1
Fair Work Act 2009
s.739—Dispute resolution
Australian Municipal, Administrative, Clerical and Services Union
v
Essential Energy
(C2014/1048, C2014/1458)
SENIOR DEPUTY PRESIDENT HAMBERGER SYDNEY, 2 OCTOBER 2014
Application to deal with dispute under dispute settlement procedure in enterprise agreement;
coverage clause; interpretation of industrial instrument; ‘common understanding’.
[1] On 16 June 2014, the Australian Municipal, Administrative, Clerical and Services
Union (ASU, also known as USU) referred a dispute to the Commission pursuant to the
dispute settlement procedure in the Essential Energy 2011 Agreement (the 2011 agreement).
The dispute concerned the application of the coverage clause of the 2011 agreement. On 12
August 2014 the ASU referred a further dispute to the Commission pursuant to the dispute
settlement procedure in the Essential Energy 2013 Agreement (the 2013 agreement). This
dispute likewise concerned the application of the coverage clause of the 2013 agreement. The
coverage clause is the same in both agreements. The two applications have been dealt with
together and both are dealt with by this decision.
[2] It is no coincidence that the two clauses are identical. The issue of the scope of the
agreement was hotly contested during the negotiations for the 2013 agreement. Essential
Energy sought to reduce the scope of the agreement to enable it to offer individual contracts
to a larger group of senior employees than was the case under the 2011 agreement. The
parties, under s.240 of the Fair Work Act 2009 (the Act), sought the assistance of the
Commission to deal with the dispute over the scope of the agreement. They asked the
Commission to arbitrate the dispute to decide whether the scope should be in the terms
proposed by Essential Energy, the same as in the 2011 agreement, or some other scope the
Commission considered appropriate. The Commission determined that the scope of the 2013
agreement should be the same as the 2011 agreement (the scope decision).1
[3] The coverage clause in question is to be found at Clause 1.3 of both agreements. As
noted it is in essentially identical terms in both agreements. It provides as follows:
‘1.3 COVERAGE
This Agreement applies to Essential Energy and its employees who are paid a base
weekly rate of pay up to and including Pay Point 44 as contained in Section 6 Clause
6.13 (Table 1: Essential Energy Rates of Pay) of this Agreement. Employees whose
base weekly rate of pay is above Pay Point 44 will not be covered by the terms of this
[2014] FWC 5601 [Note: An appeal pursuant to s.604 (C2014/6919,
C2014/6920) was lodged against this decision - refer to Full Bench
decision dated 4 May 2015 [[2015] FWCFB 1981] for result of appeal.]
DECISION
E AUSTRALIA FairWork Commission
https://www.fwc.gov.au/documents/decisionssigned/html/2015FWCFB1981.htm
[2014] FWC 5601
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Agreement and shall instead be in accordance with a Total Remuneration Package
(TRP) contract of employment.
Under the terms of this Agreement, Essential Energy will not offer Total
Remuneration Package (TRP) contracts to any new employees whose base weekly rate
of pay is up to and including Pay Point 44 as contained in Section 6 Clause 6.13
(Table 1: Essential Energy Rates of Pay) of this Agreement.
This Agreement otherwise governs all employment, wages and conditions of the
employees to whom this Agreement applies.’
[4] Both parties made written submissions, and hearings were held on 5, 22 and 23
September 2014. The ASU was represented by I Taylor, SC and L Doust, of counsel. Mr
Taylor and Ms Doust also represented the Communications, Electrical, Electronic, Energy,
Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) and the
Association of Professional Engineers, Scientists and Managers, Australia (APESMA).
Essential Energy was represented by Y Sharif, of counsel, and Ms A DeBoos, Partner with
K&L Gates.
[5] The ASU, the CEPU and APESMA (the unions) characterise the dispute as whether
Essential Energy is entitled to engage employees on total remuneration package contracts
outside the enterprise agreement that have lower total remuneration than would be paid to the
employee if they were employed under the enterprise agreement.
[6] According to the unions, in the scope decision the Commission rejected an attempt by
Essential Energy to remove from the coverage of the 2013 agreement certain positions, almost
all of which had a total remuneration of $147,000 and above.
‘While initially accepting the Scope Decision outcome, and announcing that as a result
the 2013 Agreement would apply to employees with a TRP of $173,000, Essential
decided in June 2014 to unilaterally alter the long-standing and well-understood
approach to determining who is covered by the Agreement and its predecessors by
announcing that it could choose to offer a TRP contract with a total remuneration of
about $148,000. Apparently the whole case was unnecessary, since at all times the
scope clause that the unions successfully retained already permitted Essential to
achieve the outcome it sought.’2
[7] The unions submitted that the interpretation of the coverage clause proposed by
Essential Energy:
a) failed to read it in the context of the rest of the agreement and the industrial history;
b) was contrary to the obvious intention of the clause to create a clear division or ‘line’
between those covered by the agreement and those on contract;
c) gave rise to the ‘absurd and industrially unfair’ situation that Essential Energy can
elect whether a position with a total remuneration of between $148,000 and about
$180,000 is to be covered by the agreement or not; and
d) would give rise to disputes on a position by position basis, the very thing the clause
was plainly intended to avoid.
Jurisdiction
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[8] I am satisfied that I have jurisdiction to deal with the current dispute. However that
jurisdiction is limited by s.739 (5) of the Act which provides that the Commission must not
make a decision that is inconsistent with a fair work instrument that applies to the parties. In
the circumstances of this case, that means, inter alia, that any decision the Commission makes
to resolve the dispute cannot be inconsistent with the 2011 or 2013 agreements.
[9] The agreements deal quite explicitly with the issue of coverage, in clause 1.3. Given
s.739 (5) of the Act, I consider that the Commission cannot resolve the dispute by deciding
that the agreements should have coverage other than that provided by the agreements
themselves. The key issue for the Commission therefore is to decide on the proper
interpretation of Clause 1.3.
