13 Nov 2014

Fair Work Commission provides further guidance on good faith bargaining requirements

by Shae McCartney, Patrick Lawler

While employers may be required to put forward a proposal in order to satisfy the good faith bargaining requirements, the proposal need not be one that is acceptable to the other side or likely to be accepted by the employees covered by it.

The series of decisions in relation to the bargaining dispute in 2012 involving APESMA and Endeavour Coal resulted in an extension of employers' good faith bargaining obligations. The decisions, although ultimately watered down to some extent, in effect provided that employers risk breaching the good faith bargaining requirements in the Fair Work Act 2009 (Cth) if they do not put forward their own proposals or subject matter which they may be prepared to include in an enterprise agreement.

There have been very few good faith bargaining decisions since the Endeavour cases, however the Fair Work Commission has recently considered the issue in a decision which is encouraging for employers.

Recent guidance

In APESMA v Peabody Energy Australia Coal Pty Ltd [2014] FWC 6061, APESMA failed in its application for good faith bargaining orders.

APESMA relied heavily on the Federal Court decision in Endeavour, where it was said that once a majority support determination has been made, an employer must approach bargaining with a genuine (or good faith) objective or intention of concluding an enterprise agreement "if possible", and may be required to put forward its own proposal in order to satisfy the good faith bargaining requirements.

What happened?

In December 2013, APESMA obtained a majority support determination requiring Peabody to bargain for an agreement to cover its senior, technical and engineering employees engaged at its Wambo mine.

Peabody's position after the majority support determination order was that it had always engaged salaried staff on written contracts of employment which were underpinned by the Black Coal Mining Industry Award 2010. Peabody told APESMA that its position was that there be either an enterprise agreement, or staff contracts, but not both. Further, as an appropriate safety net (in the form of the Award) was already in place, if there was to be an enterprise agreement, it should reflect the existing minimum standard in the industry and should continue to provide Peabody with maximum flexibility in a challenging market environment.

Unlike Endeavour Coal, Peabody did put forward a proposal during negotiations with APESMA.

Peabody's proposal largely reflected the terms of the Award, and included pay rates which APESMA submitted where approximately $100,000 less than the employees' actual rates of pay, and on that basis APESMA argued it was not a "genuine proposal", but was "sham" because it was so far from existing conditions in the industry.

What did the Commission find?

Senior Deputy President Hamberger rejected the union's submission and found that Peabody's proposal was a genuine one.

He said that the reference in Endeavour to putting forward a proposal which may be acceptable, was to a proposal which may be acceptable to the party putting it forward, not to the other side. Peabody was entitled to take a "hard" bargaining position and was not required to act against its own interests.

As an aside, it is worth noting that Peabody's draft enterprise agreement included a clause that it would terminate all existing contractual arrangements. APESMA argued that Peabody had contravened the requirement to refrain from capricious or unfair conduct that undermines freedom of association or collective bargaining. However, SDP Hamberger accepted Peabody's evidence that it did not intend to reduce the terms and conditions of its staff, and that its draft agreement was a starting point for further negotiation.

Implications for employers

The decision in Endeavour was concerning for employers and created uncertainty regarding an employer's obligation to put forward a proposal in circumstances where it may not want an enterprise agreement in any form.

However, this decision is welcome relief for employers and provides additional guidance on their obligations in respect of good faith bargaining. While in some circumstances employers may be required to put forward their own proposal, it appears that:

  • provided the proposal is genuine and not a sham, the proposal need only be acceptable to the employer, not to the other party
  • the Commission will take care before characterising a proposal as a sham, noting that an employer is not required to act against their own interests in the bargaining process
  • putting forward a proposal which largely reflects the terms of the applicable modern award will not of itself breach the good faith bargaining requirements;
  • a proposal which is substantially less favourable than employees' current terms and conditions may still be genuine;
  • an employer is entitled to adopt a hard bargaining position, but should consider and respond in relation to modification to its proposal.

Further guidance from the Fair Work Commission

Meanwhile, the Fair Work Commission recently released its fourth benchbook for public comment.

The benchbook covers a range of issues, including the bargaining process, good faith bargaining requirements, types and content of agreements, the approval processes and the 'better off overall test'.

What employers should do now

Employers should:

  • carefully prepare their industrial strategy prior to commencing negotiations
  • have contingencies and plans in place to manage and respond to enterprise bargaining campaigns
  • consider strategies to develop relationships that will assist in achieving their industrial strategy aims.

If you would like further information or require assistance with your industrial strategy, enterprise agreement negotiations or bargaining disputes, please contact us.

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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.