In brief

  • The Victorian Government has not yet confirmed what action it might take after successfully appealing a finding that its threatened refusals to engage contractors whose enterprise agreements did not comply with the Victorian Code of Practice for the Building and Construction Industry (the Code) or the Implementation Guidelines to the Code (the Guidelines) amounted to adverse action.
  • The Full Court of the Federal Court handed down its decision in State of Victoria v CFMEU on 19 December 2013, reversing Justice Bromberg’s initial decision which found that the State had engaged in adverse action against two parties tendering for State-funded building and construction work by:
    • threatening to refuse to engage a party (Lend Lease) whose Fair Work Commission-approved enterprise agreement did not comply with the Guidelines, and
    • coercing employees of another party (Eco Recyclers) to exercise their workplace right to vary their enterprise agreement so that it would comply with the Guidelines.
  • The Full Federal Court held that the State did not take adverse action against Lend Lease, or coercive action against Eco Recyclers. 
  • Following the initial finding that the State had engaged in adverse action, the Victorian Construction Code Compliance Unit (CCCU) (set up to monitor and enforce compliance with the Code and Guidelines) released a Practice Direction to prevent the Guidelines operating in relation to enterprise agreements which had been approved by the Fair Work Commission (the Commission).
  • The finding on appeal that the State’s conduct did not amount to adverse action raises the possibility that the CCCU may revoke the Practice Direction released after Justice Bromberg’s initial decision in May 2013. The CCCU has not yet commented on the appeal win and it is unclear whether it will implement any changes to the Practice Direction or Guidelines.
  • The State’s appeal was only successful on its specific facts. In other circumstances, the Full Court confirmed that the State would not be immune from prosecution for a breach of the general protections provisions of the Fair Work Act (FW Act).
  • More broadly, the Full Court’s decision clarifies that an independent contractor who could otherwise successfully make a general protections claim against another party might struggle to do so where the independent contractor and other party are not entering (or proposing to enter) into a direct contract for services (such as where the independent contractor belongs to a consortium).
  • Employers in the building and construction industry should ensure they remain up-to-date with any action taken by the CCCU, and seek further advice about their compliance with the Code and Guidelines as required.

Decision at first instance

In May 2013, Justice Bromberg handed down his decision in relation to the cases brought by the CFMEU against the State:1

  • the Lend Lease proceeding: in relation to action alleged to have been taken by the State against two Lend Lease entities which formed part of the favoured Exemplar consortium for the $630m Bendigo Hospital project, and
  • the Eco Recyclers proceeding: in relation to adverse action alleged to have been taken by the State against demolition subcontractors Eco Recyclers, who sought to be engaged by a company called McCorkell Constructions on the state-funded Circus Oz project.

The adverse action in each case was connected to the application of the Guidelines. The Guidelines require all contractors tendering for building and construction work on projects funded by the Victorian Government to comply with the obligations set out in the Guidelines.

The background to each proceeding was similar – the CCCU had informed the bidders for work on the state-funded projects (Lend Lease and Eco Recyclers respectively) that their enterprise agreements were not compliant with the Code or the Guidelines. The CCCU informed both Lend Lease and Eco Recyclers that, as a result of this non-compliance, they could be disqualified from carrying out state government funded work.

Justice Bromberg’s decision at first instance found that the State had:

  • taken adverse action against Lend Lease employees by threatening to refuse to engage them on the Bendigo Hospital project, on the basis that Lend Lease’s enterprise agreement did not comply with the Code and Guidelines (on the basis that Lend Lease’s employees were entitled to the benefit of that enterprise agreement, which had been validly approved by the Commission), and
  • taken action against Eco Recyclers with intent to coerce Eco Recyclers’ employees to exercise their workplace right to vary the Eco Recyclers enterprise agreement (and thereby make it compliant with the Code and Guidelines such that the Government would permit their participation in the state-funded Circus Oz project).

