17 Aug 2012

What can - and can't - go into an enterprise agreement?

The Fair Work Act 2009 (Cth) says that some terms cannot go into enterprise agreements, or can be disallowed by Fair Work Australia – but how far does it go? Some useful clarification of the lawfulness of some common terms has been given by the Full Federal Court.

In Australian Industry Group v Fair Work Australia [2012] FCAFC 108, four key elements of the enterprise agreement between ADJ Contracting and its workers were challenged – and all four were upheld by the Full Federal Court.

The restriction on outsourcing to independent contractors – is it adverse action?

ADJ agreed to "only engage contractors and employees as contractors, to do work that would be covered by the Agreement if it was performed by the Employees, who apply wages and conditions that are no less favourable than that provided for in this Agreement".

AIG argued that any contractor has a workplace right (ie. to have the benefit of its own industrial instruments such as enterprise agreements with its own employees). By requiring a contractor to give its employees the same wages and conditions as ADJ gave its own employees, ADJ would be denying it that benefit, and engaging in adverse action.

The Full Court saw three problems with this. First, it's not certain that employers have workplace rights under the Fair Work Act.

Secondly, even if they did, there is no evidence that applying this clause would be adverse for a contractor in all cases – so it is not automatically objectionable.

Thirdly, even if the first two points were in ADJ's favour, it would still have to show that the clause requires ADJ to take any action against a contractor because the contractor is entitled to the benefit of any industrial instrument. The clause is about pay and conditions, and it doesn’t matter if they arise under an industrial instrument or not.

Is the restriction on outsourcing to independent contractors an unlawful secondary boycott?

Secondary boycotts are prohibited under section 45E of the Competition and Consumer Act 2010 (Cth). Is the clause in the enterprise agreement a contract, arrangement or understanding to create a secondary boycott?

No – it's more than that. It has statutory force, which means it has more formality and greater consequences than a contract or arrangement. Even if it were not, it is not made with a union, which is one of the crucial elements of an unlawful secondary boycott.

Encouraging union membership is not the same as inducing it

ADJ is required to promote union membership to all prospective and future employees, and to encourage members of the ETU to participate in union meetings and exercise their rights.

AIG argued this required ADJ to unlawfully induce its employees to engage in membership action. The Full Court disagreed; there are ways to encourage employees which do not amount to inducement. As this clause can be complied with in a lawful manner, it isn't invalid.

Union right to entry – is it limited to the circumstances in the Fair Work Act?

The enterprise agreement gives a right of entry which goes beyond that set out in the Fair Work Act. The Full Court said that this was perfectly legal, as the Fair Work Act clearly contemplates the possibility of entry for other purposes or for other kinds of discussions than those set out in the Act.

What does this mean for employers?

This decision certainly provides some clarity about some fairly common clauses in enterprise agreements. It's unclear yet if there will be an application for special leave to appeal to the High Court.

It's also come at a time when the Fair Work Act is under more than usual scrutiny, with the release of the Fair Work Act Review. Given that Review's recommendations on enterprise agreements and right to entry, it will be interesting to see if those recommendations and this decision prompt some legislative clarification.

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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.