01 Feb 2014

Full Court upholds government's capacity to regulate enterprise bargaining via procurement policy

by Leigh Howard, Dr Graham Smith

State Governments can proceed to enforce their procurement guidelines without limitation, provided that States do not directly contract for labour services.

A Full Federal Court (Kenny, Buchanan and Griffiths JJ) has overturned Bromberg J’s findings[1] that the Victorian Government contravened the Fair Work Act 2009 (Cth) (FW Act) when it attempted to enforce its procurement policy with respect to two publicly funded construction projects: Victoria v Construction, Forestry, Mining and Energy Union (CFMEU).[2] The Full Court’s judgment brings welcome clarity to the interaction between State procurement policy and the FW Act’s general protections provisions. However, as will be shown, the decision does not completely ameliorate the risks presented by such policies and, in any event, the matter is yet to be finalised, given the CFMEU’s application for special leave to the High Court.

An analysis of the facts, the elements to each contravention, and Bromberg J’s initial findings was provided by the authors in a previous issue of the Employment Law Bulletin.[3] This article should be read together with that article.

The Bendigo Hospital project appeal

In the case of the Bendigo Hospital project, the essential findings of Bromberg J were that:

  • Lend Lease was an “independent contractor” within the meaning of section 342(1) item 4 of the FW Act;[4] and
  • Lend Lease was “proposing to enter into a contract for services” with a “principal” (the State) within the meaning of the same provision.[5]

The consequence of these findings was that the State had taken adverse action against Lend Lease’s employees by threatening to exclude Lend Lease from bidding for the Bendigo Hospital project. This was because Lend Lease’s employees were entitled to the benefits of the impugned enterprise agreement (ie. they possessed a “workplace right”).

The State challenged both findings.

Full Court: Lend Lease is an independent contractor

The State reiterated its argument that the phrase “independent contractor” in section 342(1) item 4 referred to the type of worker that is usually contrasted with workers engaged under a contract of employment. Therefore, according to the submission, item 4 of section 342(1) would not protect large organisations with many employees, such as Lend Lease.

The Full Court rejected the argument for the following reasons:

  • No implication, express or implied, can be read into section 342(1) that would support the State’s contention – ie. nothing in section 342(1) and the surrounding provisions suggests that the protection is somehow limited by the size of an independent contractor or the number of employees employed by that contractor.
  • To the contrary, protection is afforded to employees of independent contractors. This suggests that the independent contractor concept in section 342(1) extends beyond the notion of the independent contractor worker.
  • According to the State’s argument, a business could lawfully refuse to engage the services of other businesses unless their employees were adversely affected in some way. Such a result would be contrary to the intention behind the general protections provisions, which, according to the Full Court, is to capture “the conduct of all parties to workplace agreements, including employers who are independent contractors”.[6]

The State was not proposing to enter into a contract for services with Lend Lease

However, the Full Court agreed with the State that it was not “proposing to enter into a contract for services” with Lend Lease. Ultimately, therefore, section 342(1) item 4 was not engaged.

At issue was the contractual scheme for the project. The parties to the head contract were the State and a consortium of companies. No “contract for services” existed between the State and Lend Lease. However, a collateral deed was executed between the two that gave the State enforceable rights against Lend Lease from the inception of the head contract. In particular, the deed restrained Lend Lease from terminating or suspending performance of its services to the consortium unless certain events occurred or procedures were complied with. Justice Bromberg reasoned that these covenants were enough to constitute a “contract for services”, as they effectively guaranteed Lend Lease’s services for the project in circumstances where they might otherwise be excused from performance under the contract between Lend Lease and the consortium.[7]

The Full Court disagreed. For the Full Court, the clauses did not crease a positive obligation upon Lend Lease to provide services to the State, nor did they represent the State positively engaging Lend Lease to provide services.[8] They merely imposed a collateral restraint on termination or suspension of Lend Lease’s performance of services. As the deed represented the only contractual relations between the State and Lend Lease, the State’s conduct could not come within the ambit of section 342(1) item 4.[9] Penalties of $25,000 were thus set aside.[10]

It was, therefore, unnecessary for the Full Court to decide whether or not the State had overcome the presumption imposed by section 361 of the FW Act (ie. whether the State satisfied the reverse onus of proof).[11]

The Circus Oz project appeal

In relation to the Circus Oz project, Bromberg J held that the State intended to coerce Eco Recyclers into varying its enterprise agreement in contravention of section 343(1) of the FW Act because:

  • communications occurred between a senior official of the Construction Code Compliance Unit (CCCU) and Eco, where Eco was advised that its enterprise agreement was not compliant with the Code’s guidelines;[12]
  • the communication raised a presumption under section 361 of the FW Act that the State acted with an intention to negate Eco’s choice about whether it should vary its enterprise agreement;[13]
  • the evidence led by the State did not overcome that presumption and, in fact, showed that the State intended to negate Eco’s choice;[14] and
  • the very act of promulgating the Code guidelines was of itself illegitimate pressure that interfered with “free bargaining” of such a gravity that coercion was established.[15]

On appeal, the State argued that it did not act with the intent to negate Eco’s choice, its evidence in fact displaced the presumption, and, in any event, promulgation of the guidelines was not an illegitimate act tantamount to coercion.

