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08 Sep 2017

Termination of the Murdoch Enterprise Agreement and its impact on future bargaining

By Dr Graham Smith, Stuart Pill

Termination of the Murdoch University enterprise agreement is a game changer in bargaining in the higher education sector and its impact goes beyond situations where a university is in financial difficulty. Is the "nuclear" option right for your institution?

Murdoch University has successfully argued that the Murdoch University Enterprise Agreement 2014 should be terminated by the Fair Work Commission due to its restrictions, its financial impact and little headway in protracted bargaining for a new agreement. Termination was held not to be contrary to the public interest and was appropriate. The decision will have significant implications for future enterprise agreement negotiations in the tertiary education sector.

Commissioner Williams in the Fair Work Commission ("FWC") has terminated the Murdoch Agreement effective from 26 September 2017. From that date Murdoch has given an undertaking to FWC to maintain a number of the benefits and conditions in the Murdoch Agreement for a period of six months. Crucially, agreement provisions such as discipline, and disciplinary Committees and Redundancy Review Committees, are not part of the undertaking and will cease to apply from 26 September 2017.

The NTEU has 21 days to appeal but its appeal prospects appear poor. However we expect the NTEU will seriously consider appealing, as this will assist in its bargaining position elsewhere, enabling it to say that the matter is still in contention.

The effect of the Decision is that bargaining for a new enterprise agreement may continue and if no new enterprise agreement is reached within the next six months, then unless Murdoch decides to extend the undertaking to certain conditions, thereafter the only industrial instruments applying to Murdoch University will be the Academic Staff Modern Award and the General Staff Modern Award. Those Awards contain minimalist terms and conditions and rates of pay significantly below the enterprise agreement rates. Whether Murdoch would actually apply the award rates of pay and drop the actual salary rates is speculative but unlikely.

The nuts and bolts of the Murdoch decision

Under the Fair Work Act an employer is entitled to apply to terminate an enterprise agreement that has passed its nominal expiry date. The Fair Work Commission must terminate the agreement if it is satisfied that it is not contrary to the public interest to do so. The public interest in this context is not the interests of the University or of the employees ‒ it is a wider context. So while the views of the employer and employees are to be taken into account, in the exercise of the FWC's discretion, their views are secondary.

In this case the principal argument advanced by Murdoch was that it is in the public interest that Murdoch be able to make changes to its business model and its culture to be financially sustainable. Some of these changes involve reshaping Murdoch's workforce, altering staff behaviour, controlling staff costs and removing unnecessary bureaucratic costs.

While Commissioner Williams accepted the NTEU's argument that the contents of the Murdoch Agreement were not the sole cause of Murdoch's poor financial situation, he found that provisions of the Murdoch Agreement have had, and would continue to have, some negative impact on Murdoch's financial situation ("as have the changed market, government decisions, poor strategic decision, lack of corporate governance, poor management and other external factors").

Murdoch University's evidence on the Agreement and its financial position

Murdoch's evidence before the Fair Work Commission focused on the University's dire financial position and the impact of particular provisions of the Murdoch Agreement that impeded its capacity to reshape its workforce, alter staff behaviour, control staff costs and remove other costs, reduce bureaucracy and improve workplace culture.

This led to close scrutiny by the FWC of Murdoch's financial position. Expert evidence was given on both sides of both current and historical financial circumstances and some of the evidence about Murdoch's financial situation was provided to the FWC on a confidential basis. Expert evidence was led from Deloittes, and ACIL Allen consulting for the University and PPB Advisory, and the Australia Institute for the NTEU.

Furthermore, the Chancellor of Murdoch University, Mr David Flanagan, gave evidence as did the Chief Operating Officer of Murdoch, amongst others.

The key clauses in the Agreement that (according to Murdoch) affected the University's financial position included:

  • Misconduct/Serious Misconduct (including provisions for Review Committees);
  • Unsatisfactory Performance (again including provisions for Review Committees);
  • Managing Organisational change (with a focus on a the two-step consultation process and the ambiguity of the requirement to consult on any proposal for organisational change);
  • Dispute Settlement Procedure (particularly the status quo provision in that procedure);
  • Redundancy, managing redundancy and redeployment, especially the prescriptive steps;
  • The unsatisfactory performance review panel process (and the fact that the process contributed to an adversarial workplace culture leading to low productivity and preventing the removal of poor staff);
  • Scholarly Teaching Fellows (and the requirement to employ a specified minimum number of STFs);
  • Fixed Term Contracts and the rigid fixed term categories restricting the use of fixed term employment;
  • The Academic Workload clause (which prevents staff from being required to teach for greater than 75% of their workload); and
  • Superannuation (focusing on the impediment to staff choosing their own superannuation fund and superannuation arrangements).

Why Commissioner Williams terminated the Murdoch Agreement

Commissioner Williams concluded that removing these "problematic" clauses in the Murdoch Agreement will help Murdoch to make the changes it wants as part of improving its financial circumstances and not removing these provisions will make it harder for Murdoch to achieve this.

In reaching his decision, Commissioner Williams took account of the fact that bargaining had been protracted (there had been 27 bargaining meetings over 12 months) and that the parties were essentially deadlocked, with the University having put forward its best/final offer many months earlier. He concluded that the current context for negotiations had not been neutral and had favoured the NTEU where it would not agree to change the relevant clauses in the Murdoch Agreement. Terminating the agreement would tip the balance more in favour of Murdoch, but it was not contrary to the public interest to do so, given the NTEU's unwillingness to change the existing clauses.

Commissioner Williams rejected the NTEU's public interest arguments based on the impact of termination on academic freedom. The NTEU had argued that removing the clauses relating to misconduct and serious misconduct (together with the relevant Review Committee processes) would make academic staff more reluctant to exercise academic freedom and that this, together with the loss of the Academic Freedom and the Intellectual Freedom clauses in the Agreement, would be contrary to the public interest.

Commissioner Williams took the view that academic freedom did not mean that staff could engage in forms of misconduct or serious misconduct. He also found that the introduction of the disciplinary provisions into the enterprise agreement (that the NTEU argued supported academic freedom) was unrelated to academic freedom; in any event their introduction predated the unfair dismissal regime introduced in Federal legislation around 1993. Specifically the Commissioner rejected the evidence given by the NTEU General Secretary, Grahame McCulloch, on these issues. The University also undertook to maintain specific provisions regarding academic freedom.

Implications for other Universities of the Murdoch Agreement decision

There has already been and will be more commentary on the decision suggesting that its precedent value can be confined to situations where a university is in financial difficulty. In our view that is not correct. The case law that underpins the Murdoch decision (including relevant Full Bench decisions) does not focus on the employer's poor financial position.

For any other University that might contemplate going down this path, an argument that the provisions of its enterprise agreement impede its strategic goals of staying competitive and sustainable would equally invoke the "public interest" in the relevant sense.

There are steps that a University might want to take to maintain the option of successfully applying for termination of its enterprise agreement. We'll be discussing these at our upcoming Forum.

If a University did at some point in time apply to terminate its enterprise agreement, it must remember that its financial information and financial circumstances will be subject to intense scrutiny. If the evidence reveals that the University is in a strong financial position, this fact will be used against it. Nevertheless if the correct strategies are adopted financial prudence should not be preclude success.

Given the reasoning and approach in this case, if there is a credible prospect of a potential termination application at a future date, the NTEU will have to adopt a less intransigent position on existing provisions than in the past and be prepared to engage in (or at least seen to be engaging in), modification of existing provisions, including in favour of the relevant University.

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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.