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Termination of Agreements – Landmark FWA Ruling

14 December 2010


Termination of Agreements – Landmark FWA Ruling

Ed Austin-Woods, Associate

Employers in the process of bargaining for a new Enterprise Agreement (“Agreement”), and who are considering terminating an expired Agreement, should consider their strategy in light of a recent FWA ruling.

Under the previous Workplace Relations Act 1996 (Cth), a party to an expired agreement did not experience a high degree of difficulty in seeking to have it terminated. However, that position has now markedly changed.

In Tahmoor Coal Pty Ltd [2010] FWA 6468, Vice President Lawler (“Vice President”) considered FWA’s discretionary power to terminate agreements under s 226 of the Fair Work Act 2009 (Cth) (“FW Act”).

Facts

Tahmoor Coal Pty Ltd (“Tahmoor”) applied to FWA to terminate two agreements that had nominally expired in April 2008 and April 2009 respectively.

At the time, Tahmoor was bargaining with the CFMEU for a replacement agreement. The negotiations could best be described as robust and had involved a high degree of animosity. The bargaining had continued for more than 18 months. There had been almost 60 bargaining meetings and significant industrial action which included both a number of employee strikes and an employer lockout. The parties had also brought proceedings in FWA in relation to the bargaining process.

The expired agreements imposed a number of commercial constraints and operational restrictions on Tahmoor that adversely affected its profitability to “a material degree”. This included restrictions on the hours of work, shift arrangements, contractors and minimum manning requirements.

The central issue was whether it was “appropriate” to terminate the agreements under the new “appropriateness test” in the FW Act.

The Vice President highlighted that FWA must not only be satisfied that terminating an agreement is not contrary to the public interest, but that FWA considers it “appropriate” to take this action after taking into account all of the circumstances.

The Vice President stated that in determining “appropriateness”, FWA must necessarily examine the objects of the FW Act which indicate that enterprise bargaining “is the central way in which, in the framework that has been established by the FW Act, productivity benefits are to be achieved”.

The Vice President further stated that the FW Act emphasises that a key role of FWA is to facilitate good faith bargaining and the making of agreements. Consequently, FWA must consider how termination will influence the prospects of the parties concluding a new agreement.

Decision

The Vice President held that it was not appropriate to terminate the two agreements because it would reduce the chance of the parties reaching agreement during their current bargaining process. This would be contrary to the objects of the FW Act.

He reasoned that termination would give Tahmoor all of the productivity benefits that it was seeking in a new deal which would naturally reduce its appetite for a new agreement. Conversely, it would also result in the employees, and the unions, becoming “disproportionately” worse off and significantly weaken their bargaining position.

Furthermore, and most importantly, the Vice President stated that it will generally not be appropriate to terminate an expired agreement if bargaining for a new agreement is ongoing and there remains a reasonable prospect for success, even where the process has become “protracted”.

Implications

This decision is highly problematic for employers that have an expired EA and are seeking to have it terminated. The process is no longer a “tick-the- box” exercise and a mere formality, particularly where negotiations for a new agreement have commenced.

Terminating an agreement has now become measurably more difficult and employers will need to carefully consider their industrial strategy in light of this decision.

The “appropriateness test” means that FWA has a broad discretion to examine all of the surrounding circumstances relating to an agreement, and will pay particular attention to whether bargaining has commenced and the effect termination will have on the respective position of the parties.

Your Key Actions:

  1. Review your agreement and determine whether it should be terminated before bargaining for a new instrument commences.
  2. Remain informed on the latest bargaining and industrial developments, and contemplate their consequences and implications.
  3. Create a sound industrial strategy which is carefully planned and considered.
  4. Understand that an agreement’s nominal expiry date does not mean that it will cease to operate on that date.
  5. Ensure that you are prepared for an agreement to continue to apply beyond its stated nominal expiry date.
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