Full Court: the State satisfied the presumption and did not intend to negate choice

The Full Court came to a different view of the communications between the CCCU and Eco. The court held that Bromberg J fell into error when concluding that the CCCU official:

  • knew that it was likely that Eco would take steps to vary its enterprise agreement; and
  • therefore must be taken to have intended that Eco vary its enterprise agreement.[16]

This finding was not available on the evidence. On the Full Court’s assessment, that evidence instead disclosed:

  • no direct statement from the CCCU official as to whether she wanted Eco to vary its enterprise agreement; and
  • no direct statement from the official as to whether she nonetheless intended to leave Eco with no practical choice about the matter.[17]

The evidence in fact showed that the CCCU official had no opinion as to whether or not Eco should vary its enterprise agreement.[18] Thus, his Honour’s conclusion that the CCCU official “wanted to see the Eco Agreement varied”[19] could not be sustained.

Promulgation of the guidelines was not illegitimate pressure

The Full Court overruled Bromberg J’s finding that promulgation of the procurement guidelines was an illegitimate interference with “free bargaining”. In doing so, Buchanan and Griffiths JJ were guided by Weinberg J’s statement in National Tertiary Education Industry Union v Commonwealth that:

"Coercion requires conduct which is relevantly unlawful, illegitimate or unconscionable. The implementation of policy by a democratically elected Government, however contentious in political or moral terms that policy may be, is not easily translated into conduct which is in any relevant sense “illegitimate” or “unconscionable”.

[These terms] are not to be understood as connoting mere disagreement, however strongly felt, with Government policy."[20]

In adopting this view, Buchanan and Griffiths JJ emphatically rejected Bromberg J’s reasoning. Their Honours held that:

  • the FW Act’s prohibition against coercion does not require a party to forgo its advantages or compromise its position merely because it can negotiate from an unassailable position;
  • overwhelming economic pressure is not, without more, illegitimate;
  • the State’s adoption and implementation of the Code and guidelines was lawful and within its prerogative;
  • the concept of “free bargaining” does not appear in the FW Act, and does not provide a restraint on otherwise lawful conduct;
  • it was inappropriate to stigmatise the State’s conduct because it does not conform with “free bargaining”, a perceived legislative policy; and
  • conclusions of this kind reflect value judgments rather than legal conclusions.[21]

It followed that the Circus Oz appeal succeeded on the second basis. A $28,000 fine was set aside.[22]

The CFMEU’s cross-appeal

The Full Court also dealt with a cross-appeal filed by the CFMEU. The appeal sought a declaration that the Code and guidelines were invalid and of no effect, as they exceeded the executive power of the State. While this was originally sought before Bromberg J, it appears that the declaration was sought at a late stage and was not the subject of full argument.[23] Justice Bromberg nonetheless dismissed the application, as the CFMEU did not point to any justiciable controversy — ie. the CFMEU could not establish that its rights were affected by the mere existence of the Code and guidelines.[24]

The Full Court agreed with Bromberg J. The Code and guidelines were policy instruments, not statements of law. They did not on their face authorise anything and did not affect one’s rights or obligations. Without this, a declaration could not be made: it was not within the court’s province to examine political judgments and matters of public policy.[25]

However, the Full Court made some interesting comments about constitutional issues that the appeal raised. In particular:

  • Justice Kenny hinted that the principles of representative and responsible government within State constitutional law may impact upon how a State Government implements executive policy as a regulative tool.[26]
  • Justices Buchanan and Griffiths pointed to an argument that State executive power can be terminated by the Commonwealth enacting legislation that regulates or abolishes that executive power.[27] However, neither issue required determination, given how the CFMEU structured its appeal.

