Eenie meenie miney mo: When is a group of employees "fairly chosen"?

Construction, Forestry, Mining and Energy Union v John Holland Pty Ltd [2015] FCAFC 16 (24 February 2015)

WHAT YOU NEED TO KNOW

• When approving an application for an enterprise agreement, the Fair Work Commission must be satisfied under section 186(3) of the Fair Work Act 2009 that the group of employees covered by the agreement was fairly chosen.
• A Full Court of the Federal Court of Australia has recently clarified when a group of employees is "fairly chosen". The Full Court found that:
  • an agreement made with three employees and intended to have state wide application did not contravene the FW Act;
  • it is not relevant if you cannot tell how many employees would or might in the future be covered by site specific agreements and therefore be excluded by enterprise agreements. This argument would mean that any agreement made in advance of a project or with a very small number of employees where possible coverage was much greater could not be approved;
  • considering who would be covered by an agreement involves an appreciation of the nature of the work rather than how many employees may carry out the work;
  • while the FW Act requires bargaining to be conducted in "good faith", it is not relevant to consider whether the agreement undermined collective bargaining;
  • it is not correct to say that the agreement made with three employees deprived future employees of the chance to bargain. Rather, any deprivation of that opportunity would arise in the case of any new employee engaged during the term of the agreement; and
  • the Full Bench appeared to have an unexpressed preference for union involvement and greenfield agreements, which is not reflected in the FW Act scheme and is not a relevant consideration.
• The test for when a group of employees is "fairly chosen" for the purposes of approving an application for an enterprise agreement is not the same as the test for "fairly chosen" in the context of an application for a majority support determination or a scope order. In the latter case, the group is a wider group (corresponding to potential coverage) than the group of present employees who wish to bargain or whose immediate interests are being represented.

WHAT YOU NEED TO DO

• Employers should consider the application of this decision to their agreement making strategies.
• Focus on the nature of the work, rather than how many employees are covered, when deciding who should be covered by an agreement.
• Consider using enterprise agreements with a small number of employees as an alternative to greenfields agreements to give certainty of terms and conditions when recruiting employees, and for protection against protected industrial action early on during new projects.
• Be aware that there may be some limitations in taking this approach. The Full Court commented that in this case, there was no suggestion of manipulation of agreement making procedures. The Full Court also noted that it could not exclude the possibility that a small group may not be fairly chosen where it may not be fair for an enterprise agreement to be made with three existing employees but to cover a wide range of other classifications and jobs in which those employees may have no conceivable interest. The Full Court did not need to address this issue in the case before it.

When approving an application for an enterprise agreement, the Fair Work Commission must be satisfied under section 186(3) of the Fair Work Act 2009 that the group of employees covered by the agreement was "fairly chosen".

How many employees need to be covered by an enterprise agreement for the employees to be "fairly chosen"? Is three employees too few?

A Full Court of the Federal Court of Australia has recently clarified this issue.

The agreement-making process

The employer was awarded a contract to build a new hospital in Perth. Only three employees were hired to perform building and construction work at the site because the employer planned to undertake most of the work through subcontractors.

The employer met with the three employees for the purpose of making an agreement under the FW Act. The employer explained the agreement making process to the employees at the meeting and the employees then appointed themselves as bargaining representatives.

The employees voted in favour of the agreement which covered:

All employees … performing building or civil construction work in Western Australia in accordance with a classification specified in this Agreement.

The agreement excluded any employees covered by a project or site specific agreement entered into by the employer. The agreement may also have applied to other projects for which the employer was tendering throughout Western Australia, subject to any project or site agreements being made.

Approval at first instance

The agreement was approved at first instance by Deputy President McCarthy who found that the group of employees were:

• geographically distinct because the agreement applied in Western Australia; and
• operationally distinct because the agreement applied to building or civil works.

Although the employees were not organisationally distinct, DP McCarthy found the employees were fairly chosen.

DP McCarthy also noted that there was no evidence of an intention to "circumvent the objects" of the FW Act or to "prevent or frustrate" employees from being represented and to collectively bargain.

However, this approval was overturned by a Full Bench of Fair Work Australia (as it then was) on appeal.

