DECISION

Fair Work Act 2009
s.225—Enterprise agreement

AGL Loy Yang Pty Ltd T/A AGL Loy Yang
(AG2016/4580)

LOY YANG POWER ENTERPRISE AGREEMENT 2012

Application for termination of the Loy Yang Power Enterprise Agreement 2012.

[1] On 21 July 2016, AGL Loy Yang Pty Ltd (AGL Loy Yang) filed an application under s.225 of the Fair Work Act 2009 (the Application) to terminate the Loy Yang Power Enterprise Agreement 2012 1 (the Agreement). The nominal expiry date of the Agreement is 31 December 2015.

[2] The Application is opposed by the Construction, Forestry, Mining and Energy Union (CFMEU), the Australian Municipal, Administrative, Clerical and Services Union (ASU), the Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (Electrical Trades Union of Victoria branch) (ETU) and the Association of Professional Engineers, Scientists and Managers, Australia (Professionals Australia).

[3] The Agreement currently covers about 578 employees at the Loy Yang A Power Station (Station) and adjacent open cut brown coal Loy Yang Mine (Mine) at Traralgon in Victoria which are operated by AGL Loy Yang.

[4] The Application was heard on 17-18 and 28 October 2016. AGL Loy Yang was represented by Mr F Parry QC and Ms R Sweet of counsel. Mr T Slevin of counsel represented the CFMEU and Ms F Knowles of counsel represented the ETU, ASU and Professionals Australia, which I will refer to collectively as the “other Unions”.

[5] AGL Loy Yang filed witness statements and statements in reply from Mr S Rieniets, General Manager of the Station and Mine and Mr M Clinch, Manager - Group Employee Relations.

[6] The CFMEU filed witness statements from Mr P Colley, National Research Director for the CFMEU, Mr G Hardy, Secretary of the Loy Yang A Power Station Lodge of the Victorian District of the CFMEU and Unit Controller at the Station, Mr G Dyke, Secretary of the Victorian District Branch of the CFMEU Mining and Energy Division and Ms K Whelan, Senior Researcher with Essential Media Communications Pty Ltd.

[7] The other Unions filed witness statements from Mr J Chambers and Mr M Walker, Electricians in the Mine, Ms J McGregor, Personal Assistant and Records Management Officer, Mr M Burke, Procurement Services Lead and Mr M Rizzo, National Industrial Officer with the ASU.

[8] Of the various witnesses, only Mr Rieniets and Mr Clinch for AGL Loy Yang, Mr Hardy and Mr Dyke for the CFMEU and Mr Rizzo for the other Unions were required for cross examination.

AGL Loy Yang and the Electrical Power Industry

[9] AGL Loy Yang owns and operates the Station and the Mine in Victoria’s Latrobe Valley. It is Victoria’s largest energy producer. Approximately 45% of Victoria’s energy needs are sourced from the brown coal produced from the Mine, while the Station itself produces approximately 30% of the state’s power requirements.

[10] AGL Loy Yang is owned by the publicly listed company, AGL Energy Limited (AGL Energy). On 10 August 2016, AGL Energy released its official statutory result. This revealed a loss of $408 million for the financial year ended 30 June 2016, but there were a range of other indicators relied upon by the CFMEU to support its contention that AGL Loy Yang is very profitable. AGL Loy Yang, noting the official statutory result, submitted it was arguably profitable.

[11] The CFMEU argued the financial outlook for AGL Loy Yang was favourable due to:

• Increasing prices for the power it generates;



• The increasing volume of power it is producing;



• The prospect of two of its competitors closing;



• Its power station having the second highest productivity of the four Victorian brown coal generators;



• Its mine having the highest productivity in the Latrobe Valley;



• Its labour cost structure and terms and conditions being similar to its competitors; and



• It being the cheapest coal producer in Australia and the lowest short run marginal cost generator in the National Electricity Market (NEM).

[12] Mr Clinch gave evidence that compared to other AGL Energy power stations (such as Bayswater power station and Liddell power station), the Station has the highest ratio of shift manning per unit, the most restrictive operational practices and is the only agreement that prohibits compulsory redundancies. 2

[13] AGL Loy Yang submitted the future of coal-fired power generation is uncertain and cited industry and market conditions which challenge its ability to remain a viable, low cost energy generator, including:

• Decreasing wholesale energy prices over time, with current wholesale electricity prices comparable to prices in 2000;



• Decreasing electricity consumption;



• Oversupply of generation in the NEM;



• The ongoing transition away from coal-fired power generation;



• Recent significant increases in coal royalties payable to the State Government from $18 million per year to $54 million per year from 1 January 2017;



• Operational costs rising at a faster rate than revenue; and



• Wages having increased well ahead of CPI and average weekly ordinary time earnings, despite deteriorating market conditions.

[14] As to the increases in coal royalties, Mr Rieniets said AGL Loy Yang does not have the ability to control the price at which it sells its electricity and is therefore limited in its ability to pass on these additional costs to consumers.

[15] Under cross-examination, Mr Rieniets said AGL Loy Yang had met its sales targets and made a profit in FY 2016. He also acknowledged that AGL Loy Yang has the lowest short-run marginal cost in the NEM and that enabled it to generate additional power and sell into the market marginally cheaper than anyone else, but said there were other long-run marginal costs to be factored in, such as operational and capital costs. In terms of decreasing energy consumption, Mr Rieniets also acknowledged that this was not impacting on the amount of electricity AGL Loy Yang was generating.

[16] Evidence from Mr Colley for the CFMEU was of an expectation that wholesale energy prices will improve significantly in the near term, leading to more profits for power station operators. In reply, Mr Rieniets conceded there had been a spike in prices between October 2015 and July 2016 but claimed spikes had come and gone “along the horizon”. 3 He also stated that although electricity prices may improve in the near term it would be dependent on variables which cannot be accurately predicted at present. The process of setting wholesale energy prices was explained by Mr Rieniets, as follows:

“Wholesale electricity prices are set by way of the National Energy Market (NEM), which is a compulsory electricity pool market. Generators in the NEM compete with one another by making offers or ‘bids’ to supply specified volumes of electricity at specified prices. The Australian Energy Market Operator then selects generators to run (be ‘dispatched’) using an algorithm that seeks to minimise the overall cost of meeting demand. Other things being equal, a generator offering to supply electricity at a low price will be dispatched ahead of a generator offering to supply electricity at a higher price.” 4

[17] Ultimately, it was not denied by AGL Loy Yang that AGL Energy is a profitable business, but Mr Rieniets said AGL Loy Yang has a duty to shareholders to deliver a return and to control its costs and ensure Loy Yang runs for as long as possible because if it is not efficient, the life of the asset will be shortened. Both parties acknowledged there would be implications from the imminent closure of the Hazelwood Power Station in the Latrobe Valley. The CFMEU also suggested there was a prospect of Yallourn Energy closing. In relation to Hazelwood, Mr Rieniets said the whole coal fired generation sector is uncertain and any impact the closure of Hazelwood might have on the supply of power generation would depend on what was also happening with the demand side in the market.