Implications and special leave application to the High Court

The Full Court’s findings are clearly significant in a number of respects. As a consequence of the ruling (and unless overturned):

  • it is now settled that employer-contractors have workplace rights under the general protections provisions (noting that an earlier Full Court in Australian Industry Group v Fair Work Australia[28] expressed a reservation about this proposition);
  • as a consequence, it cannot be said that State Government procurement policies are completely without risk;
  • however, State Governments can proceed to enforce their procurement guidelines without limitation, provided that States do not directly contract for labour services; and
  • it is likely that litigants will use the emphatic language of Buchanan and Griffiths JJ as a yardstick for future arguments about the proper interpretation of the FW Act.[29]

The Minister for Industrial Relations, Robert Clark MP, has stated that the Victorian Government is intending to revise its guidelines in light of the court’s conclusions.[30] However, the Victorian Government may have to wait, as the CFMEU filed for special leave to the High Court on 16 January 2014. At the time of writing, the scope of the CFMEU’s appeal is unknown.

Given the constitutional flavour of the issues, it is possible that the CFMEU will attract the High Court’s attention and leave may be granted.

 

This article was first published in the Employment Law Bulletin, Vol 20, No 1, February 2014

 

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[1] Construction, Forestry, Mining and Energy Union (CFMEU) v Victoria (2013) 302 ALR 1; [2013] FCA 445; Construction, Forestry, Mining and Energy Union (CFMEU) v McCorkell Constructions Pty Ltd (No 2) [2013] FCA 446.Back to article

[2] Victoria v Construction, Forestry, Mining and Energy Union (CFMEU) [2013] FCAFC 160.Back to article

[3] L Howard and G Smith “Generally protected: the Federal Court rules against a government’s capacity to regulate enterprise bargaining through procurement policy” (2013) 19(4) Employment Law Bulletin 57.Back to article

[4] Above, n 1, at [122]–[131].Back to article

[5] Above, n 1, at [132]–[212].Back to article

[6] Above, n 2, at [120] (Buchanan and Griffiths JJ) and [12] (Kenny J agreeing).Back to article

[7] Above, n 1, at [210]–[211]. Back to article

[8] Above, n 2, at [128] (Buchanan and Griffiths JJ) and [12] (Kenny J agreeing).Back to article

[9] Above, n 2, at [132] (Buchanan and Griffiths JJ) and [12] (Kenny J agreeing).Back to article

[10] See Construction, Forestry,Mining and Energy Union v Victoria (No 2) [2013] FCA 1034.Back to article

[11] Above, n 2, at [138] (Buchanan and Griffiths JJ).Back to article

[12] Above, n 1, at [210]–[211].Back to article

[13] Above, n 1, at [231].Back to article

[14] Above, n 1, at [234]–[246].Back to article

[15] Above, n 1, at [256]–[257].Back to article

[16] Above, n 2, at [81]–[84] (Buchanan and Griffiths JJ) and [5]–[6] (Kenny J agreeing).Back to article

[17] Above, n 2, at [81] (Buchanan and Griffiths JJ) and [5]–[6] (Kenny J agreeing).Back to article

[18] Above, n 2, at [82] (Buchanan and Griffiths JJ) and [5]–[6] (Kenny J agreeing).Back to article

[19] Above, n 1, at [242].Back to article

[20] National Tertiary Education Industry Union v Commonwealth (2002) 117 FCR 114; 114 IR 20; [2002] FCA 441 at [116], [118].Back to article

[21] Above, n 2, at [95]–[97] (Buchanan and Griffiths JJ). Kenny J made no finding with respect to this issue: see at [8].Back to article

[22] Above, n 10.Back to article

[23] Above, n 1, at [277]–[280].Back to article

[24] Above, n 1, at [281]–[282].Back to article

[25] Above, n 2, at [145], [153] (Buchanan and Griffiths JJ) and [14] (Kenny J agreeing).Back to article

[26] Above, n 2, at [27] (Kenny J), referring to Stewart v Ronalds (2009) 76 NSWLR 99; 259 ALR 86; [2009] NSWCA 277 at [35]–[36] (Allsop P).Back to article

[27] Above, n 2, at [147]–[148] (Buchanan and Griffiths JJ), referring to Williams v Commonwealth (2012) 248 CLR 156; 288 ALR 410; [2012] HCA 23 at [393] (Heydon J).Back to article

[28] Australian Industry Group v Fair Work Australia (2012) 205 FCR 339; 228 IR 35; [2012] FCAFC 108 at [62] (North, McKerracher and Reeves JJ).Back to article

[29] Above, n 2, at [95]–[97] (Buchanan and Griffiths JJ) with, for example, the analysis in Construction, Forestry, Mining and Energy Union v Queensland Bulk Handling Pty Ltd [2012] FWAFB 7551; (2012) 224 IR 133 at [62]–[73] (Ross J, Boulton SDP, Smith DP, Booth and Gregory CC).Back to article

[30] Department of Treasury and Finance “Statement from the Minister for Finance, Robert Clark" media release, 19 December 2013.Back to article

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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.