Stronger Safety Net Act closes transmission "loophole"

By Chris Hartigan.

Key Points:
Federal legislation has clarified that in a transmission of business the new employer may be liable in duress if an offer of employment by the new employer is conditional on their making an Australian Workplace Agreement.

The Fairness Test amendments in the Workplace Relations Amendment (A Stronger Safety Net) Act 2007 commenced on 1 July 2007 (see Joe Catanzariti's article in this edition). The Stronger Safety Net Act also clarifies that the prohibition on applying duress in connection with an Australian Workplace Agreement ("AWA") applies to the engagement of employees in a transmission of business situation. An employer who seeks to make continued employment with the new employer conditional on making an AWA cannot rely on section 400(6) of the Workplace Relations Act 1996 (Cth) in defence of an allegation that the employer has applied unlawful duress.

Section 400(5) of the Act provides that a person must not apply duress to an employee in connection with an AWA. Section 400(6) states a person does not apply duress for the purposes of subsection (5) merely because the person requires another person to make an AWA as a condition of engagement.

The Stronger Safety Net Act closes the so-called loophole that arguably allowed employers to make entering into an AWA a condition of employment where employees were offered employment by a new employer as a consequence of a transmission of business. The new section 400(6A) provides an exception to section 400(6) where the employee would otherwise be considered a "transferring employee" as defined under the Act. In that circumstance, section 400(6) will not be a defence to an allegation that duress has been applied to a transferring employee by requiring an employee to sign an AWA as a condition of their ongoing employment with the new employer. It should be noted that section 400(6A) is not an express prohibition on offering AWAs to transferring employees but it may have that practical outcome.

Background to the amendment

While no court decision confirmed whether or not making an AWA a condition of employment pursuant to section 400(6) in transmission of business situations was lawful, a number of disputes in late 2006 turned on this point. For example:

• in November 2006, the Office of Workplace Services ("OWS") launched prosecutions against Ten Talents Pty Ltd and Cyberlink Pty Ltd in the Federal Magistrates' Court alleging they applied duress on employees to sign AWAs after the takeover of the IGA Hilton supermarket in Perth. In Balding v Ten Talents Pty Ltd [2007] FMCA 145, Federal Magistrate Toni Lucev dismissed the application by Cyberlink to have the proceedings summarily dismissed on the basis that the OWS had no reasonable prospect of successfully prosecuting the claim. Relevantly, Federal Magistrate Lucev found that the alleged duress was arguably not "'merely because' entry into an AWA was a condition of engagement …, but because of other possible factors …, plus entry into an AWA being a condition of employment".

This case (and a number of similar ones which have not proceeded to final decision) arose because unions claimed that Work Choices "guaranteed" transferring employees the right to the benefits under their industrial instrument for 12 months after the transmission of business. The Government has moved to silence the debate about whether the alleged guarantee was deficient or not through this amendment to the Act.

Implications of the legislation

Schedules 1, 2, 3 and 5 of the Stronger Safety Net Act took effect on 1 July 2007. We expect that from this time the Workplace Ombudsman (formerly, the OWS) will closely examine any circumstance where an employer offers an employee an AWA in a transmission of business situation.

Thanks to Afrooz Kaviani Johnson for her help in writing this article.