The Latrobe Valley

[18] The CFMEU submitted that the electrical power industry is the major contributor to the Latrobe Valley region’s economy and vital to its viability. It submitted that the employees of AGL Loy Yang predominantly work and live in the region, which is socially and economically depressed and has been since the job losses associated with the privatisation of the Victorian electrical power industry in the late 1990s. The CFMEU relied on a Monash University report from 2001 5 and a Catholic Social Services Australia/Jesuit Social Services report from 20156 in support of its contentions.

[19] The other Unions submitted the Latrobe Valley has low levels of economic activity and high levels of unemployment compared with other regions in Victoria.

[20] AGL Loy Yang acknowledged that the electrical power industry is undoubtedly a prominent and key industry but that is changing, with other large employers in the region including the Australian Paper Mills and the Latrobe Regional Hospital. It also acknowledged that as one of a number of electrical power generators, the electrical power industry makes a contribution to the regional economy in various ways.

[21] AGL Loy Yang also acknowledged the region has undergone a period of upheaval and transition as a result of privatisation approximately 20 years ago and that its unemployment levels are higher than the national average. However, it submitted that the Latrobe Valley community’s social and economic position is not unique and many other parts of regional Australia are experiencing similar challenges.

History of the Agreement

[22] It is common ground that the terms and conditions in the Agreement reflect terms and conditions that have applied in six successive agreements covering the Station and Mine since privatisation in the mid-1990s. It was also submitted by AGL Loy Yang that these conditions also substantially reflect the terms and conditions that applied during the previous era of State-owned and run power generation in the Latrobe Valley. 7

[23] The evidence of AGL Loy Yang, through Mr Clinch, was that its only involvement in negotiating the current terms and conditions of employment was during the negotiations for the Agreement (the sixth of the agreements) and even then, in circumstances where it only held a 32.5 per cent shareholding, 8 although Mr Clinch acknowledged the role that the AGL Board played in relation to the 2012 claim for a 35-hour week and in broad terms were “calling the shots”.9

[24] The CFMEU submitted that the terms of the Agreement reflect terms and conditions afforded to power workers in the Victorian power industry, the Loy Yang operations had been productive and profitable during the term of the Agreement and there had been no disputes over the terms being unproductive.

Changes sought by AGL Loy Yang

[25] AGL Loy Yang cited a range of provisions it claims unduly restricts its ability to make changes to its operations to increase productivity and reduce inefficiencies:

• Fixed manning numbers, leading to excessive overtime shifts;



• Restrictions on changes to rostering and movement of employees between jobs and equipment;



• Restrictions on using skilled employees productively including spare and/or relief employees;



• Restrictions on selection/recruitment of personnel;



• Accrual of time off in lieu of overtime;



• Consult and agree provisions; and



• Prohibitions on compulsory redundancies.

[26] Mr Clinch and Mr Rieniets gave evidence in relation to these provisions. 10 Mr Dyke gave some evidence in response but neither Mr Rieniets’ nor Mr Clinch’s evidence was challenged in cross-examination.

Fixed Manning/Minimum Staffing

[27] Both Mr Rieniets and Mr Clinch used the term ‘fixed staffing’ which was objected to by Mr Dyke who preferred the use of the term ‘minimum staffing’. My use of the terms simply reflects the use by the parties in presenting their evidence.

[28] Mr Rieniets’ and Mr Clinch’s evidence was that the fixed manning provisions for operations in both the Station and the Mine mean that when an employee in a fixed manning position is absent, the position must be backfilled, whether or not there is an operational or safety justification for filling the role.

[29] The evidence of both Mr Rieniets and Mr Clinch was that AGL Loy Yang’s overtime costs are currently $20 million per annum, a large majority of which is driven by fixed manning in shift operational areas. Mr Rieniets gave evidence that employees across the site earned, on average, $27,600 in overtime in the 2016 financial year, in addition to their annualised salaries. Ten employees earned over $100,000 in overtime, including one who earned $142,711, and in one instance, an employee earned more in overtime than his base salary. Mr Rieniets also stated that in overtime payments alone, 25.5% of the workforce earned more than the median total personal income in the Latrobe Valley ($42,846). He conceded there would always be a requirement for some overtime but with improvements, the cost of overtime could be reduced by up to $10 million per annum. Mr Dyke said poor roster management is generally a major cause of excessive overtime within shift rosters but neither Mr Rieniets nor Mr Clinch were cross-examined on these calculations.

[30] Mr Rieniets said the fixed staffing levels on the Station Operations Group apply to day, night and weekend shifts even though the workload is far less at night and on weekends and there is less demand for permanent staff. He said there is much less maintenance work conducted during the night and on weekends. In response, Mr Dyke gave evidence regarding the preparation of work permits and said the plant ran 24/7, with the same number of required activities and a requirement for sufficient staff to respond. Mr Rieniets also cited $50 million in capital expenditure on the control system in the Station and a second simulator. He said despite this having resulted in many of the systems in the control room becoming automated and requiring fewer operators and the reduced workload at nights and on weekends, AGL Loy Yang must continue to roster the full crews prescribed in the Agreement. Mr Dyke disputed this evidence, stating similar operator functions are still required and that there are more alarms now rather than less.

[31] Mr Rieniets said in certain circumstances, Units that are offline must be fully manned for at least 24 hours prior to being brought back online, notwithstanding the fact that there is no work that can be undertaken during this time. Mr Dyke disputed this evidence and outlined a range of activities he says are required during this period. Mr Rieniets also said restrictions placed on varying shift staffing levels in clause 67.4.3 of the Agreement, meant that on short shut downs of a Unit, it may have to be fully staffed for the entire period of a shut down. Mr Dyke disputed this, saying the busiest time for operations is at a Unit shutdown/start-up. Mr Rieniets gave evidence of an instance where there was a loss of $500,000 in wages and opportunity cost as a result of such a 24 hour delay. 11 Mr Dyke disputed this evidence.

[32] In terms of the Mine Operations Group, Mr Rieniets gave evidence of fixed staffing requirements on the stacker systems and data indicating efficiency on labour usage of less than 50%. Mr Dyke stated SBU bargaining representatives have agreed on circumstances during which the stacker staffing can be reduced.

[33] In terms of the Warehouses, Mr Rieniets gave evidence of a range of requirements in the Agreement such as the requirement for the two warehouses to be separately staffed with separate leadership structures and minimum staffing levels. He also outlined the prohibition, under normal conditions, on directing staff rostered on in one warehouse to perform duties in the other and the requirement to cover absences with overtime or casual staff, which he said restricts the efficient use of the warehouses and their staff. Mr Dyke’s evidence was that the warehouses are staffed for “effective operation”.

