[2015] FWCFB 1549
The attached document replaces the document previously issued with the above code on 11 March 2015.
The document has been edited to correct an error in the appearances by replacing the word “Australia” with “Association”.
Katrine Huynh
Associate to Vice President Hatcher
13 March 2015
| [2015] FWCFB 1549 |
| FAIR WORK COMMISSION |
DECISION |
Fair Work Act 2009
s.156 - 4 yearly review of modern awards
Timber and paper products industry |
|
VICE PRESIDENT HATCHER |
SYDNEY, 11 MARCH 2015 |
Argument against new clauses 25.7 and 25.8 (Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30 legal point).
Introduction
[1] The Construction Forestry Mining and Energy Union (CFMEU) proposes a number of variations to the Timber Industry Award 2010 1 (TI Award). The proposed variations are to be considered during the 2014 Modern Awards Review in proceedings AM2014/92 by a differently constituted Full Bench2.
[2] Among the proposed variations is a proposal to add the following provisions to clause 25 (payment of wages) of the TI Award (Proposed Term):
25.7 Time of Payment
Wages shall be paid not later than two days following the expiration of the pay period and in any case not later than Friday.
25.8 Late payment
(a) Where an employee’s wages are paid by electronic funds transfer, cash or cheque and those wages are unpaid for more than 15 minutes after close of business on any pay day the employee shall be paid at overtime rates for three hours or until the hour of payment, whichever shall first occur if payment be made on the day of default.
(b) If payment is not made on the day wages are due the employee shall in addition be paid at overtime rates for all ordinary working hours between the end of the day of default, and the day of payment provided that payment for working ordinary hours at this penalty rate shall not exceed payment as for 38 hours.
(c) In the event that it can be shown that technical problems within the EFT system beyond the control of the employer prevent an employee from collecting his/her wages at the close of business at the nominated bank on the day such wages are due, the employer shall not be liable to pay the penalties prescribed above provided the employer takes immediate action to ensure such employee receives due payment or part payment by cash or, where agreed, by cheque and ensures that the employee receives due payment by 11.00AM the next day.
[3] In a submission lodged with the Fair Work Commission (Commission) by Master Builders Australia (MBA) dated 5 November 2014, the MBA indicated its opposition to the inclusion of the Proposed Term in the TI Award and foreshadowed an argument in opposition based on:
• the exclusivity of the penalty regime set out in Chapter 4 of the Fair Work Act 2009 (Cth) (FW Act); and
• the public policy justification for the exclusion of penalty provisions from contracts and the extension of these policy considerations to modern awards.
[4] The argument is said to have its foundation in a decision of the High Court of Australia Andrews v ANZ Banking Group Limited 3 and it is said the application of that decision acts as a restraint on the power of the Commission to include the Proposed Term (and terms of that kind) in a modern award.
[5] This Full Bench was constituted to deal with that limited argument and only to the extent that it affected the power of the Commission to include the Proposed Term.
[6] We have decided that there is no legal impediment to the Commission including the Proposed Term in the TI Award by reason of any principle that is derived from the decision in Andrews. Further we have concluded that any decision to include the Proposed Term in the TI Award will not involve an exercise of judicial power nor can it be said that the compliance framework established by the FW Act prevents the Commission from including the Proposed Term in the TI Award. Our reasons for that conclusion follow.
Relevant statutory framework
[7] The issue whether to include the Proposed Term in the TI Award arises in the context of the 4 yearly review of modern awards currently underway in accordance with Division 4 of Part 2-3 of the FW Act.
[8] In determining whether to exercise the Commission’s discretion to vary a modern award to include such a term, the Commission must be satisfied that by including the Proposed Term, the TI Award includes terms only to the extent necessary to achieve the modern awards objective and to the extent applicable, the minimum wages objective. 4
[9] The modern awards objective is to be found in s.134(1) of the FW Act. That section requires the Commission to ensure that modern awards, together with the National Employment Standards (NES), provide a fair and relevant minimum safety net of terms and conditions taking into account a range of matters enumerated in s.134(1)(a) to (h).
[10] Section 136 deals broadly with the terms that may or must be included in a modern award, and those that must not be included.