Overturned on appeal

On appeal before a Full Bench of FWA, the CFMEU argued that DP McCarthy had not made a definitive finding about the group of employees covered by the agreement, as required by the FW Act.

The Full Bench found that:

• the group of employees could not be regarded as geographically, operationally or organisationally distinct as such conclusions would be "unsafe" having regard to the uncertainty of actual future coverage; and
• the agreement as made with the three employees would undermine collective bargaining by other employees in a manner not compatible with the objects of the FW Act.

The Full Bench overturned approval of the agreement.

Third time lucky – approval by a Full Court of the Federal Court of Australia

On an application for review before the Federal Court, Justice Siopsis quashed the decision of the Full Bench of FWA. His Honour found that:

• FWA could withhold approval for an agreement if approval would not be consistent with good faith bargaining;
• it was not within FWA's power to withhold approval on the grounds that it was of the view that the approval would undermine collective bargaining;
• the Full Bench fell into jurisdictional error because it misconstrued sections 186(3) and 186(3A) of the FW Act; and
• the general words of s 578(a) of the FW Act did not permit FWA to imbue the FW Act with general meaning that was not to be found in the words when properly constructed.

On appeal, a Full Court of the Federal Court agreed with the decision at first instance and found that the Full Bench of FWA had fallen into jurisdictional error by:

• misconstruing and misapplying sections 186(3) and 186(3A) of the FW Act; and
• not identifying any feature of the agreement which suggested it intended to frustrate the operation of the FW Act or prevent good faith bargaining and had made jurisdictional error.

The Full Federal Court agreed with the decision of Justice Siopsis and dismissed the appeal.

Relevant considerations

Justice Buchanan, with Justices Barker and Besanko in agreement, found that the Full Bench had erred in overturning the approval of the agreement by taking into consideration factors that were not relevant to the question posed by s 186:

• it was not relevant that the Full Bench did not know how many employees would or might in the future be covered by site specific agreements and therefore be excluded by enterprise agreements – this argument would mean that any agreement made in advance of a project or with a very small number of employees where possible coverage was much greater could not be approved;
• while the Full Bench may have been correct to state that it would have been impossible to make a definitive finding as to the extent of the application of the agreement, the same issue arises for greenfield agreements and this was a different question to ascertaining the "group of employees to be covered" as required by s 186(3);
• considering who would be covered by an agreement involves an appreciation of the nature of the work rather than how many employees may carry out the work.

Justice Buchannan also noted that while the Full Bench appeared to have an unexpressed preference for union involvement and greenfield agreements, this preference did not reflect the FW Act scheme and was not a relevant consideration.

Why three employees can be enough

The second jurisdictional error found to have been made by the Full Bench of FWA was its broad conclusion that an agreement made with three employees would undermine collective bargaining and that this was a reason not to approve the agreement.

While the FW Act required bargaining to be conducted in "good faith", Justice Buchanan found that it was not relevant for the Full Bench to consider whether the agreement undermined collective bargaining.

Further, Justice Buchannan noted that it would not be correct to say that the agreement made with three employees deprived future employees of the chance to bargain. Rather, any deprivation of that opportunity would arise in the case of any new employee engaged during the term of the agreement.

In contrast to the argument presented, Justice Buchanan found that the agreement did provide for the possibility of future collective bargaining on a site or project basis.

The Full Court dismissed the CFMEU's appeal.

MAKING THE CASE: Insights from Geoff Giudice

Before approving an agreement the FWC must be satisfied that "the group of employees covered by the agreement has been fairly chosen" (s.186(3)).

The Full Court's decision has confirmed that when the Commission is considering this question the relevant group is the one established by the classifications in the agreement and that it is not necessary to know the number or composition of the employees in the group at any particular time in the future.

Furthermore, it is immaterial that employees who commence employment after the approval of the agreement and who are covered by it were not involved in bargaining for the agreement, may not be able to engage in bargaining in the future and may not take protected action pending the expiry of the agreement, these simply being consequences of the statutory scheme.

The decision is a welcome clarification of the position and may provide another agreement option particularly for employers considering a greenfields agreement.