Principles of Construction
[10] The principles of interpretation of industrial instruments were neatly summarised by
the Federal Court in Australian Nursing and Midwifery Federation v Eastern Health (Eastern
Health):
‘construction begins with a consideration of the ordinary meaning of the words used;
regard should be had to the industrial purpose sought to be achieved; and
to determine context and general purpose, it is appropriate to have regard to the history
of the relevant provision and by examining its antecedents.’3
[11] The proper approach that should be taken to resolving a dispute concerning the
interpretation of provision of an enterprise agreement was dealt with by a Full Bench of Fair
Work Australia in SDA v Woolworths Ltd 4 The Full Bench stated:
‘It is undoubtedly the case that, in resolving a dispute as to the interpretation of a
provision of an enterprise agreement approved under the Fair Work Act 2009, it is
permissible to take into account the industrial context and purpose of the agreement.
However, there are two important limitations upon this approach relevant to the
determination of this appeal. The first is that the process of interpretative analysis must
focus, first and foremost, upon the language of the agreement itself. For example, in
Amcor Limited v CFMEU, the process was described by Gleeson CJ and McHugh J in
the following terms: “The resolution of the issue turns upon the language of the
particular agreement, understood in the light of its industrial context and purpose ...”.
Or, as Kirby J put it in the same case, “Interpretation is always a text-based activity”.
Admissible extrinsic material may be used to aid the interpretation of a provision in an
enterprise agreement with a disputed meaning, but it cannot be used to disregard or re-
write the provision in order to give effect to an externally derived conception of what
the parties’ intention or purpose was. The oft-quoted statement of Madgwick J in
Kucks v CSR Limited makes this clear:
“But the task remains one of interpreting a document produced by another or
others. A court is not free to give effect to some anteriorly derived notion of
what would be fair or just, regardless of what has been written into the award.
Deciding what an existing award means is a process quite different from
deciding, as an arbitral body does, what might fairly be put into an award. So,
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for example, ordinary or well-understood words are in general to be accorded
their ordinary or usual meaning.”
The second limitation is that regard cannot be had to the respective subjective
intentions and expectations of the parties as demonstrated by their “statements and
actions” in negotiating the agreement. Rather, the task is to identify the common
intention of the parties as they have expressed it in the terms of their agreement. In the
context of commercial contracts, this task was described by the High Court in Toll
(FGCT) Pty Ltd v Alphapharm Pty Ltd in the following way:
“It is not the subjective beliefs or understandings of the parties about their
rights and liabilities that govern their contractual relations. What matters is
what each party by words and conduct would have led a reasonable person in
the position of the other party to believe. References to the common intention
of the parties to a contract are to be understood as referring to what a
reasonable person would understand by the language in which the parties have
expressed their agreement. The meaning of the terms of a contractual
document is to be determined by what a reasonable person would have
understood them to mean. That, normally, requires consideration not only of
the text, but also of the surrounding circumstances known to the parties, and
the purpose and object of the transaction.”’ (endnotes removed)
[12] In Transport Workers’ Union of Australia v Linfox Australia Pty Ltd5 Tracey J
referred to some of the authorities dealing with the relevance of the history of an industrial
instrument as an aid to its interpretation.
‘In Short v FW Hercus Pty Ltd [1993] FCA 51; (1993) 40 FCR 511 Burchett J (with
whom Drummond J agreed on this point) affirmed that any provision appearing in an
industrial instrument had to be read “in its context”. He cited the example of “an
expression [that] was first created by a particularly respected draftsman for the
purpose of stating the substance of a suggested term of an award, [which] was then
adopted in a number of subsequent clauses of awards dealing with the same general
subject, and finally was adopted as a clause dealing with that same general subject in
the award ...”. In construing such a provision, his Honour said, “the circumstances of
the origin and use of the clause are plainly relevant to an understanding of what is
likely to have been intended by its use.” (at 517). In supporting this proposition his
Honour referred to the dictum of Isaacs J in Australian Agricultural Company Limited
v Federated Engine-driver’s and Firemen’s Association of Australasia [1913] HCA
41; (1913) 17 CLR 261 at 272 in which Isaacs J cited Lord Halsbury LC as saying:
“The time when, and the circumstances under which, an instrument is made, supply
the best and surest mode of expounding it.” His Honour concluded (at 518) that:
“Where the circumstances allow the court to conclude that a clause in an award
is the product of a history, out of which it grew to be adopted in its present
form, only a kind of wilful judicial blindness could lead the court to deny itself
the light of that history, and to prefer to peer unaided at some obscurity in the
language. ‘Sometimes’, McHugh J said in Saraswati v The Queen [1991] HCA
21; (1991) 172 CLR 1 at 21, the purpose of legislation ‘can be discerned only
by reference to the history of the legislation and the state of the law when it
was enacted.’ Awards must be in the same position.”
[2014] FWC 5601
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Gray J addressed the issue in Australian Liquor, Hospitality and Miscellaneous
Workers’ Union v Prestige Property Services Pty Ltd [2006] FCA 11; (2006) 149 FCR
209, and Shop Distributive and Allied Employees’ Association v Woolworths Limited
[2006] FCA 616; (2006) 151 FCR 513.
In ALHMWU his Honour was concerned to determine whether the Victorian Arts
Centre Trust was an “instrumentality” within the meaning of two awards. The
respondent had argued that it was not. His Honour said (at 222) that:
“For present purposes, I am prepared to accept that the construction of an
award can be affected by a common understanding of the parties to it about a
particular state of affairs. If such a common understanding existed when the
award was made, it should not be departed from when the Court comes to
construe the award at a subsequent time. Care must be taken, however, to
distinguish a common understanding from common inadvertence. If the only
reason why the government instrumentality rates were not paid at the Centre
was that neither the union nor the employer adverted to the possibility that
there was an obligation to pay them, no common understanding results. In
order to have an understanding, it is necessary that there be a meeting of
minds, a consensus. There can be no meeting of mind, no consensus, if no-one
has thought about the issue.”