[11] A modern award must only include terms that are permitted or required by subdivisions B and C of Part 2-4, which deal respectively with terms that may be included in modern awards and terms that must be included in modern awards; by s.55, which deals with interaction between the NES and a modern award or enterprise agreement; or by Part 2-2, which deals with the NES and contains a number of provisions permitting inclusion of terms in modern awards about particular matters. 5
[12] A modern award must not include terms that contravene subdivision D, which deals with terms that must not be included in modern awards or s.55, which deals with the interaction between the NES and a modern award or enterprise agreement. 6 Terms that are incidental to matters permitted or required to be included in a modern award and are essential for the purpose of making a particular term operate in a practical way may be included in a modern award.7 A modern award may also include machinery terms.8
[13] Relevant also is the object of the FW Act and in particular s.3(b).
Consideration
MBA’s argument
[14] The MBA submitted that the inclusion of the Proposed Term in the TI Award was outside of the jurisdiction of the Commission. We take this to be a submission that it would be beyond power. It also submitted that as a matter of discretion, the Commission should not include a term in a modern award which would have the effect of imposing a penalty on a person to whom the award applied in the event that a particular term in a modern award was not complied with by that person. This latter submission is not one that touches upon the power of the Commission. Rather it is a submission directed to the merits of including such a term. Consequently we do not propose to deal with that submission in this proceeding. The MBA and others may advance merit submissions before the Full Bench that has been constituted to deal with the 4 yearly review of the TI Award later this month 9.
[15] The MBA’s submission as to power is put on three bases.
The Andrews point
[16] First it is submitted that once the character of the Proposed Term is considered, having regard to the historical context of similar terms included in awards, its true character is that of a penalty or sanction for a breach of the TI Award. It is not, according to the MBA, a term in the nature of an “incentive” or a term addressing remuneration for the performance of work. Once understood as having this character, the decision in Andrews becomes relevant.
[17] In this connection, the MBA submitted that:
[18] We are not persuaded that this submission is correct. The decision in Andrews concerned a number of contracts. These contracts provided for the imposition on customers of various honour, dishonour, non-payment and over limit fees. These various fees were not charged to a customer by the ANZ bank upon there being a breach by the customer of the contract because there was no obligation in the contract for the customer to avoid the events for which the fees were charged.
[19] The MBA’s submission relies in part on an argument that a modern award is a contract like instrument. Although a contract of employment and a modern award both deal with terms and conditions of employment, and a modern award imposes obligations enforced by statute on an employment relationship established by the contract of employment, that is where the similarity begins and ends.
[20] There can be little doubt that the mere application of a modern award to an employer and an employee does not thereby create contractual obligations. A modern award is a creature of statute brought into existence by the exercise of statutory powers vested in the Commission. It operates and applies independently of the agreement or intent of the persons it is expressed to cover. A contract of employment is the product of the agreement between an employer and an employee. A modern award does not cease to apply to an employer or an employee by the agreement between them, nor can its terms simply be varied by such an agreement. A contract of employment can cease to apply by agreement of the parties, its terms may be varied by the agreement between parties and a new contract of employment may be entered into by those parties. A modern award applies to a multiplicity of employment relationships each of which is separately governed by different contractual terms, which to the award maker, the Commission are not known.
[21] A breach of a modern award gives rise to a liability to a civil penalty which is actionable not only by persons to whom a modern award applies but also by some third parties. A breach of contract of employment is actionable by way of an award of damages, a suit for which may only be brought by a party to the contract. The contract of employment cannot provide terms and conditions that in effect would breach an obligation or a term or condition provided by a modern award and compliance with such a contractual term would result in a breach of the modern award.
[22] A modern award is therefore a limit or restraint on the capacity of an employer and an employee to strike a bargain because the modern award is part of the statutory scheme establishing minimum safety net terms and conditions of employment, but it is not a contractual instrument.
[23] The decision in Andrews stands for the proposition that the penalty doctrine is not limited to a circumstance where there has been a breach of the contract. 10 The decision also stands for the proposition that the doctrine of penalties in equity has not been subsumed into the common law.11 It does not stand for any other proposition.