[34] Mr Clinch further stated that other restrictions within the Agreement on use of labour mean that in practice, AGL Loy Yang is often forced to backfill these positions by calling a shift employee into work on overtime rates, rather than using day workers, or ‘spare’ or ‘relief’ shift workers who are already on site and suitably qualified to perform the duties. Mr Rieniets confirmed there are limitations on the duties relief employees considered ‘spare’ are permitted to perform and also detailed the requirement to add an additional shift to the amount of annual leave available to be taken during a 7-day roster cycle when a relief employee covers a shift due to another employee being released to do project work. Mr Dyke said while he agreed there were limits on the duties to be performed by reliefs, he disagreed they cannot be used productively and the overtime created by the release of employees for projects was at management’s prerogative.

Restrictions leading to inefficient use of labour

[35] The AGL Loy Yang evidence was that the Agreement contains restrictions that result in the inefficient use of labour both in the Station and/or the Mine, including:

• restrictions on moving people within a roster;



• restrictions on being able to move people between jobs or equipment;



• restrictions on using trained, competent people from day work to relieve



• 2x12 roles in the Mine only; and



• wash up time in the Mine combined with fixed staffing means effective coal production can be compromised.

[36] Mr Rieniets said there were restrictions on Station operators moving from one unit to another and that this can occur only once per shift before overtime starts to apply to additional vacancies. This was not disputed. He also said that in order to use make-up days under the Agreement, 70 days’ notice was required, which rendered them unsuitable as a means of covering staffing gaps at short notice and that AGL Loy Yang must approve applications for annual leave on a make-up day, which also often meant overtime would be required to cover the resulting short-term absence. Mr Dyke said employees are rostered prior to the start of each shift roster to provide employees with some predictability in their shift pattern

[37] In terms of the Mine, Mr Rieniets said that where an employee working a 2x12 shift pattern is unexpectedly absent, AGL Loy Yang does not have the ability to direct a suitable employee working a day shift to take his or her place. He also said the ability for AGL Loy Yang to move personnel between plant was restricted to certain prescribed circumstances and that the mandatory requirement to use Mine Operations Group employees without access to contractors for intermittent and seasonal building and recovering of coal stockpiles leads to further overtime costs. Mr Rieniets also detailed the entitlement of an employee involved in cleaning during the second half of a shift to finish work one hour early to wash-up, which also requires the rest of the crew to finish early if minimum staffing levels are not present, and indicated the sort of lost tonnage that can flow. Finally, Mr Rieniets detailed the arrangements for meal breaks whereby all operating dredgers stop production to allow the drivers to have a 20 minute lunch break together, as opposed to staggered breaks. This, he said, resulted in 361 logged hours of production loss or 180,500 tonnes. In responding, Mr Dyke described some of Mr Rieniets’ concerns regarding these Agreement clauses as exaggerated and stated the restriction on contractors was required to protect employees from outsourcing.

[38] Mr Dyke gave evidence in support of his contention that the application is not about “flexibility” or “productivity” but rather providing AGL Loy Yang with an unfair advantage, using the Mine major earthwork project in 2014/2015 as an example. He argued this project illustrated how the Agreement allows for both flexibility and productivity. His evidence detailed a five month period during which there was regular written correspondence, a series of meetings, conciliation at the Commission and confirmation of an agreement in writing before the project proceeded.

[39] Mr Rieniets responded, stating the method used in the project was not the most efficient, productive or cheapest way to extract the coal. He estimated an additional 20 per cent cost was added to the project. Mr Rieniets also stated that instead of engaging casual employees for the life of the project, AGL Loy Yang had to hire additional permanent employees for the project who then had to be absorbed into the workforce as surplus employees because of the no forced redundancy provisions and asserted additional inefficiencies would flow if similar works were performed in the future.

Restrictions on the recruitment/selection process

[40] Mr Clinch said that unless otherwise agreed by the parties, vacancies within the Mine Operations and Station Operations Group must be filled from a field of applicants drawn solely from individuals holding positions within those respective Groups. He said the effect is that lateral recruitment cannot occur without the agreement of all parties to the Agreement, which severely restricts AGL Loy Yang’s ability to recruit and select the most meritorious candidates for positions within its organisation from an open field of applicants. Mr Rieniets also expressed the concern that the selection processes are not properly based on merit. Mr Dyke disagreed and said the current selection processes ensure that qualified, experienced, skilled and competent employees are selected for promotion and external recruitment is available, where there are identified shortfalls and the parties agree.

Accrual of time off in lieu of overtime

[41] Mr Clinch’s evidence was that as a result of the Agreement not capping the amount of time off in lieu which can be accrued and taken by employees, it contributes to AGL Loy Yang’s significant overtime liability. Mr Rieniets gave evidence of this liability having increased from $2.067 million as at 30 June 2013 to $4.397 million as at 30 June 2016. Mr Dyke said a cap on accruals is now agreed.

Consult and agree provisions

[42] Mr Clinch gave evidence that in the Agreement, there are many instances where AGL Loy Yang must consult and obtain agreement from the unions before it can engage in what he regards as basic operational management. He gave the example of clause 69.3 of the Agreement which has the effect of restricting the use of simulators for training to Operations Group employees unless agreement is obtained to train others, and cited the refusal of the CFMEU to agree to control engineers being trained on the simulators, notwithstanding such a recommendation from the manufacturer. Mr Rieniets cited clauses 59 and 75.10 as further examples. Mr Dyke said matters regarding clause 59 are now agreed, as are others, through the s.240 process.

No compulsory redundancies

[43] Mr Clinch and Mr Rieniets also said that the Agreement does not allow for compulsory redundancies and while this provision is in force, AGL Loy Yang is restricted from managing its workforce in accordance with demand or external requirements or factors. Mr Dyke responded by stating that AGL Loy Yang can negotiate changes based on need at regular Enterprise bargaining intervals.

[44] Mr Dyke also described the prohibitions on forced redundancies and outsourcing to contractors’ clauses, together with the minimum staffing levels, as clauses that protect employment. He estimates that without them, there would be 36 job losses across the Mine and Station. As outlined, he took issue with AGL Loy Yang’s evidence regarding restrictions on the use of labour and on the recruitment/selection process. For instance, he cited the restrictions on moving people within a roster as being necessary to give shift workers predictability over their work patterns, rests and family life and the desire for career paths via internal employee promotion.

Bargaining for the new Agreement

[45] Following a period of consultation with AGL Loy Yang employees and employee representatives in April 2015, AGL Loy Yang commenced negotiations for a new agreement with the other Unions in July 2015. The CFMEU had also been invited to commence at that time but initially refused on the basis that the key bargaining representatives were not available. On 28 September 2015, the CFMEU provided written advice to formally initiate bargaining.

