Terminating an enterprise agreement – is the trickle about to stop?

Since the Full bench decision in Aurizon[1], Griffin Coal[2] and Murdoch[3]conventional wisdom was that in overturning Tahmoor Coal[4], the Federal Commission had opened the floodgates on a trend that would result in workers from industries across the country being deprived of the benefits of enterprise bargaining and being dumped back on to the to pay rates found in modern awards.  SDP Hamberger’s decision in NRE No 1 Colliery Workplace Agreement 2011[5] (Wollongong Coal) not to terminate the Agreement, has perhaps slowed the flood to a trickle.

A quick review

Each of these full bench decisions and Murdoch, shared factual similarities that allowed the Commission, to determine that any decision to keep these agreements alive was against the public interest.  Firstly, each agreement had been the subject of intense good faith negotiation over several years between the parties culminating in the employer making an application to terminate their agreements because there was little prospect of agreement .  Secondly, the applicants were able to demonstrate that the agreements were having a marked material impact on the economic viability of the enterprise.  In Murdoch’s case, between 2013 and 2016, the university had progressed from a surplus of $36 million to a deficit of $5.4 million.  Put another way, a loss of $39 million in 3 years.  Similarly, Griffin Coal demonstrated that the coal mine had failed to make money for 10 years, losing money on every single tonne of coal produced.  Finally in each case, the Commission found in applying the public interest test[6] that in the absence of any prospect of an agreement in the short or long term, there was no obligation to keep an operation open, when the cost impact of doing so was sending the operation to the wall.

NRE No 1 Colliery Workplace Agreement 2011 (Wollongong Coal)

 In June 2018 Wollongong Coal applied to the FWC to formally terminate the Agreement which had notionally expired in November 2015.  In their submissions both Wollongong Coal and the CFMMEU acknowledged that the mining of coking coal at the Russell Vale Colliery had ceased in August 2015 and that there had been no employees covered by the Agreement since September 2015.

The applicant in submissions, contended that the costs imposed on it by the Agreement were ‘an impediment to the applicant recommencing operations at Russell Vale in a cost-efficient and flexible manner’[7].  It went further indicating, that given there were no employees covered by the Agreement they were unable to renegotiate the Agreement.

One should also note that in cross examination, the Company Secretary gave evidence that no attempt had been made by management to discuss their concerns about the Agreement with the CFMMEU.

By contrast, the CFMMEU pointed to the desire of Wollongong Coal to restart Russell Vale with a completely outsourced workforce and maintained that, given that the terms and conditions contained in the Agreement were remarkably similar to surrounding coal mine operations, the existence of the Agreement was no impediment to restarting operations.

The decision

In addressing the public interest question, SDP Hamberger relied heavily on the Full Bench view in Aurizon that:

‘All of the circumstances also need to be taken into account in considering whether termination of the agreement is appropriate …The requirement in s 226(b) to take into account all of the circumstances including those set out on s 226 (b) (i) and (ii) is a requirement to take the matters into account and to give them due weight in assessing whether it is appropriate to terminate an enterprise agreement.’[8]

In assessing the evidence, His Honour formed a view as to a number of so called “onerous provisions” contained in the Agreement including:

i) Above award wages;

ii) Overtime rates at double the base rate of pay;

iii) Union members being paid to attend quarterly union meetings;

iv) The requirement for a 10 hour break between shifts;

v) Preference given to previously retrenched employees when filling positions; and

vi) Personal leave greater than that provided in the NES, were in fact entirely typical of conditions that exist within the coal industry in general and in the Wollongong area in particular.  His Honour also took the view that whilst the Agreement had long expired, the terms and conditions contained in it were ‘not obviously out of date’[9]

Given the intention of Wollongong to reopen the mine, whilst acknowledging that Agreement currently supported no employees, His Honour saw some value in the Agreement being utilised should the mine reopen and begin employing coal mine workers.

In finding that it would be premature to terminate the Agreement, His Honour was most struck by the fact that at no point prior to initiating proceedings, had Wollongong sough to discuss its concerns about the Agreement with the union.

This is instructive given the view expressed in Aurizon, Griffin Coal and Murdoch, that good faith negotiations are an essential element in any application to terminate an existing agreement.

Options available to employers

What is clear from all of the cases discussed including Wollongong Coal, is that any employer seeking to terminate an agreement with its workforce must overcome three substantial impediments.  Firstly, they must show that it is in very serious financial strife.  Secondly, they must demonstrate that the legacy conditions contained in the agreement are profoundly detrimental to their attempt to trade out of difficulty.  Finally and most importantly, they must demonstrate that they have made every effort to negotiate a productive outcome with its employees and their representatives.

Without these three elements our advice is that any attempt to terminate an agreement is likely to come unstuck.

[1] Aurizon Operations Limited; Aurizon Network Pty Ltd; Australia Eastern Railroad Pty Ltd [2015] FWCFB 540

[2] Griffin Coal (Maintenance) Collective Agreement 2012 [2016] FWCA 2312 at first instance and upheld on appeal to the Full Bench [2016] FWCFB 4620

[3] Murdoch University Enterprise Agreement 2014 [2017] FWCA 4472

[4] [2010] FWA 6468

[5] [2019] FWCA 216

[6] See section 226 of the Fair Work Act 2009

[7] At [8]

[8] At [167]

[9] [2019 ] FWCA 216 at [60]

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.