03 Mar 2010

No need for compulsory arbitration in dispute settlement clauses in enterprise agreements

The Full Bench of Fair Work Australia (FWA) has overturned the decision which held that a dispute resolution term in an enterprise agreement must allow for disputes to be settled by arbitration, whether the parties want to or not.

As foreshadowed in our last Alert, significant interest was generated by the original decision. The employer appealed, and the proceedings were joined by the Minister for Education, Employment and Workplace Relations.

The original decision

In January, Commissioner Smith rejected an enterprise agreement on the sole basis that the agreement did not contain a procedure to settle disputes about matters arising under the agreement and the National Employment Standards, as required by section 186(6) of the Fair Work Act 2009 (Cth). This was because the relevant dispute resolution term allowed a dispute that is not able to be resolved by conciliation or between the parties to proceed to FWA for arbitration only where the parties agreed. Commissioner Smith held that section 186(6) of the Act requires that compulsory arbitration is a necessary ingredient in a dispute settlement provision.


On appeal, the Full Bench held that Commissioner Smith's interpretation of section 186(6) was wrong on twobases.

First, by looking at other parts of the Act which deal with the powers of FWA, the Full Bench found that FWA has no power to arbitrate a dispute without agreement between the parties. FWA can deploy voluntary methods of dispute resolution, such as conciliation, without the consent of the parties, but "can only arbitrate if it has been specifically empowered to do so".

Secondly, a similar statutory provision, section170LT(8) of the Workplace Relations Act 1996 (Cth), had been considered by the Full Bench of the Commission, which held that section 170LT(8) required a procedure for preventing and settling disputes, but not one which guaranteed a settlement in each case.

The Full Bench of FWA followed this decision. It held that:

"If the legislature had intended to alter the affect of the Full Bench decision in Ampol it could easily have made that intention explicit. The absence of an express statement of intention suggests there is no such intention. Furthermore, as we have endeavoured to show, other relevant parts of the Fair Work Act do not support the conclusion the Commissioner reached, rather they tell strongly against it."

What should employers do now?

Although this decision removes some doubt about the content of a dispute resolution clause, there are still some things which you must ensure is in your agreement. You will need to ensure that your dispute resolution clause:

  • is drafted with regard to all requirements of the Act; and
  • requires or allows a dispute to be arbitrated whether by FWA or some other independent party.

However, the dispute does not have to be compulsorily referred to FWA or another person for arbitration, if the parties do not agree to it.


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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.