14 Oct 2010

When is it "appropriate" to terminate Enterprise Agreements?

by Saul Harben, Lara Wilmot

When considering whether to terminate an expired enterprise agreement, Fair Work Australia must now consider whether it is "appropriate" to do so in all the circumstances.

In the recent decision of Tahmoor Coal Pty Ltd [2010] FWA 6468, Fair Work Australia has provided a detailed insight into how it will exercise its discretionary power to determine whether an enterprise agreement should be terminated, with a particular focus being placed on the new "appropriateness" test.

Under the previous legislative framework no such test applied, with the focus being on whether the termination was "in the public interest".

In Tahmoor, Vice President Lawler reiterated that the recent inclusion of the "appropriateness" criterion was of particular significance and that

  • the objects of the Act;
  • the impact that termination of the agreement would have on bargaining; and
  • the views and circumstances of those covered by the agreements

would all now be relevant factors for FWA to consider when exercising its discretion.

The facts of the case

An application was made by Tahmoor Coal Pty Ltd to terminate two Agreements relating to its underground coal mine. It was purported that the Agreements (relating to the Colliery and the Washery), which had passed their nominal expiry dates on 3 April 2009 and 1 April 2008, respectively, imposed numerous constraints on Tahmoor and significantly affected the mine's productivity. The CFMEU opposed the application.

Bargaining for a replacement agreement had commenced as contemplated by the Agreements and had continued for over 18 months, during which time approximately 60 bargaining meetings had been held. An application had also been made by the CFMEU for good faith bargaining orders but was unsuccessful.

The legislation

Under the Fair Work Act 2009 (Cth), there are two ways in which an enterprise agreement may be terminated:

  • by agreement; or
  • after the nominal expiry date.

If an enterprise agreement has passed its nominal expiry date, any of the parties covered by the agreement may apply to FWA for the termination of the agreement.

In summary, under section 226 of the Act, if such an application is made, FWA must terminate the agreement if:

  • they are satisfied that it is not contrary to the public interest to do so; and
  • termination of the agreement is appropriate, taking into account all of the circumstances.

When is termination 'appropriate'?

In Tahmoor, Vice President Lawler provided a useful examination of the relevant considerations for FWA when determining whether or not it is "appropriate" to terminate an expired agreement. These include:

  • the scope and purpose of the Act in relation to bargaining;
  • the matters specified in section 226(b)(i), namely, the views of those covered by the agreement;
  • the matters specified in section 226(b)(ii), namely, the circumstances of those covered by the agreement, including the likely effect that termination would have on each of them. Both beneficial and detrimental effects are to be considered in this regard;
  • whether termination will enhance or reduce the prospects of the parties concluding a new agreement through bargaining. This can include whether bargaining for a replacement agreement is ongoing "such that there remains a reasonable prospect that bargaining (in conjunction with protected industrial action and or employer response action) will result in a new agreement"; and
  • the amount of time passed since the agreement's nominal expiry date.

Consideration was also given to the objects set out in section 3(f) and section 171(a) of the Act, which "indicate that collective bargaining in good faith for an enterprise agreement is the central way in which, in the framework that has been established by the FW Act, productivity benefits are to be achieved".

In addition, Vice President Lawler commented that the object in section 171(1)(b), which states that a key object of the Act is to facilitate good faith bargaining and the making of enterprise agreements, was also clearly relevant.

The decision

Although it was accepted that the constraints in the Agreements adversely affected the productivity of the mine to a material degree, in the circumstances, Vice President Lawler concluded that it was not appropriate to terminate the Agreements. Once that conclusion had been reached, no determination of whether the termination of the Agreements was "in the public interest" was deemed necessary.

In his view, termination would "alter the status quo in a fundamental way" and allow Tahmoor to "effectively achieve all that it sought out of the bargaining". Furthermore, he noted that termination would reduce the prospects of an agreement being made through bargaining, contrary to the objects of the Act.

Implications from this case for employers

Employers who are seeking to terminate an expired agreement should be aware that under the new Act, it is not only "the public interest" that will be taken into account when FWA is considering whether to terminate an agreement.

The "appropriateness" test means that FWA now has a broad discretionary power to look at both the objects of the Act and, importantly, the effects that termination will have on employers and employees and their ability to bargain effectively.

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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.