His Honour expressed similar caution in the SDAEA case. He there said (at 520) that:
“Counsel for the applicant contended that the past conduct of the parties could
be relied upon as an aid in the construction of the Certified Agreement. There
is authority that, if a provision has appeared in a series of agreements between
the same parties, and if they can be shown to have conducted themselves
according to a common understanding of the meaning of that provision, then it
can be taken that they have agreed that the term should continue to have the
commonly understood meaning in the current agreement. See Merchant
Service Guild of Australia v Sydney Steam Collier Owners and Coal
Stevedores Assn (1958) 1 FLR 248 at 251 per Spicer CJ, 254 per Dunphy J and
257 per Morgan J, and Printing and Kindred Industries Union v Davies Bros
Ltd (1986) 18 IR 444 at 452-453. It is necessary to take great care in the
application of this limited principle, to avoid infringing the general principle
that the conduct of parties to an agreement cannot be taken into account in
construing the agreement. For the limited principle to operate there must be
clear evidence that the parties have acted upon a common understanding as to
the meaning of the relevant provision and not for other reasons, such as
common inadvertence to its true meaning.”’
The Ordinary Meaning of the Words Used
[13] As was stated in Eastern Health ‘construction begins with a consideration of the
ordinary meaning of the words used’. A literal reading of Clause 1.3 suggests that all one
needs to know to determine whether an employee of Essential Energy is covered by the
agreement is the employee’s ‘base weekly rate of pay.’ If this rate is at or below the amount
[2014] FWC 5601
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that applies at Pay Point 44 (currently $2,589.75) then the employee is covered by the
agreement.
[14] Employees covered by the agreement are entitled to a number of benefits provided by
the agreement. This includes a 15% employer contribution to superannuation.6 Managers and
Specialists who are covered by the agreement receive an additional 11% in return for working
a 40 hour week and 10 day fortnight.7 An employee covered by the agreement may also be
entitled to the Electrical Safety Rules allowance (ESRA) worth up to $120 per week. On the
other hand, a literal reading of Clause 1.3 provides that if an employee has a base weekly rate
of pay of more than applies at Pay Point 44 he or she is not covered by the agreement, and is
not necessarily entitled to the benefits contained in the agreement. Such employees are
employed under a ‘Total Remuneration Package (TRP) contract of employment’. It would
therefore - at least in principle - be possible for an employee employed under such a contract
to receive less in total remuneration than an employee under the agreement - as long as their
‘base weekly rate of pay’ was more than that $2,589.75.
[15] That much is clear. The issue that arises in this case is whether there is anything in the
surrounding context, including the history of the 2011 and 2013 agreements, and their
antecedents, and the industrial purpose of the clause to displace this literal construction. This
includes the question of whether there was a ‘common understanding’ at the time the
agreements were made along the lines asserted by the unions.
The Industrial History
[16] Mr Marzato, formerly a Senior Workplace Relations Manager with Essential Energy,
gave largely uncontested evidence on behalf of the unions about the history of the industrial
instruments that applied to Essential Energy (and its predecessor, Country Energy) prior to the
making of the 2011 agreement.
[17] Prior to the making of the 2011 agreement the industrial instruments applying to
Country Energy/Essential Energy were made by the New South Wales Industrial Relations
Commission. The primary industrial instruments that applied to those employed by Country
Energy were, in order, the 2001 Award, the 2004 Award, the 2005 Award, the Country
Energy Enterprise Award 2007 made on 3 July 2007 (the 2007 Award), and the Country
Energy Enterprise Agreement 2009 (the 2009 Award) approved on 17 December 2009 and
commencing on 1 July 2009.
[18] The classification system employed by Country Energy on its establishment was the
pay point structure which had applied at Northpower. This was reflected in the 2001 Award.
Further classification salary points equivalent to pay points 42 to 44 were first included in the
2004 Award.
[19] The coverage clause of the 2004 Award allowed employees at levels above Pay Point
44 who were not on individual agreements to remain covered by the award. Otherwise, those
employees would have been excluded from the coverage of the award.
[20] At the time of making the 2004 Award the parties negotiated that the 44 pay point
structure would be aligned to the Australian Qualification Framework (AQF) outcomes and
developed a set of progression guidelines which set out the basis for progression through the
levels in the respective streams of work. The classification structure in the Award identified
[2014] FWC 5601
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AQF qualifications in the pay points. The Hay evaluation system was used in respect of
managers and specialist positions. Pay Points 42-44 were regarded as corresponding to with
the classifications of professional Engineer Grades 6, 7 and 8.
[21] From Country Energy’s formation in 2001 until 2009, the question of coverage under
the enterprise awards and the offering of individual contracts involving a Total Remuneration
Package was a question of continuing contention between the parties.
[22] That disputation was resolved in part by the making of the 2005 Managers and
Specialists Agreement. In the period prior to the making of that agreement, Country Energy
had been offering total remuneration package contracts to employees in what were described
as managerial or specialist roles. Employees engaged on those contracts worked a 40 hour
week/10 day fortnight, in contrast to employees not on contract who were covered by the
award and who were engaged on the basis that they worked a nine-day fortnight.