[46] AGL Loy Yang advised it was seeking improved flexibility and productivity and this required changes to the Agreement. AGL Loy Yang was seeking, amongst others, changes to the provisions in the Agreement relating to fixed manning and “restrictive” operational practices covering the use of skilled employees and the recruitment and selection of employees. AGL Loy Yang indicated at that time that it was prepared to achieve improvement in an incremental way, if it meant avoiding protracted negotiation and “damaging” industrial action.

[47] The CFMEU presented a draft agreement and a summary of its claims at a meeting on 28 October 2015. These were adopted by the other Unions. In addition, Professionals Australia submitted a log of claims on 11 November 2015.

[48] AGL Loy Yang rejected the majority of the CFMEU claims and the draft agreement, asserting they added significant or unnecessary costs, reduced flexibility and did not contribute to productivity improvements.

[49] In late November 2015, AGL Loy Yang put a proposal that included a four-year-agreement with 5% per annum salary increases, no forced redundancies and what it described as “modest improvement changes to productivity and flexibility” to its employees for a vote (“the first vote”). The first vote was after 14 bargaining meetings had taken place. Opposed by the CFMEU and other Unions, the AGL Loy Yang proposal was not approved by employees. Following this, AGL Loy Yang commenced bargaining in December 2015 for what it described as “broader reforms” while maintaining the pay offer of 5% per annum over four years.

[50] While some bargaining and other activity continued over the ensuing months it did not result in agreement being reached. On 8 April 2016, there were two developments. Firstly, AGL Loy Yang filed an application under s.240 of the Fair Work Act 2009 (the Act) requesting the assistance of the Commission to find a “practical and sensible” format for bargaining. That process is ongoing. The s.240 Application was followed almost immediately by the CFMEU’s application under s.229 of the Act for bargaining orders, alleging AGL Loy Yang had not been bargaining in good faith.

[51] The CFMEU’s s.229 Application was heard and determined by Commissioner Gregory. The Commissioner had before him submissions and evidence dealing with what had occurred from July 2015 onwards. The orders sought by the CFMEU were:

• Reasonable meeting times;



• Recognition of bargaining representatives;



• Genuine consideration of bargaining proposals and the imposition of an obligation on AGL Loy Yang to consider and respond to the CFMEU’s bargaining proposals; and



• Constraint from capricious or unfair conduct.

[52] The Commissioner was not satisfied the evidence before him established AGL Loy Yang was in breach of the good faith bargaining requirements and in his decision dated 2 June 2016, declined to make the orders sought.  12

[53] As to whether there was genuine consideration of the bargaining proposals, the Commissioner concluded:

“[100] There has also been a significant amount of evidence provided about whether the bargaining representatives have given genuine consideration to the proposals of the other. For example, AGL submits it decided to put a draft Agreement to a vote in November last year because the CFMEU would not give proper consideration to its proposals at that time. It makes the same submission about its subsequent revised proposal. It also submits the CFMEU has not, at any stage, being [sic] prepared to consider any of the changes to current working arrangements proposed by AGL. It has instead sought to introduce further cost and inflexibility by its claims.

[101] The CFMEU provided its claims for the new Agreement to AGL in mid-October. Since that time it also claims AGL has failed to give proper consideration to its claims, and has not provided reasons in response as to why they are unacceptable.

[102] Again, it is difficult to conclude that either bargaining representative has been in breach of their good faith bargaining obligations based on this evidence. The reality appears to be instead that neither party, after considering the proposals of the other, has been prepared to accept those proposals. In AGL’s case the evidence indicates it wants changes to existing arrangements to be able to give it more flexibility and reduced operating costs. The CFMEU appears in response to accept none of these proposals, and is instead pursuing its own agenda which seeks additional benefits and entitlements for the employees it represents.

[103] It is acknowledged that the legislative intention of the good faith bargaining provisions is ultimately not just to impose a requirement to bargain in good faith, but ultimately to bargain to achieve an enterprise agreement, as far as possible. However, as indicated already the good faith bargaining requirements do not require a bargaining representative to make concessions or to agree.

[104] However, in this matter it appears that the respective positions of AGL and the CFMEU go to the essence of why there has been little progress to date toward the conclusion of a new enterprise agreement, rather than this being due to any breach of the good faith bargaining requirements. The reality appears to be that each has a very different view about what the final Agreement should involve, and there is no “meeting of the minds” at this point to enable an Agreement to be concluded. This is not intended to be a criticism of either, but rather a view about what appears to be the prevailing reality.” 13

[54] By this time, the s.240 Application process was underway and bargaining conferences had been held before Commissioner Gregory on 9, 26 and 31 May 2016.

[55] On 26 May 2016, the CFMEU made application for a protected action ballot order (PABO) under s.437 of the Act. I heard, determined and subsequently dismissed that application because I was not satisfied to that point in time that the CFMEU had been or was genuinely trying to reach agreement. 14 I considered the application to have been prematurely made and suggested that a period of bargaining in an atmosphere free of behaviour that lacked the requisite genuineness should be achieved before the requirements of s.443(1)(b) of the Act could be met. The CFMEU’s appeal against my decision was dismissed,15 but in handing down its decision on 21 September 2016, the Full Bench made the following observation:

“[47] Having regard to the bargaining that has continued to date, the current lodgement of an application to terminate the Agreement and the passing of the cooling off period referred to by the Deputy President, it is open for the CFMEU to make a fresh application for a PABO and in our view, on the material presently before us, a PABO would more than likely issue.”

[56] On 26 September 2016, the CFMEU made further application for a PABO under s.437 of the Act. This application was heard, determined and granted by Commissioner Cirkovic on 28 October 2016. 16

[57] When I reserved my decision in the current matter, Commissioner Roe had conducted 11 conferences under the s.240 Application. With the additional three conferences before Commissioner Gregory and 23 bargaining meetings prior to that, there had been 37 bargaining meetings since the commencement of bargaining.

[58] The conduct of the parties during the s.240 process was described by Commissioner Roe in his Recommendation of 24 August 2016 17 (Recommendation) in the following terms:

“Conferences were held before Commissioner Gregory on 9 May 2016 [26 May 2016] and 31 May 2016. Since 16 June 2016 the parties have participated in a bargaining process overseen by myself. The parties have attended ten conferences before me and all parties have seriously and consistently participated in the process. They have considered and responded to proposals made and have made significant concessions. On 6 July 2016 the parties agreed to a proposal made by the Commission in a Statement issued on 1 July 2016 that on a without prejudice basis they explore the possibility of resolving the bargaining dispute on the basis of a package which was set out in that Statement. The Recommendation of 29 July 2016 sets out the progress which has been made since then. The parties accepted the Recommendation of the Fair Work Commission (FWC) of 19 July 2016 in respect to the resolution of the disputed clauses which require consultation and agreement. In some cases a mechanism to resolve an impasse by requiring that agreement not be unreasonably withheld has been added.

