​​Australian resources industry employment update

In this review, we look back at some recent decisions of the Fair Work Commission involving termination of enterprise agreements following the significant Aurizon decision in 2015. These cases highlight the challenges faced by employers in the industry and some of the options available when bargaining during difficult times especially if bound by an expired enterprise agreement which was entered into when the industry was buoyant. We also provide an overview of the industrial relations agenda of the recently returned Coalition government following the federal election. We also consider the issue of indemnification of directors and officers and provide an update on some other key cases and topics.

Each of these developments will be significant for employers in the resources sector over the balance of the year and beyond. We hope you find this update useful in considering some of those challenges.

Termination of enterprise agreements

The Fair Work Commission can terminate an enterprise agreement that has passed its nominal expiry date under the Fair Work Act 2009, if it is satisfied that it is not contrary to the public interest to do so and it is appropriate to terminate the agreement, having regard to the views of those covered by it (the employer, employees and any union) and the likely effect termination would have on them. Following the Full Bench decision in Aurizon Operations Limited & Ors [2015] FWCFB 540 (upheld by the Full Court of the Federal Court of Australia), it is now clear that the Fair Work Commission may terminate an enterprise agreement even though bargaining for a new agreement is ongoing. The Full Bench observed that the terms and conditions contained in an enterprise agreement cannot be expected to continue unaltered in perpetuity after it has passed its nominal expiry date.

Recent Full Bench decision

Construction, Forestry, Mining and Energy Union v Peabody Energy Australia PCI Mine Management Pty Ltd [2016] FWCFB 3591

A Full Bench of the Fair Work Commission in a Peabody Energy matter refused an application by the CFMEU for permission to appeal from the decision of Senior Deputy President Hamberger to terminate the Sedgman Employment Services Pty Ltd Bowen Basin Front Line Employee Enterprise Agreement 2011-2014. The appeal focussed on SDP Hamberger’s findings that terminating the Agreement would be likely to result in a new agreement being reached, which would be more in line with the current position of the coal industry and which would deliver productivity benefits. Bargaining between Peabody and the CFMEU and the CEPU had stalled over Peabody’s proposal to change a fixed allowance which amounted to approximately $30,000 per annum, to an incentive-based scheme which linked the payment to performance.

At first instance, SDP Hamberger found that the Agreement was reached at a time when the coal industry had been far more profitable. There had since been a significant downturn in the global coal industry, with coal prices falling to less than half of the price at that time. He found that if the Agreement was not terminated, it was unlikely that a new enterprise agreement would be agreed to. He also accepted that Peabody was unlikely to force employees onto modern award conditions if the Agreement was terminated. SDP Hamberger found that a new enterprise agreement would probably be agreed to if the existing Agreement was terminated, and that the new agreement would be similar to an undertaking proposed by Peabody for interim terms, which would be more in line with the coal industry’s current position.

On appeal, the Full Bench rejected the CFMEU’s arguments. The Full Bench held that these findings were permissible and reasonable as SDP Hamberger was required to consider the likely effect of terminating the Agreement when deciding whether it would be appropriate to terminate it. The Full Bench also rejected the CFMEU’s argument that SDP Hamberger’s finding regarding the complete transformation of the coal industry labour market, though slightly hyperbolic, involved any error of substance.

The Full Bench decision is an interesting perspective on the way the Commission can consider productivity issues and changes in the relevant industry when determining an application to terminate an enterprise agreement. The decision illustrates that the Commission can take productivity concerns of the employer into account when determining the likely effect of terminating an agreement. Interestingly, it appears that the Commission can also consider the likely terms and conditions that might be agreed to and whether these would be reasonable in the context of the economic state of the industry and the profitability and productivity of the employer. This provides an avenue to participants in the resources industry bound by an enterprise agreement agreed to in more profitable times.

Full Bench decision – Australian Manufacturing Workers’ Union v Griffin Coal Mining Company Pty Ltd [2016] FWCFB 4620

A Full Bench of the FWC has recently upheld a similar approach taken by Commissioner Cloghan in his decision to terminate the Griffin Coal (Maintenance) Collective Agreement 2012 in the face of falling profitability in the thermal coal industry.

