25 May 2017

Enterprise agreement drafting: the value of getting it right - and the way to do it

By Michael Byrnes

Involving a lawyer with experience in enterprise agreements and keeping good notes can ensure your enterprise agreement gets it right.

In the 1983 hit "Words", singer F.R. David famously sang "Words don't come easy to me". While that lament was in the context of expressing love, the same problem can sometimes afflict those who draft enterprise agreements.

Or perhaps the problem is not in finding the right words, but in putting them together. It's been noted by courts that those drafting enterprise agreements are sometimes more concerned with "expressing an intention in ways likely to have been understood in the context of the relevant industry and industrial relations environment than with legal niceties or jargon" (Kucks v CSR Ltd)

While that approach might make sense in the heat of negotiations, and in light of the need for enterprise agreements to be practical, living documents easily understood by management and employees alike, it can cause problems if there is a dispute and the language is then subjected to a lawyer's analysis.

A recent appeal decision of the Full Bench of the Fair Work Commission threw this problem into sharp relief, and suggests some ways to avoid it in the first place (Kentz Pty Ltd v Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia [2017] FWCFB 2600).

An income protection insurance clause with multiple meanings

The dispute related to a clause which required the employer to take out income protection insurance for all employees.

The problem with this clause? It refers to "approved insurer", but neither defines "insurer" nor provides details of the approval process.

The Company said "insurer" meant the party with whom the insurance contract is entered into; the CEPU that it meant the insurance policies listed in the Clause, or other policies agreed upon by the parties.

The Company said "approved" meant as approved by the Australian Prudential Regulation Authority; the CEPU that it meant as agreed by the trade union party or parties to the agreement.

They even disagreed over the term "such as"; the Company said that this meant insurance policies it took out, the CEPU that it meant insurance agreed by the relevant parties.

After hearing these conflicting interpretations, the Commission observed:

"There is something to be said for many of these interpretations, and overall the plain and ordinary meaning of the words, read properly in context, does not able us to reach a conclusion as to the meaning of the clause. The clause is not a riddle, wrapped in a mystery, inside an enigma, well some points in the proceedings it perhaps threatened to become so. It is fair to say that the parties in the Commission struggled to make sense of the ordinary meaning of the words. The clause is ambiguous."

How will the Fair Work Commission deal with the interpretation of enterprise agreements?

In grappling with the meaning of the Clause, the Commission relied on the most recent High Court decision, Amcor Ltd v CFMEU, and a decision of the Full Bench of the Commission, AMIEU v Golden Cockerel Pty Ltd, which provided a very useful summary of the authorities:

1. The AI Act does not apply to the construction of an enterprise agreement made under the Act.

2. In construing an enterprise agreement it is first necessary to determine whether an agreement has a plain meaning or contains an ambiguity.

3. Regard may be had to evidence of surrounding circumstances to assist in determining whether an ambiguity exists.

4. If the agreement has a plain meaning, evidence of the surrounding circumstances will not be admitted to contradict the plain language of the agreement.

5. If the language of the agreement is ambiguous or susceptible to more than one meaning then evidence of the surrounding circumstance will be admissible to aide the interpretation of the agreement.

6. Admissible evidence of the surrounding circumstances is evidence of the objective framework of fact and will include:

(a) evidence of prior negotiations to the extent that the negotiations tend to establish objective background facts known to all parties in the subject matter of the agreement;

(b) notorious facts of which knowledge is to be presumed;

(c) evidence of matters in common contemplation and constituting a common assumption.

7. The resolution of a disputed construction of an agreement will turn on the language of the Agreement understood having regard to its context and purpose.

8. Context might appear from:

(a) the text of the agreement viewed as a whole;

(b) the disputed provision's placed and arrangement in the agreement;

(c) the legislative context under which the agreement was made and in which it operates.

9. Where the common intention of the parties is sought to be identified, regard is not to be had to the subjective intentions or expectations of the parties. A common intention is identified objectively, that is by reference to that which a reasonable person would understand by the language the parties have used to express their agreement.

10.The task of interpreting an agreement does not involve rewriting the agreement to achieve what might be regarded as a fair or just outcome. The task is always one of interpreting the agreement produced by parties.

In this case, the evidence demonstrated that the parties understood in the process of negotiation that the Company had to take out income protection insurance using one of the insurance products referred to in the Clause, unless the parties agreed otherwise. "An approved insurer" was an income protection insurance product of one of those named insurance entities, or another insurance product agreed between the parties.

How do you avoid an argument over your enterprise agreement in the Fair Work Commission?

As can be seen, a poorly drafted enterprise agreement can be a recipe for uncertainty, disputation, litigation and potentially enormous expense. So how do you avoid it?

First, you need to understand how these disputes arise in the first place. As the Commission noted in this case:

"Finally, the problem of poor drafting of enterprise agreements is one that frequently occurs in Commission proceedings. The parties then quite naturally adopt interpretations which favour their interest, and refusal to compromise leads to litigation of this sort. The evidence about negotiation of this agreement before us does not indicate that the obvious defects in drafting arose from difficult negotiations in which this was the last matter to be drafted, or where the parties attempted to paper over difficulties with language susceptible to mutually incompatible meanings, or some other similar explanation. Rather, the negotiations while genuine were, on the evidence before us, more in the nature of explanations of the meaning of an agreement clause or agreement which was a "pattern agreement" applying to many employers in the industry. The parties to the agreement did not draft the clause for this enterprise but rather adopted it after discussions and explanation. The likely explanation for the poor drafting is that provided in Kucks as quoted earlier. It is perhaps regrettable that such an agreement is widespread in nature and that more attention was not focused on clear drafting."

That means that clauses are often drafted in the context of often protracted negotiations between the employer and union, where everybody thinks they understand what's going on, but will be interpreted in a very different content ‒ the legal context.

Some steps for employers to consider:

  • Ensure the drafting of clauses is as clear and unambiguous as possible and precisely reflects the intention of the parties.

  • Where a concept is difficult to reduce to writing in an entirely ambiguous way, consider providing worked examples or illustrations to clarify the meaning of the clause (this is particularly so where the clause contemplates calculations.)

  • Make and retain contemporaneous notes of the parties' intention , so that you have relevant, cogent evidence if there is a dispute over interpretation.

  • Treat the drafting of clauses of an enterprise agreement with the same care and precision as you would give the clauses of a significant commercial contract. The consequences of getting it wrong warrant it.

  • Involve a lawyer with experience in enterprise agreements, if only to review the final draft before the parties execute it. A clause such as the one in this case would (one hopes) not survive a legal review, and it's far cheaper to pick up deficiencies in drafting at this stage than waiting until they blossom into a lengthy dispute.

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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.