[23] Agreement was reached that certain employees were to be employed under the award
but would work a 10 day fortnight and be paid extra. The agreement covered:
employees in ‘middle management and specialist roles’ who were already on
employment contracts, but whose base classification and grade were within the
scope of the award; this effectively meant that employees who had been regarded
as outside the scope of the award were brought back within its scope; and
Employees in certain defined classifications: Administration Officers grades 22-23
(managerial roles), Professional Engineers grades 4-8, Technical Officers grades 15
and 16 and Training Officers grades 1-8, but only where the employee agreed to be
covered by the agreement. This effectively meant that by agreement employees in
those grades who were already covered by the award could agree to be engaged on
the basis that they worked 10 day fortnight and a 40 hour week and receive higher
pay.
[24] These arrangements were incorporated in the 2005 Managers and Specialists
Agreement, which included the following clauses:
‘7.2.1 Employees identified in 4.1.1 above will be provided with a Total Remuneration
Package (TRP) comprising cash salary and employment benefits as set out in Schedule
C. Such Total Remuneration Package shall include the provision for the employer's
statutory Superannuation contribution, any Award related increases in the Employers
Superannuation contribution, and other elements as identified.
7.2.2 Employees identified in 4.1.2 above will be provided with the appropriate Award
rate of pay for their classification. As well, they will be provided with a range of
additional negotiated benefits, including consideration for the 10 day fortnight, which
will be set out in Schedule C of this Agreement. Thereafter this shall be referred to as
the employees Total Remuneration Package (TRP).’
[25] In 2007 the ASU filed a dispute with the NSW Industrial Relations Commission in
part asserting that Country Energy was breaching the requirements of the 2005 Managers and
Specialists Enterprise Agreement by engaging employees on contracts for roles that the union
believed were covered by the Award/Enterprise Agreement.
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[26] In 2009, in order to help resolve the dispute, Country Energy engaged Hay to conduct
a review. Hay examined a group of 351 employees who were paid on a monthly basis,
including 213 employees engaged on individual contracts.
[27] The Hay Review examined employees who fell into 11 levels, identified as Levels 14
to 24 inclusive. Level 24 correlated with the highest level executive positions just below the
Managing Director. A Level 14 position was a position which was identified as being one
which would attract remuneration in the range from about $62,000-$83,000 in the
employment market.
[28] Following the review Country Energy prepared a briefing which was provided to the
unions and the Commission which proposed that in future contract arrangements should be
offered only down to the third tier management level, being positions at levels 18 to 24 in the
Hay system. At the third tier were Group Managers, which were immediately below General
Managers, which in turn were immediately below Executive General Managers.
Subsequently, Country Energy proposed that contracts only be offered at roles evaluated at
Hay band 19 and above. This was then reflected in the 2009 Managers and Specialists
Agreement, which provided that the threshold point for employment under a contract was the
third tier report level or evaluated equivalent.
[29] The Hay review identified that a number of positions had been inappropriately
classified as Group Managers. A transition process was adopted to move these positions onto
the Managers and Specialists Agreement. Employees in these positions were thereafter paid
wages in accordance with their classification, as set out in the 2009 award, plus an 11%
allowance for working a 40 hour week/10 day fortnight, and any other allowances which were
applicable to their employment. Following the ratification of the 2009 Managers and
Specialists Agreement, all positions that had been evaluated by the Hay review at level 18 and
below were considered covered by the 2009 Managers and Specialists Agreement and where
necessary subject to the transition process.
[30] According to Mr Marzato, following the making of the 2009 Managers and Specialists
Agreement, employees were not offered a contract unless the position was determined, in
accordance with the Hay Evaluation system as being at Group Manager (tier 3) level or
above. Employees offered a contract were always offered a TRP that was greater than the
sum of:
Pay Point 44;
11% for working a 40 hour week/10 day fortnight;
superannuation at 15%; and
any allowance such as ESRA applicable to that role under the 2009 award.
[31] This amount was described by Mr Marzato as the ‘Minimum Contract Pay’ and was
adjusted to reflect annual increases under the relevant enterprise agreements to ensure that
contracts stayed ahead of the maximum remuneration payable under the agreements. The rate
was sometimes referred to as the ‘breakpoint’.
[32] Mr Smith, Essential Energy’s current Industrial Relations Manager, gave evidence on
behalf of Essential Energy. He disagreed with Mr Marzato’s evidence concerning how
contracts were offered after the making of the 2009 Managers and Specialists Agreement. In
particular he said that there were cases where Essential Energy would offer individual
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contracts below Group Manager (Tier 3) level. He referred to the positions of Senior
Development Program employees, the PA to the Managing Director, some Human Resource
Managers and some IT staff. He agreed with Mr Marzato that there was a ‘Minimum Contract
Pay’. In his written statement he gave slightly contradictory evidence about how this was
calculated. At paragraph 8 (c) of his written statement he said that it was based on the sum of
base salary of Pay Point 44, the 11% loading for a 40 hour week and 15% superannuation. In
paragraph 8 (d) he said the Minimum Contract Pay consisted of a base salary plus statutory
superannuation contributions only.
[33] Between 2005 and 2009 a number of ‘splinter’ enterprise agreements were made to
cover particular groups of employees. These employees remained covered by the principal
award but had specific conditions such as additional pay for working a 40 hour week/10 day
fortnight.
[34] The 2011 Agreement consolidated all these splinter agreements, together with the
Managers and Specialists Agreement, into the one enterprise agreement.
[35] Mr Smith said in his written statement that the coverage clause in the 2011 agreement
- Clause 1.3 - was drafted at his direction. ‘It was tabled from the very outset as reflecting
Essential’s position on the question of coverage of the 2011 Agreement’.8 Mr Smith described
the new clause as reflecting a move away from a classification-based to a remuneration-based
approach. He gave the following evidence about the negotiations for the 2011 agreement as
they related to the issue of coverage.