Griffin Coal applied to have the Agreement terminated due to the impact that labour costs were having on its financial sustainability, while accepting that labour costs were only one factor to consider when looking at improving efficiency and productivity. Griffin Coal submitted that it had experienced significant trading losses, equating to an average gross margin loss of $48.99 million per year from 2011 to 2016. It provided evidence that labour costs, which were exacerbated by the Western Australian mining boom, were its largest operating cost.

The application was opposed by a number of employees and the AMWU for various reasons including the extra bargaining power that termination would give Griffin Coal in negotiating a new agreement; the reduction in remuneration and other benefits such as payment of accrued sick leave at termination; and the reduction in superannuation rates to the statutory minimum.

The Commissioner commented that the employees had benefited to date from the willingness of Griffin Coal to incur losses in the vicinity of $300 million since 2011. The point had been reached where Griffin Coal considered it appropriate to reform its operations to continue the support it receives from its “parent” company. The Commissioner also stated that he was “left with the observation that unproductive, inefficient, inflexible and unprofitable business do not remain in existence as a some sort of societal right. Griffin Coal relies on that sense of circumstances, when stating its facts and inferences.”

The Commissioner noted that the test for termination was based on public interest and not the self-interests of the parties involved. However, the Commissioner accepted Griffin Coal’s argument that terminating the agreement would be in the public interest because improving the company’s financial viability would also increase job security for employees.

The AMWU appealed Commissioner Cloghan‘s decision on a wide range of grounds. The Full Bench granted leave to appeal but upheld the Commissioner’s decision, finding that he had examined all factors required in an equitable and fair manner. The Full Bench adopted the conclusions in the Aurizon decision in upholding the Commissioner’s decision.

With respect to the Commissioner’s findings on Griffin Coal’s financial position and the productivity benefits of terminating the agreement, the Full Bench was satisfied that these findings were open to the Commissioner on the evidence before him.

Post-election debrief

In the double dissolution Federal election held on 2 July 2016 Australia voted in the Coalition for a second term.

The election was formally triggered by the Parliament twice failing to pass two packages of legislation to reinstate the Australian Building and Construction Commission and to create the Registered Organisations Commission.

The key reforms set to come out of the Coalition’s success in the election are outlined below.

It is not yet clear whether the Coalition will have enough seats at a joint sitting of both houses of Parliament to pass its proposed legislation.

Restoration of the ABCC

This is a key commitment of the Coalition.

Established in 2005 by the Howard Government, the ABCC was replaced with the Office of the Fair Work Building Industry Inspectorate, called the FWBC by the Gillard Government in 2012. Although the FWBC’s role is the same, it has been criticised for being less effective than the ABCC. This is mainly due to reduced powers and penalties.

Creation of a Registered Organisations Commission

The Coalition has also said it would introduce a Registered Organisations Commission, which is to be a union regulator analogous to ASIC.

Key changes involved in this will be the introduction of duties of good faith for union officials, use of position and use of information requirements for union officials.

Under the use of information requirements, a union official will commit an offence if he or she obtains information due to being a union official, and uses this information dishonestly with the intention of gaining an advantage for himself or herself, or causing detriment to the organisation. A union official will also commit an offence if he or she does this without intention, but is reckless as to whether it may result in an advantage being gained for himself or herself or someone else, or whether it may cause detriment to the organisation. The same applies if the union official uses his or her position in that manner.

If enacted, commission of an offence may lead to penalties of up to $360 000 and/or five years’ imprisonment.

IR Reform generally

The Coalition originally stated that it would publish a planned response to the findings of the Productivity Commission’s inquiry into workplace relations prior to the election. It then chose not to do this. The Australian Labor Party and the ACTU have already stated that the Government does not have a mandate for major and adverse individual relations changes.

Approval of new coal mines

Some environmentalists and scientists have called for a moratorium on coal mine approvals in an attempt to halt an increase in global warning, though this matter is said by the Government to be primarily one for the states. The Coalition has said it will not be introducing a moratorium.

Climate change

The Coalition has given a commitment to cut Australia’s carbon emissions on 2005 levels by 5% by 2020, and 26-28% by 2030.

Indemnification of directors

Recent resources sector incidents, such as the Pike River Mine collapse and others, have drawn focus onto the individuals liability of officers under WHS laws.