[24] The decision in Andrews in our view says nothing about the power of the Commission under the FW Act to determine the terms it can include in a modern award. There is no suggestion in Andrews that the penalty doctrine operates as a restraint on, or curtails the exercise of, the Commission’s statutory power.
[25] Under the penalty doctrine as explained in Andrews, equity will intervene to provide relief against a contractual penalty imposed on one party to a contract by the other that is extravagant and unconscionable whether there has been a breach of the contract or not. As we have earlier stated, a modern award is not a contract, it is a different instrument entirely. It is one made pursuant to the exercise of statutory power, having regard to the object of the FW Act and made consistently with the modern awards objective.
[26] The making and content requirements of a modern award are regulated by the statute. The product of the exercise of statutory power is a statutory instrument, described as a modern award. That instrument depends for its force and effect on the FW Act. Common law contractual principles and equitable doctrines relating to penalties do not bear upon the exercise by the Commission of its statutory power to make a modern award or to determine its content. There is nothing in the decision in Andrews which would suggest a conclusion to the contrary. Describing or characterising the CFMEU proposal as a penalty does not add to the argument.
[27] We therefore reject so much of the submission of the MBA as suggests that Andrews so operates.
[28] As to whether the decision in Andrews has any relevance to the exercise of the Commission’s discretion to include the Proposed Term in the TI Award, that is ultimately a question to be determined having regard to the merits of the case. It is not a matter about which we express a view. That issue may be determined by the Full Bench convened to deal with the substantive review of the TI Award 12. The question whether a term having the character of a penalty meets the requirements for inclusion in a modern award as being essential for the purposes of making a particular term of the TI Award operate in a practical way, should also be dealt with by that Full Bench.
[29] For completeness we note that the CFMEU, in answer to the proposition that the decision in Andrews presented a legal barrier to including the Proposed Term in the TI Award, submitted that the FW Act specifically confers on the Commission the power to include terms about “penalty rates”. 13 As the power is expressed in an inclusive, non-exhaustive way the Proposal Term falls squarely and directly within the power conferred on the Commission by s.139(1). The MBA submitted to the contrary. Because of our conclusions expressed above, it is unnecessary for us to express a view about the correctness of the CFMEU’s submission although we think the Proposed Term does not sit comfortably being described as a “penalty rate”. It seems to us more likely that the power to include the term contained in the CFMEU proposal must, if it exists, be found in s.142(1) of the FW Act.
Exercise of judicial power
[30] The second basis on which it is submitted that the inclusion of the Proposed Term in the TI Award is beyond power is that it would involve the exercise by the Commission of judicial power.
[31] The power to make a finding of a contravention of a civil remedy provision and the imposition of a penalty for breach of a term of a modern award constitute the exercise of judicial power. Judicial power may only be exercised by a Chapter III Court. It follows according to the MBA that the Commission cannot include in a modern award terms of this nature.
[32] The submission that a decision to include the Proposed Term in a modern award would be an impermissible exercise of judicial power wrongly characterises that which would have been done. Even assuming it is correct to characterise the Proposed Term as a penalty, the effect of its inclusion in the TI Award would be to create a right to the payment of a particular sum in particular circumstances. This is not an exercise involving the adjudication of rights that presently exist or a determining a remedy consequent on those rights. Rather it is an exercise in determining what future rights or obligations should exist and subject to the statute, creating those rights or obligations by varying the modern award. It does not involve the exercise of judicial power.
[33] That s.323 of the FW Act creates a civil remedy provision relating to the frequency and method of payment of wages, does not mean that the inclusion of a new right in a modern award relating to payment of wages (even if correctly described as a penalty) is a exercise of judicial power. Consequently this aspect of the MBA’s challenge to the Commission’s power is also rejected.
