Adverse action and negotiating Enterprise Agreements – how far is too far?

Christy Miller, Jeremy McCall-Horn and Sarah Ashley
04 Aug 2022 Time to read: 4 MIN

Employers who are considering making the decision to outsource their labour or implement redundancies should consider the impact of this case and ensure that the business and financial factors and decision-making process are clearly documented and evidenced.

The Full Federal Court has recently upheld an earlier decision of the Federal Court that Qantas had taken adverse action against 2000 employees, by making them redundant and outsourcing a significant part of its ground services.

In its decision the Full Federal Court has confirmed that adverse action can be taken on the basis of a potential future exercise of the right to engage in bargaining and industrial action, potentially creating a clearer pathway for future adverse action allegations where an Enterprise Agreement (EA) is approaching is nominal expiry date.

Qantas has lodged an application for leave to appeal with the High Court. However, employers in the throes of enterprise bargaining or those who will be required to bargain need to consider the impact the restructure business decision on bargaining or the employees who have access to bargaining.

Qantas' outsourcing decision

In 2020, amid the COVID-19 pandemic, Qantas chose to outsource its "below the wing" services which includes baggage handling, ground service and plane cleaning at ten Australian Airports. As a result, over 2,000 Qantas workers were made redundant. Many of these workers were members of the Transport Workers Union of Australia (TWU), and enterprise bargaining was expected to open for the renegotiation of agreements at the end of 2020.

The Union alleged Qantas’ actions were adverse action prohibited by the FWA because:

  • a large portion of the redundancies were members of the Union and that the decision to outsource was taken in contravention of section 346 of the FWA; and
  • the redundancies were done to avoid renegotiating with the Union when the EA expired later that year, preventing their rights to bargain and engage in protected industrial action, contrary to section 340(1)(a) and (b) of the FWA.

A workplace right is defined as, amongst other things, being able to participate in a process or proceeding under a workplace law or instrument, including participating in enterprise agreement bargaining or variation processes, and also engaging in protected industrial action.

Qantas claimed that the real reason for their decision to outsource the business was because of the pandemic and business downturn, costing billions of dollars, and that the pandemic provided a ‘transformational’ opportunity to pursue outsourcing and potentially save over $200 million over 2-3 years.

In the first instance Justice Lee found Qantas had taken adverse action against its workers. Justice Lee emphasised the reverse onus required Qantas to demonstrate their decision was not to prevent workers organising and engaging in EA renegotiations, and that Qantas had failed to establish that these aspects were not an operative and substantial reason for its outsourcing decision.

While it was found that Qantas' decision to outsource was prohibited by the FWA, Justice Lee dismissed the TWU’s application for global reinstatement citing various practical consequences, including the uncertainty around which employees would wish to be reinstated, and the considerable costs and the likelihood that such an order would produce real and ongoing disputation as the main reasons for dismissal.

The interaction between adverse action and the outsourcing decision

On appeal, the Full Federal Court rejected all grounds of appeal, upheld the decision, and found that Qantas had failed to discharge its onus that the decision to outsource was not based upon a prohibited reason.

Some of the key points from the decision are that:

  • the right to engage in bargaining and protected industrial action is a protected workplace right even if that right cannot be exercised at the time the adverse action is taken, and even if it was uncertain as to whether that right would be exercised;
  • a person can engage in adverse action contrary to section 340(1)(b) by preventing the exercise of a workplace right either directly or indirectly – the real question is whether it is an operative and substantial reason for the adverse action (ie. was it a conscious part of the decision); and
  • Qantas had failed to discharge the reverse onus that the prevention of the exercise of a workplace right was not a substantial or operative reason for the outsourcing decision, including because the evidence suggested that:
    • the fact that employees may undertake protected industrial action was identified by Qantas as a risk that would be far more significant if the decision to outsource was delayed;
    • the decision maker's decision to outsource was sufficiently connected to this identified risk assessment, which also included (although no finding was made) that the Chief Operating Officer's recommendation to outsource prior to the EA's nominal expiry date was likely, in part, based upon preventing that risk from arising;
    • the evidence given by the decision-maker that the decision was not connected to this risk appeared unreliable to the Court, in the context of these other facts.

Key takeaways for future outsourcing

This Full Federal Court decision confirms the broad scope of adverse action provisions to include future workplace rights, even if those rights are not immediate or exercisable at the time of the adverse action being taken. While the definition of adverse action has always included protection over a proposed exercise of workplace rights, this case confirms the breadth of the provision to encompass actions that either directly or indirectly prevent future potential workplace rights. This is also one of the first times a Court has found that an employer's redundancy and outsourcing decision is on the basis of preventing employees to exercise their rights in relation to potential EA renegotiations.

In our view, this is a fine line.

The evident cost, expense, and difficulty, of managing large-scale employed workforces when balancing the cost savings potentially associated with outsourcing is a real and relevant factor for all large-scale businesses, especially those with many moving parts. Taking the position that a substantial and operative reason is to prevent EA bargaining and protected industrial action, even where there was clear evidence of a valid business reason, potentially impacts all restructure redundancy and outsourcing decisions. However, the Full Federal Court decision seems to suggest that this cost benefit analysis may amount to adverse action in certain circumstances.

Employers who are considering making the decision to outsource their labour or implement redundancies should consider the impact of this case and ensure that the business and financial factors and decision making process are clearly documented and evidenced. This is especially the case where an in-term enterprise agreement is approaching its nominal expiry date.

Qantas has filed an application for leave to appeal to the High Court to challenge the Full Federal Court decision.

This may not be the end of the road for the outsourcing case and the breadth of adverse action rights, and clarity from the High Court on this issue would be well received... Watch this space for further updates.

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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.