‘The change to a remuneration-based coverage clause and the draft of the proposed
clause was extensively discussed between all the parties during the negotiations as it
was fundamentally different (both in content and structure) to the preceding coverage
clauses. This was because the preceding coverage clauses all referred to classification
and not base salary as the determining factor for coverage.
In particular, I was involved in discussions held with all Unions where the difficulty
associated with determining who was covered by the preceding agreements and who
was not were discussed. For example:
a) There were some employees who were paid a base salary below base pay point
44 but were on contract such as Senior Development Program employees...;
and
APESMA’s position was that Essential could not force those employees on a base
salary below pay point 44 to move off their contracts if they were satisfied with their
terms. As a compromise, we included in clause 1.3 of the 2011 Agreement an
obligation that Essential not offer TRP contracts to any "new employees".
Essential also agreed with the Unions to write to the employees who had contracts in
place but would, as a result of the proposed words of clause 1.3 come within the scope
of the 2011 Agreement. That is they had a base rate of pay of less than Pay Point 44.
The purpose of that letter was to offer them the opportunity to rescind the contract. A
number of those people did not agree to rescind their contract.’9
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[36] On 16 August 2011, the ASU wrote to Mr Smith in relation to the negotiations for the
2011 agreement. This included the following:
‘The most significant issue remaining for the USU is the coverage clause. The way in
which the proposed coverage clauses written has the potential to displace persons
currently covered by the Enterprise Agreement.
The clause should maintain the current coverage of all employees within
classifications outlined in the progressional guidelines.
The USU would raise issue with the representational rights that were circulated at the
commencement of the negotiation if the coverage clause was to potentially remove
previously covered classifications.
Essential Energy has an obligation under the Fair Work Act to ensure employees are
fully informed of the changes prior to casting their vote.
The coverage clause of the proposed agreement needs to be amended to reflect all of
the classifications currently covered by the 2009/2010 Enterprise Agreement to ensure
that Essential Energy comply with their obligations under the notice of
representational rights under Section 173 of the Fair Work Act. Failing to do so may
see the agreement negotiations derailed as the information provided to employees
within certain classifications would now see them potentially not covered by the
agreement.
This issue cannot be left unaddressed and the USU would need to ensure our members
are covered by the agreement before seeking endorsement from our members.’10
[37] According to Mr Smith, Essential Energy rejected that position and insisted upon the
remuneration cut off outlined in clause 1.3 as it had drafted. Ms Natalie Falvey, on behalf of
the ASU, sent Mr. Smith an email to which included the following:
‘The USU has provided our in principle endorsement for the Essential Energy
Agreement 2011.
The USU awaits the return of proposed draft letter to be issued to employees who
would otherwise be carved out of the Enterprise Agreement by the introduction of the
pay point 44 cap.
Please provide your suggested adjustments as soon as you are able so that we may
finalise this remaining area of the negotiations.’11
[38] Mr Smith’s statement attached a draft letter, which he conceded was in fact never sent
out, even though there had been an agreement with the unions to do so12. The draft included
with the statement includes a series of deletions and additions. While it is not entirely clear, it
is reasonable to infer that these reflected changes made by Mr Smith to Ms Falvey’s draft. Ms
Falvey’s draft would therefore have included the following:
‘This letter is to advise you that the negotiations for the new Essential Energy
Agreement (the Agreement) have provided for a new Coverage Clause that identifies a
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ceiling of the base weekly rate of Pay Point 44 as contained in Table 1 Essential
Energy rates of Pay.
What this means is that the Agreement has a cap which will, from the time of
registration, identify where Essential Energy employees will not be covered by the
Agreement but will be offered Total Remuneration Contracts.
Contracts offered above the Agreement value must meet a “better off overall test”
against the relevant industrial instrument.
As a result of your current remuneration value you have been identified as an
employee who now exceeds that monetary cap of the new Agreement. Because you
are an incumbent in a position that currently enjoys coverage of the Country Energy
Enterprise Agreement 2009 you will maintain as your contract employment coverage
under the new Agreement with all its requirements, benefits and increases.’13
[39] All of this has been deleted in Mr Smith's draft, which instead includes the following:
‘This letter is to advise you that following approval of the Essential Energy Enterprise
Agreement 2011 (the Agreement) a new coverage clause applies for those employees
who will be covered by the Agreement.
The effect of this change is that the Agreement only applies to employees who are
paid a base weekly rate of pay up to and including Pay Point 44 as contained in the
rates of pay to the Agreement (Table 1).
Employees whose base weekly rate of pay is above Pay Point 44 will not be covered
by the terms of the Agreement but instead will be in accordance with a Total
Remuneration Package (TRP) contract of employment.
Our records indicate that you are affected by these changes given your base weekly
rate of pay is above Pay Point 44 and your employment was, at the time of approval of
the Agreement, subject to the terms of the former Country Energy Enterprise
Agreement 2009.
As a result of these changes, Essential Energy will continue to apply the terms of the
Agreement to your employment while you remain in either your current position or in
any other position with coverage under the Agreement....’14
[40] Of particular note is Mr Smith’s deletion of Ms Falvey’s reference that contracts must
meet a ‘better off overall test’ against the relevant industrial instrument.
[41] Around the same time Mr Smith was also having discussions with Mr Gordon Brock,
who then was a Senior Industrial Officer with APESMA. Mr Smith attached an email from
Mr Brock dated 23 August 2011 to his statement. This included the following:
‘Thanks for sending the latest draft Agreement + classification guidelines.
As previously indicated, subject to the final drafting of the Agreement, APESMA is
prepared to recommend the proposed package to members for their endorsement...
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In relation to the proposed Agreement itself I raise the following matters:
Clause 1.3 “Coverage”
This provision needs to be amended to reflect our recent discussions regarding the
intention that all Agreement-based benefits, including payment of the ESRA, the 11%
loading for working a 10 day fortnight and the additional 6% employer superannuation
contribution etc are paid in addition to the salary point 44 base rate of pay when
determining the Agreement threshold.