[34] To the extent that the MBA submitted that s.323(3) 14 acts as a restraint on the power of the Commission under s.139 and s.142 to include particular terms in a modern award15, that is an argument that should be properly dealt with by the Full Bench that has been constituted to deal with the 4 yearly review of the TI Award later this month.16
Inconsistent with a single compliance framework established by the FW Act
[35] The third basis of the MBA’s challenge to the Commission’s power to include the Proposed Term is that its inclusion in a modern award is necessarily excluded (or prohibited) by the existing statutory regime regulating the consequences and remedies arising from breaches of modern award terms. The MBA submitted that under the FW Act there is a single compliance framework. Consequently the inclusion of penalties or sanctions in a modern award for breach of its terms is prohibited on the basis that this would be inconsistent with the existing regime for enforcement of modern awards and remedies for breach. The MBA points to s.556 of the FW Act as indicating a statutory intention that this is the case.
[36] Section 556 provides the following:
If a person is ordered to pay a pecuniary penalty under a civil remedy provision in relation to particular conduct, the person is not liable to be ordered to pay a pecuniary penalty under some other provision of a law of the Commonwealth in relation to that conduct.
Note: A court may make other orders, such as an order for compensation, in relation to particular conduct even if the court has made a pecuniary penalty order in relation to that conduct (see subsection 546(5)).
[37] The MBA also submitted that its argument under this head supports the view that the power to impose or award sanctions is properly the function of the Chapter III Courts and such terms “should not” be included as terms in a modern award. For the reasons earlier given, we do not accept the proposition that including the Proposed Term in the TI Award involves the exercise of judicial power. Whether the existence of a statutory compliance regime is a basis upon which the Commission “should not” include such a term in a modern award is a question going to merit and the exercise of discretion, not power. For reasons already given we do not propose to express a view about the merit of the term sought.
[38] As to the remaining aspect of the MBA’s argument going to power, it seems to us that the existence of a statutory compliance framework for the enforcement of, amongst other instruments, does not limit the capacity of the Commission to include the Proposed Term in the TI Award, if its inclusion is otherwise within power. As we have earlier indicated the inclusion of such a term in a modern award involves the creation of a new right or obligation, not the adjudication of any existing right or obligation. Nor does it involve the imposition of a sanction following the determination of a contravention by one person of an existing obligation, or of an existing right of another person. There is therefore no inconsistency as suggested by the MBA.
[39] The provisions of s.556 do not take the matter any further. Self evidently that section is concerned solely with the avoidance of the imposition of a pecuniary penalty under another law of the Commonwealth where a pecuniary penalty has already been imposed because of a contravention of a civil remedy provision in relation to the same conduct. A modern award is an instrument made under a law of the Commonwealth and is enforceable pursuant to that law. It is not however itself a law of the Commonwealth. Section 556 does not evidence a statutory intention that a modern award cannot include the Proposed Term.
[40] For these reasons, the MBA’s third basis of challenge must be rejected.
Conclusion
[41] The MBA’s jurisdictional objections are rejected. Nothing in our decision should be taken as accepting that the Commission otherwise has power to include the Proposed Term in the TI Award or that the merits of the case warrant its inclusion. These are matters that should be considered by the Full Bench established to determine the substantive review of the TI Award 17.
VICE PRESIDENT
Appearances:
M. Harding of counsel and F. Rothville for the Construction, Forestry, Mining and Energy Union
G. Starr for the Australian Council of Trade Unions
J. Moriarty for the Australian Manufacturing Workers’ Union (AMWU)
J. Gherjestani for The Australian Workers’ Union
R. Calver for Master Builders Australia
M. Adler for Housing Industry Association
Hearing details:
2015.
Sydney:
20 February.
2 The Full Bench is constituted by Watson SDP, O’Callaghan SDP and Cribb C and is listed for hearing on 16 March 2015.
3 (2012) 247 CLR 205
4 Section 138
5 Section 136(1)
6 Section 136(2)
7 Section 142 (1)
8 Section 142 (2)
9 See footnote 1
10 (2012) 247 CLR 205 at 227, [45] - [46] and at 236, [78]
11 Ibid at 227, [44] – [45] and at 232 – 233, [62] – [63]
12 See footnote 1
13 See s.136 and s.139(1)(e)
14 Section 323(3) relevantly provides that if a modern award specifies a particular “method” by which the money (wages) must be paid, then the employer must pay the money by that method.
15 See Transcript PN127-PN129 and PN300
16 See footnote 1
17 Ibid
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