Beware of adverse action risks when implementing outsourcing arrangements

The decision of the Federal Court in the recent case of National Tertiary Education Industry Union v Swinburne University of Technology^[1] has issued a warning to employers to ensure that they look more carefully at their obligations before planning and engaging in any outsourcing program.

The outsourcing proposal

In July 2009, the Deputy Vice Chancellor and Director of Swinburne University of Technology (Swinburne) submitted a proposal to Swinburne’s Finance Committee which provided that Swinburne College be incorporated as a wholly owned subsidiary of Swinburne to become Swinburne College Pty Ltd (SCPL). The proposal went on to outline several advantages of the new arrangements including:

"… the creation of a valuable, profit focused, University owned education business with the ability to design and deliver programs which are largely free of the inflexibilities which flow from being University accredited programs delivered under inappropriate industrial arrangements …"

The proposal was approved and SCPL was incorporated. The effect of this decision was that the functions and operations of Swinburne College would be transferred to SCPL, including the delivery of courses previously offered by Swinburne College. This meant that affected teaching staff would need to move to SCPL or find other employment.

Throughout 2011, two confidential briefing documents were prepared. A stated rationale underpinning the proposal was the “development of fit for purpose employment arrangements” which would offer greater flexibility and improved profitability. One document revealed Swinburne’s intention to circumvent the transfer of business provisions in the Fair Work Act 2009 (Cth) (the Act) by employing new staff who were not current employees thus avoiding the application of Victorian TAFE Teaching Staff Multi-Business Agreement 2009 (TAFE MBA). The TAFE MBA provided significantly higher salaries to teaching staff in comparison to the relevant award which would apply in its absence. For example, a teacher on the highest pay scale received $82,619 under the TAFE MBA but under the relevant award received $39,657.

In March 2012, the SCPL Board endorsed a transition plan for SCPL. The plan set out a number of actions which would be undertaken to achieve the transition including:

• the reduction of ongoing workforce at Swinburne College;
  
• allowing fixed-term contracts to expire; and
  
• the relocation of general staff at Swinburne College to administrative areas in order to limit the impact of changes to teaching staff and therefore minimise the obligation to consult the NTEU.
  

SCPL then employed one person in each classification under the relevant award in order to satisfy the “genuine agreement” provisions of the Act and commence bargaining for a new enterprise agreement. In February 2013, SCPL applied to the Fair Work Commission for approval of the Swinburne College Pty Ltd Enterprise Agreement 2013. The Australian Education Union (as the relevant union) was informed by email in March 2013 of Swinburne however the email did not reference the fact that existing staff at Swinburne College would not be transferred to SCPL. Swinburne College teaching staff were informed of the application in similar terms in two emails sent throughout March. None of Swinburne’s communications confirmed the process of hiring staff at SCPL. The NTEU sought to intervene in SCPL’s application for approval of the enterprise agreement, which was subsequently withdrawn on 13 May 2013.

The proceedings

In October 2013, the NTEU commenced proceedings against Swinburne in the Federal Court alleging that Swinburne had threatened to take adverse action against employees affected by the SCPL proposal.

Swinburne actively defended the proceedings until March 2015 when it concluded terms of settlement with the NTEU admitting to a single contravention of s 340 of the Act.

The conduct of the contravention

Despite Swinburne admitting to the contravention, the parties diverged somewhat as to the conduct constituting the threat to take adverse action, and how it could be said the threat was communicated. The parties agreed that as a matter of law a threat to take adverse action must be communicated^[2], but did not need to be communicated to a specific person nor to the person threatened.^[3] The NTEU submitted that the threat was communicated variously including by the two confidential papers published in 2011. Mortimer J rejected the NTEU’s submission on the basis that there was no direct or indirect communication of the content of the confidential papers to the affected employees and therefore did not of themselves constitute a threat.

Her Honour found that the adverse action threatened was reduction in employment security due to the courses being transferred from Swinburne College to SCPL, which could result in the affected employees’ positions becoming redundant. Although Mortimer J found that the proposal had a number of objectives the “substantive and operative reason” for the threatened adverse action was found to be: 

"… that the Swinburne College teaching staff and senior educators had an entitlement to the benefit of an industrial instrument, being the TAFE MBA, which Swinburne’s proposals consciously did not envisage being part of the industrial arrangements for the new SCPL workforce, because the entitlements under that TAFE MBA were not the kind Swinburne wished to perpetuate in the new SCPL working environment."

The approach to penalty

In assessing the appropriate penalty, her Honour considered a number of factors including the nature and seriousness of the conduct and the need for general and specific deterrence.^[4] Her Honour stated that “the Court should ensure that the penalty imposed is proportionate to the gravity of the contravening conduct and reflects a ‘just sentence’ for the whole conduct”.^[5]

Her Honour found it relevant that the conduct constituting the adverse action was merely a threat and there was a “degree of speculation inherent in considering what might have occurred had the SCPL proposal been permitted to come to fruition”. Weighing strongly against that however and going to the seriousness of the conduct was the involvement of Swinburne’s senior management who actively and consciously intended there to be cost savings and industrial outcomes favourable to Swinburne and less favourable to its employees.

Mortimer J found that in the circumstances there was a greater need for specific and general deterrence than in the usual instance and pointed to a number of unique factors including:

• Swinburne’s size and its ability to source experienced legal and industrial advice;
• the seniority of those involved including the Vice Chancellor, the University Council, and the CEO of Swinburne College;
• the calculated nature of the contravention and the fact that Swinburne had received a penalty for a previous contravention of the Act;
• the lack of transparency in what Swinburne was planning to do and the conscious decision to keep the plans away from affected employees and away from the NTEU (and the AEU); and
• Swinburne’s absence of contrition or remorse.

Her Honour considered a penalty of $14,000 based on a maximum penalty of $54,000 for a single contravention of the Act to be appropriate in the circumstances. In addition to the penalty, her Honour found that through publication of her reasons for judgment the part of senior officers within Swinburne would be a matter of public record and would serve as a form of general and specific deterrence. The parties had also agreed that if the court found a contravention of the Act, Swinburne would pay the NTEU the sum of $120,000 in respect of costs of and related to the bringing of the proceeding.

Implications of the decision

Mortimer J suggested that better transparency earlier on may have exposed the legal difficulties with Swinburne’s proposed course of conduct and “may have produced an alternative negotiated outcome where resources and funds were not wasted, and employees had the voice they were entitled to”.

Her Honour’s statements act as a warning to all employers that industrial and employment protections and commitments are to be adhered to and respected, or appropriately re-negotiated, even when they are perceived to “cost” an employer more, or make for a less “flexible” workforce.

This article was first published in Employment Law Bulletin, Vol 21 No 10, November 2