Illegal boycott agreements between companies and unions under close scrutiny

By Kirsten Webb, Dan Trindade, Sian Ooi and Lindsay Norton
17 Feb 2022
The Federal Court's recent decision has focused attention on illegal boycott agreements that are likely to have inflated the cost of construction projects. Companies need to be extremely wary about any agreements with unions that prevent or hinder choice about which businesses they are able to hire. Significant penalties are likely to be applied where companies or unions get it wrong.

The Federal Court has found that J Hutchison Pty Ltd and the Construction, Forestry, Maritime, Mining and Energy Union, which at the relevant time was known as the CFMEU entered into an agreement to boycott a subcontractor at a building site in Brisbane. The proceedings were brought by the Australian Competition and Consumer Commission, and relate to an arrangement or understanding between Hutchinson and CFMEU that a provision of an enterprise bargaining agreement (EBA) between the parties had the effect of preventing Hutchinson from engaging subcontractors that were not similarly covered by an EBA with the CFMEU.

A further hearing will be held for the Court to determine any penalties or other orders that the ACCC may seek. We expect that any pecuniary penalty will likely be significant, and the ACCC has signalled that it will be submitting to the Court that the appropriate penalty should reflect that this was "very serious conduct".

It is evident that the ACCC remains focused on anti-competitive conduct in the construction industry as well as illegal agreements involving unions, and we can expect to see more cases of this kind in the future.

Hutchinson and the CFMEU's conduct

Hutchinson was originally covered by a CFMEU enterprise business agreement (EBA) which was approved in 2012, and which was later replaced by a new EBA in November 2015 (2015 EBA). The 2015 EBA included a clause that required Hutchinson to "consult in good faith" with the CFMEU if it wished to engage subcontractors. This consultation process was relied upon by CFMEU as a basis for ensuring that Hutchinson only retained subcontractors that similarly had EBAs with the CFMEU.

A tender process was undertaken in 2015 for the supply of waterproofing services at the Brisbane Site. Waterproofing Industries Qld Pty Ltd (WPI) submitted a response to the tender, and was Hutchinson's preferred submission, however it was known that WPI had not entered into an EBA with the CFMEU. Nevertheless, Hutchinson entered into a subcontract with WPI in March 2016 to perform the waterproofing work without consulting the CFMEU.

Evidence was put before the Court that:

  • senior employees of Hutchinson understood that the CFMEU would object if Hutchinson engaged a non-EBA subcontractor, and that if the CFMEU had been consulted prior to engaging WPI, the subcontract would not have been entered into by Hutchinson; and
  • after finding out that Hutchinson had engaged WPI, a CFMEU delegate advised Hutchinson's project manager that if WPI came on site he was under strict instructions to "sit the job down", and that the reason that WPI was not allowed back on site was because it did not have an EBA.

From June 2016, WPI was excluded from the Brisbane building site. The CFMEU argued that this was because of outstanding payments. However, the Court noted that there was no evidence that this was ever communicated to WPI (which would have been the case if it were the true reason for WPI's exclusion).

Prohibition on boycotts

A boycott occurs when parties agree not to acquire goods or services from, or supply goods or services to, another business either at all or except on certain conditions.

Boycotts are expressly prohibited by the Competition and Consumer Act 2010 (Cth) (CCA) – irrespective of the competitive effects of the agreement. As explained in the relevant explanatory memorandum, section 45E is specifically directed at situations where a person capitulates in order to avoid loss or damage as a result of threatened industrial action against the target.

Specifically, sections 45E and 45EA of the CCA prohibit:

  • a person from entering into a contract, arrangement or understanding with a union that has the purpose of preventing or hindering the person from acquiring goods or services from a supplier that they are accustomed, or under some obligation, to acquire goods or services from; and
  • that person and the union (with which the contract, arrangement or understanding has been made) from giving effect to the boycott provision.

Findings of the Court

As a result of the circumstances that occurred in 2016, the Court found that:

  • Hutchinson contravened section 45E(3) of the CCA by making an arrangement or understanding with the CFMEU that contained a provision that Hutchinson would no longer acquire waterproofing services from WPI, and that it would terminate its subcontract with WPI (preventing or hindering Hutchinson from acquiring services from WPI). This constituted a boycott provision;
  • Hutchinson gave effect to that boycott provision by ceasing to acquire the services, contravening section 45EA of the CCA;
  • the CFMEU was knowingly concerned in, or party to, the contraventions by Hutchinson of the prohibition on boycotts and further induced Hutchinson's contravention of the CCA by threatening it with industrial action.

Key takeaways

The ACCC has made it clear that it is prepared to take action against this type of serious illegal boycott activity. This conduct is anti-competitive and not only harms the economy as a whole, but also harms individual businesses. The ACCC said that the illegal boycott agreement between Hutchinson and the CFMEU is likely to have inflated the costs of construction projects. 

While the ACCC's focus in this particular case is on the construction industry, the decision is relevant to any industry where unions may seek to pressure companies about supply or acquisition decisions for any range of reasons (including, but not limited to, a failure to hold an EBA), and emphasises that the ACCC is also determined to pursue any anti-competitive agreements between companies and unions.

There are potentially very serious penalties that can be imposed for both companies and unions that breach the CCA by engaging in illegal boycott behaviour. 

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.