"The end of the line" – The Fair Work Commission terminates 12 expired enterprise agreements

Aurizon Operations Limited; Aurizon Network Pty Ltd; Australia Eastern Railroad Pty Ltd [2015] FWCFB 540 (22 April 2015)

WHAT YOU NEED TO KNOW

• A Full Bench of the Fair Work Commission has ordered that 12 expired enterprise agreements covering Aurizon and its employees will terminate on 18 May 2015.
• In April 2013, Aurizon Operations Limited, Aurizon Network Pty Ltd and Australia Eastern Railroad Pty Ltd (Aurizon) commenced the process of bargaining with employee organisations for new enterprise agreements to replace 14 enterprise agreements. The nominal expiry date for the agreements was 31 December 2013.
• The enterprise agreements contain a number of legacy provisions that are in effect public sector terms and conditions of employment and which impose unwarranted and costly restrictions on Aurizon's ability to operate its business efficiently and productively.
• During bargaining, Aurizon has consistently been seeking the removal of those terms and conditions. The Unions wanted to maintain the existing terms and conditions.
• In May 2014, Aurizon applied to the Commission for orders, pursuant to section 225 of the Fair Work Act 2009, seeking termination of the 14 expired enterprise agreements.
• In October 2014, a new enterprise agreement was made called the Aurizon Staff Enterprise Agreement 2014. That agreement replaced two of the 14 Aurizon enterprise agreements. Aurizon therefore only pursued its application in relation to the remaining 12 enterprise agreements.
• This decision is important as it is the first time a Full Bench has had to consider the application of section 226, and sets out the principles which are to apply when the Commission is having to terminate an expired enterprise agreement.
• In doing so, the Full Bench said that the bargaining parties needed to set their attention on appropriate terms and conditions of employment that focussed, not on the past, but on the circumstances that prevail in 2015 and those which are foreseeable beyond.

Background to the application

Aurizon and its history

Aurizon Holdings Limited is a publically listed company and is Australia's largest rail freight operator and the world's largest rail transporter of coal from mine to port for export markets.

Prior to 1 December 2012, Aurizon Holdings Limited was known as QR National Limited. On 22 November 2010, QR National Limited was privatised. Previously, it was a Government Owned Corporation with its shares held by the Queensland Treasurer and the Queensland Transport Minister as shareholding Ministers on behalf of the State of Queensland.

In May 2010, as part of the privatisation process, the Queensland Premier made a statement guaranteeing employees terms and conditions of employment for the life of the existing enterprise agreements and employment guarantees for 2 years beyond the date of each asset sale. Those guarantees were then set out in the 2010 QR National enterprise agreements which were made when it was still owned by the Queensland Government.

The restrictive terms and conditions of Aurizon's enterprise agreements

The expired enterprise agreements include a number of terms and conditions that are "legacy provisions" that applied while the company remained under Government ownership. The Full Bench found that in effect they were imposed on Aurizon as a cost of the privatisation process.

Those terms and conditions are in effect public sector terms and conditions of employment that are outdated, outmoded, unduly complex and impose unwarranted and costly restrictions on the efficiency and productivity of Aurizon’s business.

The legacy provisions include clauses which:

• Prevent forced redundancies;
• Limit the matters in relation to which individual flexibility arrangements can be reached to annual leave loading; and
• Either directly or indirectly impose constraints and inefficiencies on the use and the allocation of train crew labour to train services (such as, leave and rostering arrangements).

Bargaining

Since April 2013, Aurizon has been bargaining with the RTBU, AFULE, QSU, CEPU, AMWU and APESMA (the Unions) for replacement enterprise agreements.

Aurizon sought, during bargaining, the agreement by the Unions to remove the significant legacy provisions in the expired enterprise agreements.

The Unions refused to agree to the removal of those provisions and maintained in effect that it wished to have a "rollover" of the existing terms and conditions into any new enterprise agreements.

Despite seeking and receiving assistance from Deputy President Asbury of the Commission during bargaining, Aurizon and the Unions remained at odds.

On 12 May 2014, Aurizon filed an application seeking the termination of all 14 of its expired enterprise agreements.

The Full Bench acknowledged that bargaining at the time of the hearing was at a stalemate.

Relevant principles for termination of an agreement

Section 226 of the Act provides for when the Commission must terminate an expired enterprise agreement. Under that section, the Commission must terminate an enterprise agreement if:

• The Commission is satisfied that it is not contrary to the public interest to do so; and
• The Commission considers that it is appropriate to terminate the agreement taking into account all the circumstances.

• In taking into account all the circumstances, the Commission is required to consider:
• The views of the employees, each employer, and each union (if any) covered by the enterprise agreement; and
• The circumstances of those employees, employers and unions including the likely effect that termination will have on them.

The hearing before the Full Bench

Aurizon's application was heard before Vice President Watson, Deputy President Gostencnik and Commissioner Spencer.

Aurizon contended that the preconditions in section 226 of the Act were met and that the Commission was required to terminate the expired enterprise agreements.

Aurizon contended that a number of the "legacy provisions" (such as no forced redundancy), result in significant inefficiencies, restrain Aurizon's operations and negatively impact on productivity within Aurizon.

Aurizon contended that the removal of those restrictive provisions would enhance Aurizon's ability to compete for contracts across it's coal rail network, freight, intermodal business and maintenance services.

