1 majority that the requirement in section 413(5) for compliance with orders as a pre-condition for taking protected industrial action is not confined to orders in existence at the time of the proposed industrial action, or which relate to that action.[3] The majority found that there is nothing in the language of section 413(5) (a person ‘must not have contravened any orders that apply to them’) to suggest ‘that the order must be one that continues in operation at the time of the proposed protected industrial action, or with which it is still possible to comply at that time’.[4]

In this case, as the AWU had already breached an order in relation to the proposed enterprise agreement, it could no longer satisfy section 413(5) in relation to any proposed industrial action, even though the relevant order was no longer in place. Any industrial action it took in relation to that bargaining was therefore unprotected.

Further, the HCA held that to establish coercion under sections 343 or 348 of the FW Act, there is no requirement that the party in breach know or intend that the relevant action be unlawful, illegitimate or unconscionable. It was enough to establish that the party took the relevant action against another person with intent to negate that person’s choice.[5]

In any case, the AWU could not point to any evidence that the officials involved in organising the industrial action in this case honestly believed that the relevant bans were of a kind that fell within the concept of protected industrial action.[6] Therefore, the AWU’s industrial action amounted to unlawful coercion.

Background: Aldi Foods v SDA

In Aldi Foods v SDA, Aldi was in the process of establishing a new distribution centre in South Australia. It sought expressions of interest in working at the new distribution centre from its existing employees at other centres. Eventually 17 employees accepted offers of employment.

Aldi negotiated and made an enterprise agreement with the 17 existing employees, before construction of the distribution centre had been completed or those employees could begin work at the centre.

The FWC approved the enterprise agreement that had been made, and the SDA appealed that decision.

As the distribution centre was still under construction at the time the enterprise agreement was made, meaning there were no employees performing work covered by the enterprise agreement during the bargaining, the SDA contended that the enterprise agreement should have been made as a ‘greenfields agreement’ under section 172(2)(b) of the FW Act.

The SDA also argued that the enterprise agreement did not pass the ‘better off overall test’ (BOOT), one of the key requirements for FWC approval of a proposed agreement.

The Full Bench of the FWC (FWCFB) rejected the SDA’s appeal.[7] The SDA then appealed to the FCAFC, which found that the enterprise agreement could not have been made by any employees ‘covered by’ the enterprise agreement, as no employees could be ‘covered’ until the agreement had entered into operation. [8]

The SDA also successfully argued that it was not open to the FWCFB to hold that the enterprise agreement had passed the BOOT, because the FWCFB had not engaged in a proper comparison between the proposed agreement and the relevant modern award. Instead, it had relied on the existence of a ‘top-up clause’ in the enterprise agreement, which granted employees a right to payment of any shortfall between the enterprise agreement and the relevant modern award, to hold that employees would be ‘no worse off’ under the enterprise agreement when compared with that award.

Aldi appealed to the HCA.

The HCA Decision: Aldi Foods v SDA

On appeal, the joint judgment of six justices of the HCA[9] focused on the distinction at sections 52 and 53 of the FW Act between when an enterprise agreement ‘covers’ an employee, and when it ‘applies’ to an employee.[10]

Their Honours held that once the enterprise agreement was made, the employees that had made it were accurately described as being ‘covered’ by it, even though it would not actually ‘apply’ to them until they started work at the new distribution centre. The employees ‘covered by the agreement’ – and therefore able to vote in relation to it – were those employees who would eventually work at the distribution centre after its construction.[11]

According to their Honours: ‘a non-greenfields agreement can be made with two or more employees, so long as they are the only employees employed at the time of the vote who are to be covered by the agreement. It does not matter that the agreement may, in due course, come to apply to many more employees’.[12] The fact that a greenfields agreement could also have been made for the new distribution centre was ‘beside the point’.[13]

The HCA also upheld the FCAFC’s conclusion that the FWCFB had erred in relying on the ‘top-up’ clause to find that the agreement passed the BOOT. The ‘top-up’ clause only entitled employees to a payment equal to the modern award, and would not leave the employees ‘better off overall’.[14] The FWCFB could therefore not rely on the clause to support a finding that the enterprise agreement passed the BOOT.

As a result, the HCA ordered the FWCFB to reconsider the application to approve the enterprise agreement, in light of the clarification of the proper operation of the BOOT.[15]

What are the implications for employers?

Both of the decisions discussed above will have a number of significant consequences for employers, in particular those engaged in bargaining for a new enterprise agreement:

  • employers will have an even stronger incentive to seek FWC or court orders during bargaining, including orders that unprotected industrial action stop and good faith bargaining orders (as any breach of such orders will prevent unions from being able to organising or take further protected industrial action);

  • unions that have engaged in industrial action subsequent to a breach of a relevant order – even where they genuinely believed it at the time to be protected industrial action – may be liable for any harm suffered as a result of the action, and/or for coercion in breach of sections 343 or 348 of the FW Act;

  • employers will have greater flexibility in reaching enterprise agreements for new enterprises. Rather than having to negotiate a greenfields agreement with a relevant union, employers can now reach an enterprise agreement with existing employees who will later be employed in the new enterprise, so long as they will be ‘covered by’ the enterprise agreement in that role.

The decisions in both Esso Australia v AWU and Aldi Foods v SDA will provide employers with expanded tools for reaching enterprise agreements that work most effectively for their workforces and for responding to potential industrial action. Employers should carefully consider their industrial bargaining strategies in light of these developments.