It is common for a director or officer to ask a company to indemnify him or her against liability incurred in their capacity as an officer of the company and/or for legal costs he or she may incur in proceedings defending or resisting that liability. The indemnification is typically given through a deed of indemnity and/or directors’ and officers’ insurance.

It is important to note that there are limitations on the types of liability that a company can indemnify a director or officer against. For example, under section 199A of the Corporations Act 2001 a company cannot indemnify a director or officer against a liability:

• owed to the company or to a related body corporate
• for certain pecuniary penalty orders or compensation orders under the Corporations Act; and
• owed to a third party which did not arise out of conduct in good faith.

The Corporations Act also prevents a company from indemnifying a director or officer for legal costs incurred in defending or resisting:

• proceedings in which he or she is found to have any of the above types of liability
• criminal proceedings in which he or she is found guilty, though a company can provide a loan or advance to a director or officer to defend against criminal proceedings prior to a guilty finding
• proceedings brought by ASIC or a liquidator for a court order, if the grounds for making the order are established; or
• in connection with proceedings for relief to the person under the Corporations Act in which the court denies the relief.

The Competition and Consumer Act 2010 also prohibits a company from indemnifying an officer against liability to pay a pecuniary penalty under section 224 of that Act, and for legal costs incurred in defending or resisting proceedings in which they are found to have such a liability. Any indemnity that contravenes this would be void.

Other notable decisions

Adverse action:

CFMEU v Anglo Coal (Dawson Services) Pty Ltd (High Court special leave application)

On 17 June 2016, the High Court (French CJ and Gageler J) refused the CFMEU special leave to appeal against a decision of the Full Federal Court upholding a decision of Justice Collier to the effect that Anglo Coal (Dawson Services) Pty Ltd had not taken adverse action for a prohibited reason against the employee when it dismissed him because of his dishonest conduct in relation to the taking of sick leave.

The employee had applied for two days of annual leave over the Anzac Day long weekend and when that leave was refused for operational reasons, said that he would “be sick anyway” and that he would go a get a medical certificate. The employee then obtained a medical certificate for the two days on which annual leave was originally sought, and did not attend work on those days.

At first instance, (Construction, Forestry, Mining and Energy Union v Anglo Coal (Dawson Services) Pty Ltd (No 2) [2015] FCA 265), the employee had argued that Anglo Coal (Dawson Services) Pty Ltd took adverse action against him because he had taken personal leave on two days (24 and 25 April 2014) and was absent from work on those two days.

Justice Collier of the Federal Court dismissed the application. Her Honour determined that, due to the conduct of the employee before taking the personal leave, the decision maker had strong reason to believe that the employee was not sick and the dishonesty of the employee was the reason, and only reason, for the dismissal.

The decision was appealed to a Full Bench of the Federal Court and by majority, the appeal was dismissed.

Justices Jessup and Rangiah considered that the employee had been dismissed because of his dishonest conduct and not because he had taken personal leave. Their Honours noted that in the particular facts of the case, the matter turned on the decision maker’s belief in the existence of certain facts, rather than on his knowledge of the existence of an entitlement as such.

The High Court has considered the application of the adverse action provisions twice in recent years. It is apparently satisfied that the reasoning in those cases provides sufficient guidance. If adverse action has been taken, the critical issue will usually be the motivation of the decision maker (or decision makers if there are more than one). Because the onus in that regard is on the respondent, proving that the proscribed motive was not present in the mind of the decision maker is never easy. This decision shows, however, that it can be done.

Cashing out sick leave:

Construction, Forestry, Mining and Energy Union v Anglo Coal (Drayton Management) Pty Ltd [2016] FCA 689

Justice Buchanan of the Federal Court found that, when cashing out personal/carer’s leave, employees who work 12.5 hour shifts are entitled to be paid the same amount that they would be paid if they had worked 187.5 hours, although the relevant enterprise agreement only credits those employees with 127.5 hours of personal/carer’s leave per annum.

Anglo Coal (Drayton Management) Pty Ltd’s enterprise agreement establishes a scheme under which all qualifying employees are annually credited with 127.5 hours of personal/carer’s leave. Subject to certain prerequisites, employees have the ability under the enterprise agreement to cash out, or salary sacrifice, up to 127.5 hours of personal/carer’s leave.