It is the position of AGL that without some modification the package of issues to be considered as outlined in the Statement of 1 July 2016 will not lead to a resolution of the dispute. I am satisfied that some modification of the package is essential to resolve the dispute. However if the package of issues to be considered is expanded too much, the union parties will understandably consider that they have made concessions on the basis of a defined package and that the goal posts have shifted unfairly. A resolution to the dispute will not be achieved if the package is expanded too greatly. I am satisfied that the only expansion of the package of issues should be to broaden the staffing flexibilities to be considered to include the matters discussed through the working group process. In respect to the flexibility issues raised by AGL there are associated clauses which need to be addressed to ensure that the benefits of the flexibility are in fact achieved.

I make this recommendation primarily on the basis of what, having considered the submissions of the parties and the prevailing industrial circumstances, I believe has the best prospect of resolving the dispute. I am not arbitrating on the merits of particular claims although of course I have an eye to what is industrially sustainable and defensible having regard to the business circumstances and the history of bargaining over many years at the site.

I provided the parties with a draft recommendation and this was the subject of all day discussions on 22 August 2016. I have decided to issue this Recommendation taking into account the comments of the parties on the draft recommendation. I acknowledge that my Recommendation will not satisfy the aspirations of any of the parties but I urge the parties to consult with their constituencies and seriously consider endorsing the proposal as the resolution to the bargaining dispute.” (my emphasis)

[59] The package recommended in the Recommendation retained the Agreement as the base and made, in the words of the Commissioner, “a limited number of amendments to that document.”

[60] The response of AGL Loy Yang to the Recommendation was to endorse it on its terms, notwithstanding it did not provide all the amendments it was seeking. As much was acknowledged by the Commissioner in his statement, “I acknowledge that my Recommendation will not satisfy the aspirations of any of the parties”. The response of the CFMEU was to reject the Recommendation and press for the resolution of additional matters. The CFMEU adopted its position despite Mr Dyke accepting that what Commissioner Roe had asked the parties to do was take the Recommendation to their constituents for endorsement. 18 These additional matters were outlined in the letter from Mr Dyke to Mr Rieniets on 9 September 201619 as:

• Station Operations Group minimum shift staffing on weekends and public holidays;



• The restructuring of Engineering and Maintenance;



• The restructuring of the Warehouse Group;



• The arrangements for day work operators in the Mine covering 2x12 absences; and



• The timing of the pay increases under the proposed Agreement.

[61] As to how the five additional matters had been addressed in the Recommendation:

• Station Operations Group minimum shift staffing was contemplated to be 12 on weekends and public holidays when an employee was absent at short notice and where workload allowed;



• The restructuring of Engineering and Maintenance was to be achieved through consultation and implementation following the commencement of the new agreement;



• The Warehouse Group was to be reviewed within the first three months of the new agreement but there would be no drop in classification for any employee and no reduction in overall numbers;



• Suitably trained and skilled PSOs could relieve on the 2x12 shift prior to overtime in certain circumstances; and



• The timing for the payment of pay increases under the agreement appeared to be broadly consistent with the timeline for increases that had been used for the current Agreement.

[62] Mr Rieniets stated that these additional matters are key productivity reforms that AGL Loy Yang is seeking to implement in a new enterprise agreement to offset the 21% pay rise on offer over 4 years. 20

[63] The CFMEU did not endorse the Recommendation and when put to a vote of employees that closed on 21 September 2016, a majority of employees rejected it. Commissioner Roe’s Statement dated 12 October 2016 21 summarised the state of affairs at that time:

“[3] As outlined in the Recommendation the Fair Work Commission (FWC) acknowledged that the Recommendation did not represent a bargaining position accepted by either the unions or the company. The Recommendation compromised a number of the objectives of both the unions and the company. However, the company agreed to put the Recommendation to a vote and supported a vote for the Recommendation.

[4] At the conference on 11 October 2016 the unions explained to the FWC the changes to the Recommendation which they believe would be necessary to achieve a positive employee vote. The unions do not regard these changes as major when considered in the context of the overall scope of changes in the proposed agreement which assist the company. However, the changes necessary are more than just fine tuning.

[5] At the conference on 11 October 2016 AGL Loy Yang explained to the FWC that it was not prepared to make further significant compromise to its position. AGL Loy Yang advised that in a situation where the employees have rejected the Recommendation it now intends to pursue its broader reform agenda.”

[64] Having set out a chronology of the bargaining for the new Agreement, the CFMEU submitted I should find the bargaining to date has been protracted and one-sided in the sense that it has modified its claims while AGL Loy Yang has expanded its. It submits the current impasse in bargaining has been caused by AGL Loy Yang’s refusal to negotiate on the five issues it seeks to have addressed in bargaining, choosing instead to pursue a broad reform agenda.

[65] AGL Loy Yang does not dispute the bargaining has been long and difficult but submitted there is no evidence to support a suggestion that it has engaged in “unconscionable conduct” in bargaining so as to excite the public interest. It submitted that parties are allowed to be obdurate in bargaining, are not required to accept any particular claims of another party to the bargaining and are allowed to change their position. It drew attention to the fact that the CFMEU complained unsuccessfully to the Commission that it had not been bargaining in good faith and submitted the inability of CFMEU–represented employees to access industrial action, up until more recently, was a direct result of the CFMEU’s own conduct.

Undertaking

[66] AGL Loy Yang has stated it will continue to bargain in good faith for a new agreement in the event the Agreement is terminated. It has given an undertaking to the effect that if the Agreement was terminated, it would, for a period of three months following the termination; maintain certain conditions from the Agreement it says are significantly more beneficial than the Electrical Power Industry Award 2010 (Award) minimum terms and conditions. Those conditions are:

• Clause 11.4, 44, 116 – wages and classification rates;



• Clauses 38. 57, 71 – hours of work;



• Clauses 11.9, 63.8, 76, Appendix B – allowances;



• Clauses 15, 42, 73, 83, 107.4 – penalty rates and overtime;



• Clause 16 – payment for public holidays;



• Clause 28 – accident pay;



• Clause 11.2 – salary packaging arrangements;



• Clause 13 – hours of work;



• Clauses 18, 19, 20, 21, 22, 50, 74, 84 – leave;



• Clause 12 – superannuation; and



• Clause 24 – dispute resolution process.

[67] The matters appear to be the same as those covered by the Undertaking in Clause 4 of the Agreement. Additionally, Mr Clinch gave evidence that if agreement for a new agreement is not reached by the expiration of the three month period, AGL Loy Yang intends to apply market competitive terms and conditions which he anticipates will always be above award conditions. 22

[68] The CFMEU and the other Unions submitted the undertaking is deficient because it departs from an obligation in Clause 4 of the Agreement that AGL Loy Yang will maintain those conditions until there is a new agreement. Further, they submitted the undertaking will result in the immediate reduction in terms and conditions of employment for employees and result in the loss of “job security” and redundancy provisions.