In his penalty decision in October 2013, Justice Bromberg ordered the State to pay a $25,000 penalty in relation the Lend Lease proceeding and $28,000 in relation to the Eco Recyclers proceeding.2

The State of Victoria appealed the decision in both proceedings.

Practice Direction

In response to Justice Bromberg’s decision, the CCCU released ‘Practice Direction 2013/1 – Workplace Instrument Based Conduct’, which currently prevents the Guidelines from operating in relation to industrial instruments (such as enterprise agreements) approved by the Fair Work Commission. 

The effect of the Practice Direction is the CCCU cannot treat as non-compliant any conduct by a tendering party which is permitted or required under an approved enterprise agreement.

Appeal decision

The Full Court of the Federal Court – consisting of Justices Kenny, Buchanan and Griffiths – allowed the State of Victoria's appeals in both the Lend Lease and the Eco Recyclers proceedings.3

In the Lend Lease appeal, their Honours held that:

  • the State needed to be proposing to enter into a contract for services with an ‘independent contractor’ (i.e. Lend Lease) for adverse action to have occurred. While Lend Lease was held to be an ‘independent contractor’ within the meaning of the relevant provisions, the court held that the State had not proposed to enter into a direct ‘contract for services’ with Lend Lease at any relevant time. The only contract to be entered into directly between the State and Lend Lease was a ‘Builder Direct Deed’. While this imposed  ‘collateral restrictions’ on Lend Lease in certain circumstances, the Builder Direct Deed did not amount to a proposed ‘contract for services’, and
  • because the State had never proposed to enter into a contract for services with Lend Lease, it followed that the State could not threaten to refuse to engage Lend Lease.

However, their Honours supported Justice Bromberg’s finding at first instance that if the State had proposed to enter into a contract for services with Lend Lease, then the State had ‘threatened to refuse to engage’ the Exemplar consortium from December 2012 (when the Exemplar consortium was relegated from favoured tenderer to one of two consortia required to engage in a further tender process) until April 2013 (when the project was ultimately awarded to Exemplar).

In the Eco Recyclers appeal, their Honours found that the State did not intend to coerce Eco Recyclers and its employees to vary their enterprise agreement to comply with the Guidelines. Neither of the two necessary elements to prove an "intention to coerce" under the FW Act were made out.

The Full Court found that an “intention to coerce” within the meaning of s 343 of the FW Act required two elements to be established:

  1. an intention that pressure be exerted which practically negated Eco Recyclers’ choice, and
  2. the exertion of pressure involving unlawful, illegitimate or unconscionable conduct.

Regarding the first element, Justices Buchanan and Griffiths held that the CCCU had ‘no position’ as to whether Eco Recyclers vary its agreement or not. Therefore the CCCU (and by extension, the State) did not intend to practically negate Eco Recyclers’ choice.

Regarding the second element, Justices Buchanan and Griffiths found that the publication and use of the Guidelines was not ‘illegitimate’ because it was within the State's power. They disagreed with Justice Bromberg’s initial determination that the State’s conduct illegitimately undermined the 'free bargaining' scheme of the FW Act or the workplace rights provided in the FW Act.

Implications of the decision

Following the appeal win in December 2013, Finance Minister Robert Clark indicated that the State would consider amending the Guidelines. However, the State has made no further comment on whether it will seek to wholly or partially revoke Practice Direction 2013/1.

The State’s cautious approach seems warranted, given that the Lend Lease and Eco Recyclers appeals were successful on their specific facts. The Full Court held that the State was not immune from prosecution for a breach of the general protections provision of the FW Act – in other circumstances, an adverse action claim might well be established. 

More broadly, the Full Court’s decision demonstrates that an independent contractor may struggle to successfully bring a general protections claim against another party if there is no direct contract for services, or proposed contract for services with that party. This situation may arise where an independent contractor is operating within a consortium (such as Lend Lease), or in other circumstances where external parties might contract with a head project company or contractor rather than directly with an independent contractor.

Employers should continue to monitor any developments in relation to the Code and Guidelines, and seek advice if they have any compliance concerns.