In other words it needs to be spelt out that only those positions that are paid a base rate
greater than salary point 44 are intended to be excluded and that all other Agreement
benefits are calculated and applied in addition to the base rate.
It also needs to be identified that those few positions (I think you mentioned there are
8) that are currently employed under the MS Agreement which would be excluded
from coverage under the proposed coverage provision will continue to be covered by
way of a POO status.’15
[42] Mr Brock gave evidence during the hearings on behalf of the unions. According to his
written statement he had a discussion with Mr Smith around the time that he received a copy
of the final draft 2011 agreement.
‘In our discussion I said something to the effect of what I said in my e-mail 23 August
2011, namely, that in identifying the threshold point between Agreement coverage and
contracts relevant Agreement based benefits, namely the 11% loading for working at
10 day fortnight and 40 hour week, the additional employer superannuation of 6% and
the Electrical Safety Rules Allowance (ESRA), needed to be factored into the relevant
calculation. That is, a contract should only be offered at a rate which exceeded the
sum of all of the above, as well as statutory superannuation.
In the course of our discussion, Mr Smith did not demur from that proposition. In fact,
I went through and referred to each of the above benefits and sought his assurance that
my understanding that each benefit would be taken into account in determining the
threshold for coverage was agreed. Whilst I do not recall the exact words used in the
conversation, to the best of my recollection the discussion proceeded along these or
similar lines:
Myself: So, for one of the engineering positions, you'd take into account the 11%, if
the role was a 10 day fortnight?
Smith: If we needed the position to work a 40 hour week 10 day fortnight, then that
11% would have to be included in the calculation.
Myself: And the additional 6% superannuation?
Smith: Yes, that would be part of the calculation we'd use in determining the
threshold.
Myself: So, if it was one of my positions, as you know we have an agreement that all
the engineering roles get the safety rules allowance. Would that be part of the
calculations?
[2014] FWC 5601
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Smith: Yes, if we required them to apply the safety rules then that would be part of the
calculations.
Myself: Well why don't we change the clause to reflect that, because it is not clear.
Smith: No, we believe it is clear and the other unions are taking the agreement to their
delegates so we won't be amending it now.
Myself: Well, I will ask you to do so anyway.
I sent the email to Mr Smith dated 23 August 2011 shortly after we had our
conversation, to make clear the understanding reached in the course of our discussion.
At no stage did Mr Smith communicate to me, either in his email of 25 August 2011,
or otherwise, that my understanding of the operation of the clause was incorrect, or
something with which Essential Energy disagreed.’16
[43] Mr Smith’s response to Mr Brock’s email was attached to his statement. It included
the following:
‘In relation to the issues you raise:
1. Coverage Clause. Essential Energy is not willing to vary the clause as it currently
stands. The discussion you refer to between yourself and myself, discussed scenarios
that that (sic) would apply in certain circumstances however no agreement was
reached to vary the clause as circulated.’17
[44] Mr Brock was cross-examined about the negotiations for the 2011 agreement. He
agreed that he had expressed disagreement with Essential Energy’s proposed coverage clause.
However he said he ultimately agreed to it, ‘because my disagreement was resolved.’18 He
said ‘when I took the opportunity to raise the concerns and then discussed those concerns that
we had with the original clause we were able to accept that the clause as proposed had the
meaning that we needed it to have.... So you'll see in my comments in the email that I had
concerns with the use of base weekly rate of pay, but we were mainly concerned at that stage
with the fact that we didn't believe the salary structure was as broad as it needed to be. Now,
when I then had some discussions with Mr Smith in relation to those matters he clarified how
the reference to the base weekly rate of pay was to apply, which results those concerns for me
and we decided not to pursue an additional salary point.’19
[45] Mr Brock denied that Essential Energy took a different view to him as to what the
coverage clause meant; they took a different view as to whether they would amend the
clause.20 Mr Brock reiterated the contents of his statement concerning his conversation with
Mr Smith about the coverage clause.21
[46] Mr Brock acknowledged that there were discussions between Mr Smith and the unions
about eight or so employees who had a base rate of pay above Pay Point 44 but who it was
agreed should continue to be treated under the terms of the enterprise agreement. However he
firmly denied that the only discussion he had with Mr Smith where there was an agreement
about how the coverage clause would apply was in relation to the treatment of those people.22
[47] Attached to Mr Smith’s statement was a document compiled by Essential Energy to
provide answers to common questions about the proposed 2013 agreement, following the
scope decision. On page 2 of the document it was stated that:
[2014] FWC 5601
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‘It’s important everyone understands the basic principles that apply in accordance with
the FWC decision:
Any employee who is paid a base weekly rate of pay up to and including Pay Point
44 (or approximately $173,000 pa on a TRP basis) will be covered by the terms of
the 2013 agreement.’
[48] Mr Smith agreed during his cross-examination that he had helped prepare the
document and that at the time he had done so he understood this to be correct.23 However he
denied that when the document was written his understanding was that anyone who a TRP of
up to $173,000 had had to be covered by the agreement.24 He denied that it was his
understanding at the time the document was prepared that Essential Energy had to transition
any employee who was on contract with the remuneration of less than $173,000 on a TRP
basis back to the enterprise agreement, though he said ‘ it was certainly maintaining the
practice’.25 In other words, it was not that such employees had to be covered by the
agreement; rather it was a matter of discretion to have such employees covered by the
agreement.
[49] The document also included the following statements:
‘This Agreement applies to Essential Energy and its employees who are paid a base
weekly rate of pay, up to and including Pay Point 44 or around $173,000 pa on a TRP
basis.’