Legislation

[69] The mechanism for terminating an enterprise agreement after its expiry date is outlined in Subdivision D of Division 7 of Part 2-4 of the Act. The Act relevantly provides as follows:

“225 Application for termination of an enterprise agreement after its nominal expiry date

If an enterprise agreement has passed its nominal expiry date, any of the following may apply to the FWC for the termination of the agreement:

(a) one or more of the employers covered by the agreement;
(b) an employee covered by the agreement;
(c) an employee organisation covered by the agreement.

226 When the FWC must terminate an enterprise agreement

If an application for the termination of an enterprise agreement is made under section 225, the FWC must terminate the agreement if:

(a) the FWC is satisfied that it is not contrary to the public interest to do so; and
(b) the FWC considers that it is appropriate to terminate the agreement taking into account all the circumstances including:

(i) the views of the employees, each employer, and each employee organisation (if any), covered by the agreement; and
(ii) the circumstances of those employees, employers and organisations including the likely effect that the termination will have on each of them.

227 When termination comes into operation

If an enterprise agreement is terminated under section 226, the termination operates from the day specified in the decision to terminate the agreement.”

[70] In its extensive consideration of s.226 of the Act, the Full Bench in Aurizon Operations Limited; Aurizon Network Pty Ltd; Australian Eastern Railroad Pty Ltd 23 (Aurizon) stated:

“…these provisions, and relevantly s. 226, must be construed in a manner that is consistent with the language and purpose of the provisions by reference to the language of the Act as a whole, and so the context, general purpose and policy of the provision are an important means by which the meaning and effect of a provision is to be ascertained.” 24

[71] The Full Bench in Aurizon noted that placed within Part 2-4 of the Act, these provisions are part of a scheme designed to enable bargaining for, making of, approving, varying and the termination of enterprise agreements. 25 It then set out the object of Part 2-4 outlined in s.171 of the Act and other provisions it regarded as relevant. It is worthwhile to reproduce the relevant extracts:

“[122] The object of Part 2-4 is set out in s. 171, which provides as follows:


“171 Objects of this Part

The objects of this Part are:

(a) to provide a simple, flexible and fair framework that enables collective bargaining in good faith, particularly at the enterprise level, for enterprise agreements that deliver productivity benefits; and

(b) to enable the FWC to facilitate good faith bargaining and the making of enterprise agreements, including through:

(i) making bargaining orders; and

(ii) dealing with disputes where the bargaining representatives request assistance; and

(iii) ensuring that applications to the FWC for approval of enterprise agreements are dealt with without delay.”

[123] Also relevant is the object of the Act contained in s. 3, which provides:

“3 Object of this Act

The object of this Act is to provide a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians . . .”

[124] The means by which this object is to be achieved is set out in the various paragraphs enumerated in s. 3 as follows:

“(a) providing workplace relations laws that are fair to working Australians, are flexible for businesses, promote productivity and economic growth for Australia’s future economic prosperity and take into account Australia’s international labour obligations; and

(b) ensuring a guaranteed safety net of fair, relevant and enforceable minimum terms and conditions through the National Employment Standards, modern awards and national minimum wage orders; and

(c) ensuring that the guaranteed safety net of fair, relevant and enforceable minimum wages and conditions can no longer be undermined by the making of statutory individual employment agreements of any kind given that such agreements can never be part of a fair workplace relations system; and

(d) assisting employees to balance their work and family responsibilities by providing for flexible working arrangements; and

(e) enabling fairness and representation at work and the prevention of discrimination by recognising the right to freedom of association and the right to be represented, protecting against unfair treatment and discrimination, providing accessible and effective procedures to resolve grievances and disputes and providing effective compliance mechanisms; and

(f) achieving productivity and fairness through an emphasis on enterprise-level collective bargaining underpinned by simple good faith bargaining obligations and clear rules governing industrial action; and

(g) acknowledging the special circumstances of small and medium-sized businesses.”

[125] Other provisions of the Act providing context in which s. 226 is to be construed include:

• The various provisions of Part 2–4 of the Act, which provide for the making, varying and termination of enterprise agreements.



• Part 2–4 of the Act also contains the various provisions which facilitate bargaining. These are set out in Division 8 and include:



• the identification of good faith bargaining requirements that a bargaining representative for a proposed enterprise agreement must meet;



• the capacity for the Commission to make bargaining orders in certain circumstances where one or more of the bargaining representatives is not meeting the good faith bargaining requirements or where the bargaining process is not proceeding efficiently or fairly because there are multiple bargaining representatives for the proposed agreement;



• the availability of a serious breach declaration in cases of serious and sustained contraventions of bargaining orders where contraventions significantly undermined bargaining for a proposed agreement, with the prospect of a bargaining related workplace determination being made;



• majority support determinations, which may be made in cases where, inter-alia, the majority of existing employees of the employer wished to bargain with the employer for a proposed agreement;



• scope orders, which may be made in certain circumstances to resolve disputes about the scope of a proposed enterprise agreement;



• enabling the Commission, on application by a bargaining representative for the proposed agreement, deal with a dispute about the agreement, and may do so by arbitration if all of the bargaining representatives have agreed; and



• specific provisions facilitating bargaining by low-paid employees and by multiple employers who have a commonality of interest.  



• Provisions that enable employees to organise and engage in protected industrial action described as employee claim action and employee response action, and those enabling an employer to respond to employee action through employer response action. Subject to compliance with the various statutory preconditions, such action when organised or taken will attract a limited immunity from suit. Unlike the corresponding provisions in the Workplace Relations Act 1996, an employer is not permitted to engage in protected industrial action for the purpose of supporting or advancing its claims in bargaining except in response to employee claim action.



• Under the statutory scheme, whilst an employer and a valid majority of employees may make an enterprise agreement which has statutory effect if subsequently approved by the Commission, there is nothing in the scheme which compels bargaining parties to reach or make an enterprise agreement. This is made clear in the provisions dealing with the good faith bargaining requirements.



• Division 4 of Part 2–4 contains the pre-approval steps, the approval steps and the content requirements for an enterprise agreement. Relevantly one of the content requirements is that an enterprise agreement must specify a date as its nominal expiry date and that date may not be more than 4 years after the day on which the Commission approves the enterprise agreement.



• The operation of an enterprise agreement is dealt with in s. 54 of the Act. An enterprise agreement commences to operate from either seven days after it is approved by the Commission or from any later date that is specified in the agreement. An enterprise agreement will cease to operate either on the day on which a termination of the agreement comes into operation pursuant to ss. 224- 227, or another enterprise agreement that covers the employees comes into operation and there are no employees to whom the first agreement applies, whichever occurs earlier.”




(references omitted)

[72] In summarising, the Full Bench in Aurizon stated:

“[126] The legislative scheme therefore enables and facilitates good faith bargaining for an enterprise agreement. It also facilitates the making of enterprise agreements but does not mandate that result. Once an enterprise agreement is made and approved by the Commission, it seems clear that the legislative scheme does not intend that such agreements operate in perpetuity. Agreements have a finite nominal life. At the end of the nominal life of an agreement, bargaining parties may bargain for a new agreement utilising all of the tools available under the Act; or a person to whom an agreement applies may take steps to bring the agreement to an end in accordance with the provisions of the Act; or both may occur.”