His Honour said that the period of “paid personal/carer’s leave” referred to in section 99 of the Fair Work Act, must necessarily be one or more of the “days” (or part of a day) of leave that are referred to in section 96 of the Act. His Honour said that the entitlement to paid leave is not referrable to an hourly equivalent because it is expressed in days and therefore, it followed that the statutory entitlement to 10 days of leave (and pay) could result in a greater hourly entitlement (and overall pay) in some cases than in others.

Further, his Honour said, the effect of section 101(2)(c) of the Act is that any cashing out under an enterprise agreement must reflect what would happen by way of payment if periods of leave were actually taken.

Applying that reasoning, his Honour said that, for any day of leave cashed out in accordance with the clause of the enterprise agreement, the employee must be paid exactly the same amount that they would be paid if they took the day of leave (ie, value of leave if taken = value of leave if cashed out). His Honour said that the effect of his interpretation of the clause “preserved” the arguably advantageous position enjoyed by 12.5-hour shiftworkers over workers on shorter shifts.

This meant that where personal leave was actually taken, it was worth 15 full work days for the relevant employee regardless of shift length.

Accordingly, Justice Buchanan declared that the proper construction of the enterprise agreement was that an employee who worked 12.5 hour shifts was entitled to cash out personal leave to the value of 187.5 hours of work (not 127.5 hours of work).

Anglo Coal has recently lodged an application for special leave to appeal to the High Court.

A number of the National Employment Standards, such as annual leave and personal/carer’s leave, establish minimum entitlements which are expressed in days. Issues can arise in applying these minimum standards to employees who do not work a uniform number of hours per day in a week of five days. This decision clarifies the application of the NES personal/carer’s leave standard to employees who work 12 hour shifts, but it is also relevant to employees working other “non-standard” hours arrangements. The decision is likely to be followed in applying other NES entitlements which are expressed in days.

Modern award reviews - update

A four yearly review of modern awards is being conducted by the FWC, as required by the Fair Work Act. The review has been underway since 2014 and is intended to be concluded by early 2017.

In the review of the Black Coal Mining Industry Award, the Coal Mining Industry Employer Group (CMIEG) is seeking a cap to be placed on redundancy pay, to provide a maximum benefit upon nine years’ service. This follows a decision of the Full Bench removing the age based cap on redundancy pay in the award, on the basis that it was discriminatory (Black Coal Mining Industry Award 2010 [2015] FWCFB 2192). The Full Bench relied upon an earlier decision of the Federal Court removing a similar redundancy pay cap in an enterprise agreement (Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union (No 2) [2015] FCA 136). The Full Bench granted liberty to apply to any party that wished for there to be a variation to the redundancy pay clause to provide for a new cap, noting there “may potentially be some merit in that a new limitation on retrenchment payments should be introduced.” The matter is listed to be heard in November 2016.

The CMIEG is also seeking to be heard on whether accident pay should be limited to 52 weeks, as compared to the current 78 week period. This follows a decision of a Full Bench concerning accident pay provisions providing for a period of 52 weeks in a significant number of modern awards ([2015] FWCFB 3523). The matter is due to be programmed shortly for hearing before a Full Bench.

A series of common issues have also been dealt with by Full Benches of the FWC concerning time off in lieu, compliance with the National Employment Standards, casual and part-time employment, transitional provisions and annual leave. For annual leave, a model term has been developed and is being considered to be inserted into certain modern awards. The clause deals with the taking of excessive annual leave, providing a process for both an employer and an employee to provide notice that leave will be taken where an excessive amount of leave has been accrued. The CMIEG has opposed the insertion of the model term on excessive leave as the Award already deals with the taking of leave more generally. The matter will be heard, together with certain other affected awards, in September 2016.

The Coal Export Terminals Award has also been the subject of review. The CFMEU has sought to vary the award to provide for public holiday and weekend penalty rates for shift workers. The Coal Export Terminals Group has opposed the variation in the form proposed by the CFMEU. If the matter is not resolved between the parties, the matter is expected to be dealt with by a Full Bench in late 2016.

Exposure drafts of other awards that are being reviewed in the resources industry, including the Maritime Offshore Oil and Gas Award, the Mining Industry Award, the Hydrocarbons Industry (Upstream) Award and the Oil Refining and Manufacturing Award, were released in November 2015. Interested parties have made submissions concerning those exposure drafts and the reviews are substantially progressed.