‘As a result of the coverage decision, the new minimum contract level will be
approximately $173,000 a TRP pa.’
‘If you have signed a contract and receive less than a base weekly rate of pay up to and
including Pay Point 44 or approximately $173,000 TRP pa, the FWC decision directs
that we must apply the 2013 Agreement to you.’
[50] When it was put to Mr Smith during his cross-examination that nothing in the
document suggested that there was any exercise of a discretion, he responded ‘I would have
thought that ‘approximately’ is some sort of discretion.’26 However he later agreed that the
use of the term ‘approximately’ reflected the fact that there was some rounding involved.27 He
agreed that prior to the announcement of the ‘new approach’ in June 2014, the minimum
contract pay was $172,564.43 per annum, derived from the base rate of pay at Pay Point 44,
plus an 11% loading for working a 40 hour week, and 15% superannuation.28
[51] Mr Smith agreed that the approach to coverage outlined in the document was largely
consistent with the approach adopted by Essential Energy throughout the term of the 2011
agreement.29 He conceded that before June 2014, he was not aware of Essential Energy ever
having told its employees that the approach outlined in the document (and applied during the
term of the 2011 agreement) was a matter of discretion.30
[52] Mr Smith said the May document was ‘reconsidered shortly after’ the May document
had been written, which led to a document being produced in June 2014 (within a week of the
vote on the agreement commencing), which was presented by the CEO to senior managers.31
The document was not circulated to staff before the vote on the 2013 agreement, but a copy of
the document was sent to the unions. Mr Smith agreed that the only thing that changed in
[2014] FWC 5601
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three weeks between the May and June documents was that Essential Energy for the first time
identified that one could read the coverage clause in a different way than it had been read up
to that point.32
[53] Mr Smith however then backtracked and denied this. He said that the coverage of the
agreement had not changed, what had changed was whether senior management would
continue to exercise a ‘discretion’ in a way that the coverage clause was applied.33 He drew a
distinction between the coverage of the agreement and the ‘threshold pay level’ (for offering
contracts.
[54] Mr Smith said that while he was giving evidence during the proceedings in the
Commission that led to the scope decision he was aware that Essential Energy could at any
time decide to change the way it exercised what he called its discretion.34
[55] Mr Smith was asked about Essential Energy’s position on coverage at the time of
making the 2011 agreement.
‘So the intention at the time the 2011 agreement was being - at this point of having the
conversation with Mr Brock close to it going to a vote, the intention was to not change
the way in which the breakpoint was calculated? -- The break point, to use your
wording, there was no intention to change that but that is different to the coverage
clause of the agreement.
Yes, and so when you had this conversation with Mr Brock he was seeking, was he
not, some understanding as to the coverage clause, what that would mean and whether
it would mean there would be any change in the way Essential went about determining
who was covered by the agreement and who wasn't? -- Yes, he - as I recall it, and I
take some issue with Mr Brock's statement in that it seems to be one conversation.
There were a number of conversations took place over a period of time with a number
of the unions about how the coverage clause would apply.
And Mr Brock was concerned to understand that the coverage clause as drafted wasn't
going to lead to a change in the way in which Essential determined who was and
wasn't covered by the agreement? -- He was concerned about that. That's right.
And he was concerned to make sure that there were was some understanding that you
were - that Essential didn't intend merely, because there was a new coverage clause, to
change the way it went about determining who was and wasn't covered by the
agreement? -- Indeed he wrote to me seeking to have the coverage clause changed.35
Mr Smith, he was concerned, was he not, to get some understanding from you that
Essential was not going to change the way it went about determining who was in
wasn't covered by the agreement. He wanted to get some assurances about that,
36didn't he? -- He did.
And you were able to tell him, were you not, that Essential didn't intend to change the
way it went about determining who was and wasn't covered by the agreement? -- No,
that's not right.
[2014] FWC 5601
16
Well, as a matter of fact that is right. If I understand your earlier evidence it used the
minimum contract pay before. It continued to use the minimum contract pay
afterwards, so there was no change in practice before and after? -- Yes, but you asked
me whether there was an understanding with Mr Brock.
Yes,... and isn't this the case that when you had the conversation with Mr Brock you
did in fact give him an understanding that reflected what in fact occurred. That is, that
Essential was not intending to change the way it went about determining who was and
wasn't covered by the agreement? -- No, that's not how I recall it. In fact Mr Brock
had two primary concerns which were addressed, and that is those employees whose
base rate of pay was above pay point 44, that group that we'd identified and spoken
about and we agreed on a course of action for those, and despite the letters not being
sent we have abided by that agreement. The second group that Mr Brock was
concerned about unwanted assurances was those group of employees, that small group
of employees were on an outdated old-style TRP arrangement but below the level for
the enterprise agreement.’
[56] Mr Smith did agree that there were discussions between him and Mr Brock regarding
the intention of the agreement-based benefits being included when determining the agreement
threshold.37 However he denied that he reached any agreement with Mr Brock on this matter,
pointing to the fact that Essential Energy refused to vary the wording of the coverage clause.38
[57] Having regard to all the evidence I am satisfied that prior to the 2011 agreement,
Essential Energy adopted a standard practice whereby TRP contracts would only be offered to
employees whose remuneration was above the total amount they would receive under the
award or enterprise agreement. All employees whose remuneration fell below that level were
treated as being covered by the award or enterprise agreement. This reflected the resolution of
the dispute in the State commission about coverage reached in 2009. It was also a logical
approach as it created a clear horizontal line, with more senior (and the most highly paid)
employees on contract. There were a small number of exceptions but these were essentially
anomalous.
[58] The 2011 agreement included a new coverage clause - the clause that is currently
under consideration in these proceedings. The question is whether that clause had the effect of
changing that previous approach.