[73] The principles arising from Aurizon I consider relevant are:

• There is no imperative that the promotion and delivery of productivity benefits at an enterprise level is primarily or exclusively to be achieved through enterprise bargaining in good faith rather than by other means and nor is an imperative that an agreement must result in productivity improvements. 26



• There should be no general presumption that continuing the operation of an agreement that has passed its nominal expiry date, whether bargaining is continuing or not, will be any more an effective means by which the object in s.171 of the Act is to be achieved than terminating that agreement. Ultimately, the circumstances will dictate the matter. 27



• Section 226 operates according to its terms and its application is guided by its language and purpose by reference to the language and purpose of the Act as a whole. To approach the construction of s.226 in the manner suggested in Tahmoor Coal Pty Ltd re Tahmoor Colliery Enterprise Agreement 2006; Tahmoor Washery Workplace Agreement 2006 28 (Tahmoor), particularly at [55], results in a predisposition against the termination of an enterprise agreement that has passed its nominal expiry date when there is no indication in the section or elsewhere in the Act that this should be the case.29



• There is nothing in the structure or content of the Act to suggest that its object (of providing a balanced framework for cooperative and productive workplace relations that promotes national economic prosperity and social inclusion for all Australians) is to be exclusively or primarily to be achieved by enterprise level collective bargaining. 30



• There is nothing in ss.3 and 171, when read harmoniously, that would suggest that the emphasis on promoting productivity (in s.3(a)) is primarily to be achieved through collective bargaining in good faith (in s.3(f) and s.171) rather than by other means, such as termination of an expired agreement. 31



• There is nothing inherently inconsistent in the termination of an agreement and the continuation of collective bargaining that has commenced in good faith at an enterprise level for an enterprise agreement that delivers productivity benefits. 32



• The termination of an agreement that has passed its expiry date might better support good faith bargaining for an agreement that delivers productivity benefits at the enterprise level. 33



• It cannot be expected that terms and conditions of employment contained in an agreement will continue unaltered in perpetuity after the agreement has passed its nominal expiry date. The Act contemplates that terms and conditions may be altered by making a new agreement or by terminating the existing agreement. 34



• The Act guarantees the continuation of the safety net, not the terms and conditions of employment contained in a nominally expired agreement. 35

[74] It is therefore salient in the context of the Application to bear in mind that the Act does not contemplate agreements operating in perpetuity. Parties to a nominally expired agreement may bargain for a new agreement using the various tools available under the Act. Alternatively, they may seek to bring an agreement to an end in accordance with the provisions of the Act. As was recognised in Aurizon, the context within which s.226 of the Act is to be construed includes:

• the good faith bargaining requirements of the Act and the Commission’s capacity to make bargaining orders;



• the capacity for employees to organise and engage in protected industrial action and an employer’s right to respond through employer response action; and



• the processes available under a s.240 Application. 36

[75] Having regard to s.226 of the Act, I must terminate the Agreement if I am satisfied that it is not contrary to the public interest to do so and consider it appropriate to do so taking into account all the circumstances, including the views of the employees, AGL Loy Yang, the CFMEU and the other Unions and their circumstances, including the likely effect the termination will have on each of them.

Section 226(a) – The public interest

[76] As regards s.226(a) of the Act and the manner in which the public interest is to be assessed, the Full Bench in Aurizon cited various passages from the Full Bench of the Australian Industrial Relations Commission’s decision in Re Kellogg Brown and Root, Bass Strait (Esso) Onshore/Offshore Facilities Certified Agreement 2000 37 (Kellogg) which had concerned the corresponding, but not identical, provision from the Workplace Relations Act 1996. Relevantly, these passages included:

“The absence of any reference to the interests of the negotiating parties in s.170MH(3) is significant. It follows that the views of persons bound by the agreement may be relevant to the exercise of the discretion if they shed light upon the effect of termination on the public interest, but they should not be given any independent weight. To do so would be to import into the application of the section something which on its proper construction it does not include.

The notion of public interest refers to matters that might affect the public as a whole such as the achievement or otherwise of the various objects of the Act, employment levels, inflation, and the maintenance of proper industrial standards. An example of something in the last category may be a case in which there was no applicable award and the termination of the agreement would lead to an absence of award coverage for the employees. While the content of the notion of public interest cannot be precisely defined, it is distinct in nature from the interests of the parties. And although the public interest and the interests of the parties may be simultaneously affected, that fact does not lessen the distinction between them…”  38 

and

“…the ascertainment of the public interest may involve balancing countervailing public interests. That the Commission should take all of the circumstances into account is made clear by Dawson J in Re Australian Insurance Employees Union; Ex parte Academy Insurance Pty Ltd  [(1988) 78 ALR 466 at 467]. These authorities provide useful general guidance in the application of the test in s. 170MH(3). They illustrate the types of interests which can be properly described as public interests and confirm the breadth of circumstances which may be relevant to the ascertainment of those interests.

It should be emphasized that the Commission's consideration of the public interest for the purpose of s. 170MH(3) is directed to the consequences of terminating the agreement. In a given case, some consequences will be clearly predictable, others will be less so. For the most part the Commission should be guided by the likely foreseeable consequences of termination rather than speculation about possible consequences.”  39

[77] The Full Bench in Aurizon concluded that this analysis remained relevant to guide the application of s.226 of the Act and applied Kellogg.

Section 226(b) – Appropriateness

[78] As outlined in paragraph [75] above, all the circumstances must be taken into account in considering whether it is appropriate to terminate an agreement, including the views of each employer, the employees and any employee organisations covered by the agreement, and their circumstances, including the likely effect the termination will have on them. As was outlined in Aurizon, the requirement is to take the matters into account and to give them due weight in assessing whether it is appropriate to terminate an agreement. 40

[79] The CFMEU submitted that while the Full Bench in Aurizon disagreed with Tahmoor on the public interest test in s.226(a), it had not in relation to the appropriateness test in s.226(b). I do not agree with this characterisation because the Full Bench in Aurizon stated:

“[152] In our view, there is no express or contextual indication that the objects in s. 3 or s. 171 operate on s. 226 in the way suggested in Tahmoor Coal. It follows that we do not propose to follow Tahmoor Coal in its construction of s.226 to the extent that the construction appears to place limits on the discretionary considerations in s. 226(b) because of that which we regard as an incorrect interpretation of the interrelationship of the objects in s. 3 and s. 171 of the Act. In our view the limitation is not justified.” 41

[80] The approach to assessing appropriateness by taking into account all the circumstances, as enunciated by the Full Bench in Aurizon, is to have reference to the construction of s.226 and the contextual matters that bear upon that construction as well as giving specific consideration to the matters identified in ss.226(b)(i) and (ii). 42 I intend to adopt the approach of the Full Bench in Aurizon.

