The Federal Court has declared that Lend Lease and other contractors do not need to change existing enterprise agreements, or specially craft new ones, in order to win Victorian Government projects.  However, the Victorian Code of Practice for the Building and Construction Industry and associated Implementation Guidelines (Guidelines) still operate and contractors will need to comply with other aspects.

Last Friday Justice Bromberg held that the Victorian Government breached the Fair Work Act 2009 (Cth) (FW Act) when it advised it would not provide work to contractors with enterprise agreements deemed non-compliant with the Guidelines. This decision will reverberate not only in Victoria, but also in NSW and QLD, where introduction of similar Guidelines is currently proposed. We explore the background to the decision and what it means for employers in the building industry.

Background: facts

The Victorian Government introduced the Guidelines, which are administered by the Construction Code Compliance Unit (CCCU), in 2012 (for further background, please see our 21 March 2013 alert). Entities seeking to undertake Victorian government building and construction work are required to be compliant with the Guidelines (including in relation to their private sector work). Among other things, the Guidelines place restrictions on what is considered acceptable content in an enterprise agreement made under the FW Act.

In the two cases considered by Justice Bromberg, entities proposing to perform building and construction work on Victorian government projects were excluded, or it was suggested they would be excluded, from performing that work due to the content of their enterprise agreements. The Construction, Forestry, Mining and Energy Union (CFMEU) and employees who were its members were parties to the relevant enterprise agreements. In each instance, the CFMEU brought proceedings, arguing that exclusion of the entities because of the content of their enterprise agreements constituted a breach of the FW Act as it amounted to the taking of “adverse action” against CFMEU members, who were entitled to the benefit of the enterprise agreement.

Background: law

The FW Act contains two relevant prohibitions.

Firstly, the FW Act prohibits a party taking “adverse action” against an employee or independent contractor, because the affected party has a “workplace right” (see sections 340 – 342 inclusive). Relevantly in the present instance:

  • a workplace right includes entitlement to the benefit of a workplace instrument, such as an enterprise agreement; and
  • “adverse action” includes a refusal to engage, or a threat of refusal to engage, an independent contractor in a situation where the principal is proposing to enter into a contract for services with that independent contractor.

Secondly, the FW Act prohibits a party coercing another party with respect to the second party’s workplace rights (section 343).

Civil penalties of up to $51,000 for a corporation, or $10,200 for an involved individual, apply for breaches of these provisions.

The decisions

CFMEU v McCorkell Constructions and State of Victoria

In this case, McCorkell Constructions Pty Ltd (McCorkell) refused to entertain quotes from Eco Recycling Recyclers Pty Ltd (Eco) for subcontract work, on the basis that the CCCU had advised Eco’s enterprise agreement was not Guidelines-compliant. After discussions with the CCCU, Eco sought to vary its agreement (although this attempt was later abandoned) to ensure Guidelines compliance, on the basis that it could not otherwise obtain Victorian Government work.

His Honour concluded that:

  • an independent contractor able to avail itself of the adverse action protections may be an individual or a corporate entity with a number of employees. Accordingly, Eco was an independent contractor for purposes of the adverse action protection;
  • the FW Act protections extend to “guarding against the conduct of a principal which has adverse effects on the workplace rights and industrial activities rights of employees of a contractor”;
  • a contract for services must include provision of labour services, but includes a contract which is both for provision of labour and other services (such as building);
  • at relevant times Eco and McCorkell were proposing to enter into a contract for services;
  • McCorkell had breached the FW Act by taking adverse action in the form of refusal to engage Eco because Eco’s employees were entitled to the benefit of the Eco enterprise agreement; and
  • the State of Victoria had, in breach of the FW Act, taken action with intent to coerce Eco. This was because:
    • Eco was heavily reliant on State Government work;
    • the State (via the CCCU) had advised Eco that a condition of it obtaining State Government work was that its enterprise agreement had to comply with the Guidelines. This meant Eco had “no realistic choice” but to vary the agreement. The CCCU knew its requirement would have a coercive effect and “intended to achieve the consequences”; and
    • the pressure being placed on Eco was illegitimate because it restricted freedom to bargain within the parameters established by the FW Act and served to “defeat the scheme for agreement making prescribed by FW Act”.

However, His Honour concluded that McCorkell had not coerced Eco and also that the State was not involved in McCorkell’s taking of adverse action against Eco.

CFMEU v State of Victoria

In this case, Lend Lease Project Management & Construction (Australia) Pty Ltd (Lend Lease) was part of the Exemplar consortium, which was seeking to perform work on the new Bendigo Hospital. While the Exemplar consortium was ultimately advised it was the preferred provider, for several months the State maintained that Lend Lease’s enterprise agreement constituted an impediment to Exemplar being granted the work.

For similar reasons to those set out in McCorkell, His Honour held that Lend Lease was an independent contractor; the contract in question was one for services; Lend Lease and the State of Victoria were proposing to enter into a contract for services; and the FW Act adverse action provisions were designed to protect the employees of an independent contractor from adverse action by the principal based on workplace rights. His Honour went on to find that:

  • the State of Victoria had threatened to take adverse action by initially maintaining a position that the Lend Lease enterprise agreement was not compliant with the Code and Guidelines and Lend Lease would be excluded from providing services on that basis. The threat was not negated until the Exemplar consortium was advised it was the preferred provider. The threat was made for reasons including that the employees of Lend Lease were entitled to the benefit of the Lend Lease enterprise agreement; and
  • there was no constitutional impediment to his findings, as the adverse action provisions did not impair the State’s rights and therefore did not exceed the legislative capacity of the Commonwealth.

There was no allegation of coercion in this case and so section 343 was not considered.

The CFMEU requested that the Court declare the Guidelines an invalid exercise of the State’s executive power. However, Justice Bromberg declined, holding that it was unnecessary to do so.

Next steps

Each of the matters has been adjourned pending further hearing on the question of penalty.

It is not yet known whether the State of Victoria intends to appeal the decisions.

What does this mean for employers in the building and construction industry?

Bromberg J’s judgments do not invalidate the Guidelines. They continue to exist and building and construction entities will continue to have to comply with aspects of them (for example, the obligation to provide a Workplace Relations Management Plan).

However, following these decisions, the State will not be able to refuse to contract with an entity which is bound by a validly made FW Act enterprise agreement, where a reason for the refusal includes that the enterprise agreement in question contains provisions inconsistent with the Guidelines. This will be a relief to those entities who have, or wish to make, agreements inconsistent with the Guidelines and will reduce the requirements for Guidelines compliance.

The decision will also have ramifications in QLD and NSW, where introduction of Guidelines similar to those in the Victorian format are currently proposed.