All at sea: No obligation to bargain with union but NERR struck down

What you need to know

• The Fair Work Act 2009 (Cth) (FW Act) permits employers to be strategic in their choice of the corporate entity and the group of employees who will engage in enterprise bargaining. 
• A Full Bench of the Fair Work Commission (FWC) has confirmed that an employer can legitimately choose to bargain directly with a non-unionised group of employees, provided that it has a legitimate business reason for doing so. 
• A union which is not a bargaining representative for any employee to be covered by an enterprise agreement has no right to be involved in the bargaining process and no automatic right to be heard in an application for approval of the agreement.  
• Two of the agreements were found to be invalid, however, because the Notice of Employee Representational Rights (NERR) for each of those agreements did not strictly comply with the prescribed form. The decision confirms that there is no room for non-compliance with the prescribed form, even "technical" noncompliance such as inserting an incorrect telephone number.  

What you need to do

• When initiating bargaining, employers should consider the strategy for bargaining and the legitimate business reasons for bargaining with a particular group of employees.
• An employer must recognise bargaining representatives of employees when bargaining. If a union is not appointed as a bargaining representative for any employees, then there is no obligation on an employer to bargain with it.
• Be alert to a possible change in the law regarding NERRs. Until any change is made, ensure that any NERR issued to employees strictly complies with the form set out in the Fair Work Regulations 2009 (Cth).

Last year we reported on a decision by the FWC finding that an employer in the oil and gas industry had a legitimate business interest in pursuing a non-union enterprise agreement (see our Alert here).

In an appeal to a Full Bench of the FWC, the Maritime Union of Australia (MUA) challenged the approval of the agreement, and two other agreements which had been approved in similar circumstances. In each case:

• the agreement was made between an employer and a small group of employees; and 
• prior to each agreement being made, there had been protracted negotiations between a related company of the employer and the MUA for an enterprise agreement which would have covered these employees.

The MUA was successful in gaining permission to appeal against the approval of all three agreements, and was partly successful in the result – one agreement was upheld on appeal, but the two other agreements were found to be incapable of being approved.  

The Full Bench's decision confirms some important principles about the scheme of enterprise bargaining under the FW Act and the limits of an employer's ability to circumvent union involvement in its industrial relations.

Involvement of union in bargaining and approval

The MUA was not a bargaining representative for any employee covered by any of the three agreements. The particular employees who were to be covered by each agreement, at the time when they were made, were not MUA members (so the union was not their default bargaining representative). None of the employees nominated the MUA to be their bargaining representative.  

The Full Bench granted the MUA permission to appeal each of the decisions, finding that there was a "complex and unusual factual scenario common to all three appeals" which raised "unusual issues" requiring "appellate scrutiny". The Full Bench stressed, however, that there is no basis for a union to be a participant in bargaining for a proposed agreement if it is not a bargaining representative (either by default or as a result of being nominated by an employee).

It also rejected the MUA's argument on appeal that it should have been allowed to participate in the Commission's hearing of the applications to approve the agreements.  

Legitimate business interests of employers

The MUA argued that each of the agreements had been made as part of an alleged "scheme" amongst the employers to avoid bargaining with the MUA and was designed to establish a new, allegedly inferior, industry standard set of conditions. 

The Full Bench found that even if there was such a "scheme", it was not contrary to the FW Act and did not mean that the agreements were not validly made. The FW Act does not prohibit pattern bargaining (although no industrial action may be taken in support of it), and does not prohibit an employer from proposing terms and conditions which are inferior to a previous agreement (provided of course that the agreement meets the better off overall test when compared to the underlying award). 

The Full Bench found that there is no difference in substance between unions advancing a common claim for multiple proposed enterprise agreements and employers doing the same. 

It was critical to the Full Bench's reasoning that each of the employers had a legitimate business reason for seeking these new industrial arrangements, and that they were not done simply to avoid bargaining with the MUA. The legitimate business interests included that the employer's clients would want to engage a maritime logistics provider which was not at risk of being subject to protected industrial action. 

Wrong number!

The MUA was successful in challenging the approval of two of the agreements due to non-compliance with the statutory requirements for a NERR.  (See also our earlier Alerts on the Uniline and ALDI decisions).

The issue was that two of the employers had included in their NERR the wrong phone number, which appears on the bottom of the form (having put the Fair Work Ombudsman's number instead of the number for the Fair Work Commission Infoline). The Full Bench found the two agreements were not capable of approval because a valid NERR had not been issued.

The decision is another example of the strict approach the FWC takes, in that NERRs need to comply with the prescribed form and that the impact of an invalid NERR being issued is that the enterprise agreement cannot be validly approved. 

The Federal Government has been called upon by employers and employer bodies in reaction to the Full Bench's decision, to address the issue. Employment Minister, Michaelia Cash, has issued a statement that the Government will seek to change the law, because it does not pass the "common sense test".

The Full Bench also suggested in its decision that the form prescribed by the Regulations could be amended so that it omits the requirement to include the telephone number, or the FW Act itself could be changed so as to require "substantial" (rather than perfect) compliance with the prescribed form or to give the FWC discretion to approve an agreement despite noncompliance.

Authors: Vince Rogers, Partner; Trent Sebbens, Counsel; Hannah Martin, Lawyer; Geoff Giudice, Consultant