25 Jan 2010

Does your enterprise agreement allow disputes to be settled by arbitration? Maybe not...

Enterprise agreements must include a dispute resolution term that enables disputes about the agreement or National Employment Standards to be settled by arbitration, whether the parties want to or not, following a recent decision of Fair Work Australia (FWA).

The employer applied to FWA for approval of an enterprise agreement made between it, the Shop Distributive and Allied Employees Association and its employees.

The agreement contained a dispute resolution clause that allowed disputes to be referred to FWA for conciliation; failing resolution at that stage, the Director of Human Resources and the employee (or the union on his or her behalf) would attempt to resolve the dispute. If the dispute was still not resolved, the agreement enabled the parties to refer the dispute to FWA for arbitration, but only where both parties agreed.

As such, the parties each effectively held a veto on arbitration.

Dispute resolution terms and enterprise agreements under the Fair Work Act 2009

Under section 186(6) of the Fair Work Act, FWA must be satisfied before it approves an enterprise agreement that it includes a term that "requires or allows" FWA or another independent decision-maker to "settle disputes" about matters arising under the agreement or in relation to the NES.

The employer argued that by using "or" in the phrase "requires or allows" in section 186(6) Parliament intended that access to arbitration in any dispute resolution clause could be voluntary.

Commissioner Smith disagreed. The section "must be read as creating an obligation to include a procedure that either requires or allows FWA or another independent person to settle disputes". He further held that if the word "or" allowed the parties to arbitrate disputes on a voluntary basis, there would be no need for the section, because it would give the parties a discretion not to settle the dispute.

Given that the Act requires a term to "settle" disputes, Commissioner Smith stated that it would be difficult to read into the meaning of "settle" as including "not to settle".

Commissioner Smith also had regard to:

  • the model dispute resolution clause in the Fair Work Regulations 2009. He held that although dispute resolution terms did not have to mirror the model clause precisely, they should adopt its "essential ingredients", including the term which provides for FWA to arbitrate disputes over an agreement; and
  • the Government's Fair Work Principles User Guide, which states that agreements must contain clauses enabling disputes to be settled "via a decision binding on the parties".

He concluded that the dispute resolution clause in the Agreement did not meet the requirement of section 186(6) because it did not include a procedure to settle disputes about matters arising under the agreement and the National Employment Standards.

What should employers do now?

If you're finalising an enterprise agreement, you will need to ensure that your dispute resolution clause:

  • allows the dispute to be arbitrated, whether by FWA or some other independent party. A procedure which allows the parties to arbitrate the dispute only by consent of both parties will not be sufficient; and
  • is drafted with regard to the model dispute resolution term".

Aftermath of the decision

The decision has generated some controversy, and according to The Australian, the Workplace Relations Minister Julia Gillard has indicated that the Government may intervene in response to the decision. A spokesperson for Ms Gillard stated that the Government is aware that the employer intends to appeal the decision, and after obtaining advice, will consider whether the Commonwealth will join the appeal proceedings.

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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.