In considering the elements required to establish a termination under section 226 of the Act, Aurizon contended that the decision of Vice President Lawler in Tahmoor Coal Pty Ltd [2010] FWA 6468 (Tahmoor Coal) was incorrect at parts.

In that decision, it had been held, in substance, that the emphasis on promoting productivity is primarily to be achieved through collective bargaining in good faith, rather than by other means, such as by the termination of an expired enterprise agreement.

Further, it was also held in Tahmoor Coal that generally it is inappropriate for the Commission to terminate an expired enterprise agreement as this would interfere in the bargaining for a replacement agreement.

The decision of the Full Bench

The Tahmoor Coal decision and the statutory test

The Full Bench noted that the approach taken in Tahmoor Coal to the construction of section 226 had been followed in subsequent decisions.

The Full Bench squarely disagreed with the approach which had been previously taken.

The Full Bench said that there is no statutory imperative that the promotion and delivery of productivity benefits at an enterprise level, is to be primarily or exclusively achieved through enterprise bargaining in good faith rather than by other means.

The Full Bench also held that section 226 operates according to its terms. The statute mandates that on application by a person covered, an agreement that has passed its nominal expiry date must be terminated if the circumstances identified in section 226 exist. In fact the Full Bench acknowledged that productivity benefits might also be delivered by terminating such an agreement.

Further, the Full Bench held that to approach the construction of section 226 in the manner suggested in Tahmoor Coal, which results in a predisposition against the termination of an enterprise agreement which has passed its nominal expiry date, is wrong. Section 226 operates according to its terms.

Is termination contrary to the public interest?

The Full Bench found that terminating the Aurizon expired enterprise agreements would not be contrary to the public interest.

The Full Bench found that there is nothing inherently inconsistent with the termination of an enterprise agreement that has passed its nominal expiry date and the continuing of collective bargaining in good faith for an enterprise agreement.

A factor which influenced the Full Bench's finding in this regard were the unique circumstances in which the agreements were made (being that the Queensland Government required Aurizon to provide employee guarantees and to formalise those guarantees in their enterprise agreements as part of that privatisation process).

The Full Bench noted that the provisions that Aurizon has sought to be removed or varied are not common provisions in enterprise agreement generally and are provisions that restrict Aurizon's capacity to effectively manage its labour resource needs.

Is it appropriate to terminate?

With respect to whether it was appropriate to terminate the expired enterprise agreements. The Full Bench accepted that both the Unions and employees covered by the expired enterprise agreements opposed the termination of those agreements.

To offset the impact that the termination of the enterprise agreements would have on employees, Aurizon provided undertakings to its employees which would take effect when the agreements were terminated. The undertakings, in effect, preserve certain terms and conditions of employment for employees (such as wages and allowances entitlements). The undertakings would operate from the date of termination of the expired enterprise agreements for a period of 6 months.

The Full Bench found that the undertakings given by Aurizon would assuage the concerns that employees may have regarding their entitlements.

Further, the Full Bench expressed a view that it cannot be expected that terms and conditions contained in an enterprise agreement will continue unaltered in perpetuity (particularly after an enterprise agreement has passed its nominal expiry date). In doing so they reaffirmed the Act's statutory scheme which guarantees the continuation of the safety net, not the terms and conditions contained in an expired enterprise agreement.

The Full Bench was also not persuaded that the workplace changes sought by Aurizon were undesirable or unnecessary, oppressive on employees or inappropriate.

The Full Bench noted that it was entirely appropriate for Aurizon to improve its efficiency and productivity in an industry which is in a dynamic state of transition.

In light of the above, the Full Bench found that it was appropriate for the 12 enterprises agreements to be terminated.

Implications for employers

This decision is significant in that it provides clear and unambiguous authority about the correct principles which are to be applied when the Commission is having to consider an application to terminate an expired enterprise agreement.

The Full Bench has taken a robust approach to interpreting the provisions of the Act that apply when seeking the termination of an expired enterprise agreement and Tahmoor Coal, and the line of authority which followed it, has been expressly overruled.

The decision is particularly relevant for employers who were previously publically owned and who have been privatised and for employers generally who may be engaged in protracted enterprise agreement negotiations but which had previously dismissed the potential of successfully applying to terminate an expired enterprise agreement given the previous line of authority.

Ashurst Australia acted for Aurizon in this matter.

MAKING THE CASE: Insights from Geoff Giudice

Private sector employers which have recently emerged from the public service, State or Commonwealth, are often required to afford their employees conditions which are more generous than those applying to their private sector competitors. Where the conditions are contained in an enterprise agreement they remain on foot after the expiry of the agreement either until the agreement is replaced or the Commission terminates the agreement. Unions and employees, not unexpectedly, are often reluctant to give up such generous conditions or at least drive a hard bargain for their removal and negotiations can become deadlocked. The Commission can only set an agreement aside if it concludes that termination would not be contrary to the public interest and that it is appropriate to do so. In some other jurisdictions, unlike the Australian position, once a collective agreement expires it ceases to have any binding effect. It makes sense in the Australian context that an independent third party, the Commission, should have the power to set an agreement aside in an appropriate case. The alternative would be that an agreement simply ceases to have any binding effect when it expires.