[59] There is no doubt, as I have already discussed, that on a literal reading the coverage
clause could be read as allowing Essential Energy to offer TRP contracts to employees who -
if they were covered by the award - would receive a greater level of remuneration. That is the
interpretation now given by Essential Energy to the clause. I do note however that there
would be no clear industrial logic behind such an approach as it would mean that less well
paid employees (and therefore presumably less senior employees) could be on contract
compared to those on the agreement.
[60] During the negotiations for the 2011 agreement the unions were concerned that -
despite its lack of obvious logic - the new coverage clause proposed by Essential Energy
could be read this way. Mr Brock in particular sought an assurance from Mr Smith that this is
not how the clause would be applied. Despite his denials I am satisfied that Mr Smith did
indeed provide Mr Brock with that assurance. It is true that he did not agree to vary the
drafting of the clause, at this late stage in the negotiations. Mr Brock accepted this (even
[2014] FWC 5601
17
though he would have preferred the drafting of the clause to have been altered) on the basis
that Mr Smith had assured him that only employees whose remuneration would be higher than
they would have received under the agreement (taking into account matters such as the 11%
loading for a 40 hour week, additional superannuation, and where applicable ESRA) would be
treated as outside the agreement and offered TRP contracts.
[61] I have reached the conclusion that Mr Smith gave the assurance to Mr Brock for a
number of reasons. First, I found Mr Brock a more convincing witness than Mr Smith, and I
have preferred his evidence over that of Mr Smith, where it is in conflict. Mr Brock’s
evidence was detailed, clear and consistent. Mr Smith, on the other hand, contradicted himself
a number of times, and his replies during cross examination were often vague and
unconvincing. Mr Brock’s version of what occurred is also more consistent with the
contemporaneous written evidence. Mr Brock’s email of 23 August explicitly referred to his
recent discussions with Mr Smith ‘regarding the intention that all Agreement-based benefits,
including payment of the ESRA, the 11% loading for working a 10 day fortnight and the
additional 6% employer superannuation contribution etc are paid in addition to the salary
point 44 base rate of pay when determining the Agreement threshold.’ At no time did Mr
Smith seek to disabuse Mr Brock that there was any such intention. Nor is there any evidence
that Essential Energy told its employees at the time of the 2011 agreement that the agreement
involved a significant change in coverage when compared to the existing situation (which
would have been the case if the clause had the meaning Essential Energy now claims.) Indeed
employees covered by the Managers & Specialists Agreement were explicitly told that they
would remain covered by the enterprise agreement - something that would not necessarily be
the case if the coverage had changed in the way Essential Energy now asserts.
[62] Indeed the evidence of what occurred after the implementation of the 2011 agreement
is that Essential Energy did indeed have the same understanding of the coverage clause as the
unions. Mr Smith contended that the practice Essential continued to apply concerning
agreement coverage was only done so as a matter of discretion. However none of the
contemporaneous evidence supports this. Indeed right through the proceedings that led to the
scope decision, up until May 2014 (when the document compiled by Essential Energy to
provide answers to common questions from staff about the proposed 2013 agreement was
prepared), it is clear that Essential Energy accepted the proposition that only those employees
in receipt of total remuneration above the amount that would be paid to an employee on Pay
Point 44 were considered to be not covered by the agreement. Despite Mr Smith’s denials, I
find that it was only in June 2014 that Essential Energy changed its view about how to
interpret the coverage clause.
Conclusion
[63] Based on the evidence, I find the parties, at the time of the making of the 2011
agreement, had a common understanding of the way in which Clause 1.3 operated. In relation
to the 2013 agreement, the parties agreed to accept the scope decision, which was that the
2013 agreement should have the same scope as the 2011 agreement.
[64] In these circumstances, the literal construction of Clause 1.3 in both agreements must
give way to this common understanding. As a consequence this means that, for the life of the
2013 agreement, Essential Energy must only offer TRP contracts to employees which have a
total remuneration greater than the employee would have received if they were employed at
[2014] FWC 5601
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Pay Point 44 under the agreement. Other employees must be employed under the terms of the
agreement.
SENIOR DEPUTY PRESIDENT
Appearances:
I Taylor, SC and L Doust for the Australian Municipal, Administrative, Clerical and Services
Union, the Association of Professional Engineers, Scientists and Managers, Australia and the
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied
Services Union of Australia
Y Shariff and A DeBoos for Essential Energy
Hearing details:
2014
Sydney
5, 22, 23 September
Printed by authority of the Commonwealth Government Printer
Price code C, PR554349
1 Essential Energy v CEPU and Ors [2014] FWC 3065
2 Unions written submissions, 18 July 2014, paragraph 6
3 Australian Nursing and Midwifery Federation v Eastern Health [2013] FCA 548 at [11]
4 SDA v Woolworths Ltd [2013] FWCFB 2814 at [12]-[13]
5 Transport Workers’ Union of Australia v Linfox Australia Pty Ltd [2014] FCA 829
6 Clause 1.24 of the 2013 agreement
7 Clause 7.3 of the 2013 agreement
8 Exhibit E8, paragraph 17
9 Paragraphs 22-24
10 PK-1
11 PK-2
12 PN1059-60
13 PK-4
14 PK-4
OF FAIR WORK C K COMMISSION J. M AUSTRALIA THE SEAL OF
[2014] FWC 5601
19
15 PK-3
16 Exhibit U1, paragraphs 16-18
17 PK-3
18 PN98
19 PN101-102
20 PN136
21 PN140-151
22 PN165-166, PN202
23 PN827
24 PN838
25 PN840
26 PN842
27 PN856
28 PN945
29 PN858
30 PN880
31 PN1097-1106
32 PN1109
33 PN117
34 PN1124
35 PN1178-1185
36 PN1192
37 PN1194
38 PN1213