Is termination of the Agreement contrary to the public interest?

[81] I must be satisfied it is not contrary to the public interest to terminate the Agreement. In resolving this question, the Full Bench in Aurizon applied Kellogg and this too is my intention.

[82] AGL Loy Yang relied on Kellogg in submitting it is not contrary to the public interest to terminate the Agreement and submitted that I must assess the direct consequences of terminating the agreement, guided by the likely foreseeable consequence of termination rather than speculation about possible consequences.

[83] AGL Loy Yang submitted it is not contrary to the public interest to terminate the Agreement because termination:

• will better suit good faith bargaining. In support of this, it was said the history of the current negotiations demonstrates that the continued existence of the Agreement is hindering, rather than encouraging good faith bargaining and while the termination will affect current bargaining positions, there is no indication bargaining will not continue and the parties will remain bound by the good faith bargaining requirements in the Act and the employees and bargaining representatives will “have available to them the full arsenal of tools under the Act to exert legitimate pressure” on AGL Loy Yang “to bargain and to reach agreement; 43



• will more likely facilitate negotiation of an enterprise agreement with productivity benefits which will assist AGL Loy Yang to continue to deliver low cost energy to the NEM and it is consistent with the public interest for it to be given the best chance to manage its affairs and respond to change in a way that maximises its capacity to continue as a significant and important Latrobe Valley employer and Victoria’s largest energy producer;



• will not prevent employees from being covered by proper industrial standards as AGL Loy Yang is willing to provide an undertaking to maintain the key terms and conditions in clause 4 of the Agreement for an initial three month period post termination, during which it will continue to negotiate in good faith for a replacement agreement. If an agreement is not reached by then, it is its intention to apply market competitive terms and conditions and employees will have the benefit of the Award and the National Employment Standards in the Act; and



• will not result in any immediate changes to employment levels because AGL Loy Yang does not have current plans to implement compulsory redundancies and it is most unlikely any proposal for forced redundancies will be considered within the three month period post termination.

[84] It then addressed public interest factors said by the Unions to be relevant.

Latrobe Valley

[85] The CFMEU submitted the removal of job security provided by the Agreement and the likely significant drop in take home pay will have an immediate detrimental effect on the Latrobe Valley community, setting a precedent which will allow other employers to use the same strategy to remove crucial terms and conditions. It estimates that 36 jobs will be lost if job security provisions are removed upon termination of the Agreement. It relied in part on a Committee for Gippsland report 44 to predict a multiplier effect upon its prediction of a loss of 36 jobs at AGL Loy Yang, suggesting it would lead to 82 jobs lost in the Latrobe Valley. These job losses and flow-on effects, it submitted, make termination of the Agreement contrary to the public interest.

[86] AGL Loy Yang submitted in reply that there were no figures before the Commission about the contribution AGL Loy Yang makes to the Latrobe Valley economy and an analysis of the consequences of the termination of the Agreement after the three month undertaking period necessarily requires the making of assumptions and speculation as to the outcomes of bargaining. It submitted that the argument of the Unions relying on the assumption that termination of an agreement by a power industry employer is bad news for the Latrobe Valley community, is problematic because it pre-empts the outcome of bargaining between the parties, assumes, contrary to the evidence, massed forced redundancies and fails to account for possible redeployment and/or creation of additional employment opportunities within the community. It submitted that given the CFMEU’s evidence that both high wages of power industry workers and economic and social depression have co-existed in the Latrobe Valley since privatisation more than 20 years ago, it is most unlikely that the AGL Loy Yang employees’ wages and spending habits have any sizeable effect in the region and thus a potential reduction in income is not a matter that raises public interest considerations.

[87] Ultimately, AGL Loy Yang submitted that I do not have to make assessments on these matters as the evidence does not sustain the predicted or speculated effects, or indeed any effect and the submissions that prophesise as to “flow on” and “immediate detrimental” effects to the Latrobe Valley community rely on speculation about possible, though unlikely, consequences of the termination.

[88] As to the CFMEU submission that the termination would set a precedent for the termination of electrical power industry agreements in the Latrobe Valley, with other employers using the same tactics and crucial terms and conditions such as job security provisions being removed, AGL Loy Yang replied by submitting that any future applications by Latrobe Valley power generators would have to be dealt with by the Commission on their merits. Further, what other employers elect to do is a matter for them and does not excite the public interest and the removal of “crucial” terms and the supposed “longer term adverse effects” of removal would depend on a range of factors requiring long range speculation as to possible consequences, which are not matters about which the Commission is required to draw conclusions.

Employment levels

[89] As outlined above, the CFMEU relies on evidence from Mr Dyke that the claims of AGL Loy Yang will result in the loss of 36 jobs and the likely job losses and the uncertainty about further job losses make termination of the Agreement contrary to the public interest.

[90] AGL Loy Yang submitted Mr Dyke’s estimate of job losses was the product of guessing, unsupported by evidence and this submission was a mischaracterisation of the reference to employment levels in Kellogg because the Full Bench in that case was not referring to employment levels in a single enterprise. It further submitted that the evidence was that there were no current plans for a compulsory redundancy program and the fact that in the future AGL Loy Yang may seek to streamline its operations with the resulting loss of some positions is an everyday commercial reality that does not raise public interest considerations.

Industry Standards

[91] The Unions submitted the loss of various industrial standards would make the termination of the Agreement contrary to the public interest.

[92] In reply, AGL Loy Yang submitted that it would be an error to construe the reference in Kellogg to “the maintenance of proper industrial standards” as setting up above award conditions across a sector as some sort of industry benchmark, the movement below of which invokes the public interest. It submitted the Award and National Employment Standards in the Act provide an appropriate safety net.

Cooperative and Productive Relations

[93] The CFMEU submitted terminating the Agreement is contrary to the object of the Act as it will impact adversely on cooperative and productive workplace relations at the workplace by exacerbating already uncooperative relations and encouraging combative conduct.

[94] AGL Loy Yang submitted that Part 2-4 of the Act specifically deals with bargaining conduct and equips the parties with recourse to industrial action and employer response action for use in bargaining, provided certain conditions are met.

Simple fair framework

[95] The CFMEU submitted terminating the Agreement would be contrary to the objects in s.171 of the Act and it would be unfair to place AGL Loy Yang in a strengthened bargaining position of immediately reducing the terms and conditions of employment with a further ability to unilaterally reduce terms and conditions again in three months’ time.

[96] AGL Loy Yang submitted there is no evidence and it cannot be inferred that that places it in a strengthened bargaining position, particularly with the near term prospect of industrial action. It submitted that even if its bargaining position is strengthened immediately upon termination, that is simply an unremarkable product of the scheme of the Act that cannot give rise to a public interest consideration.

Facilitating Good Faith Bargaining

[97] The CFMEU submitted bargaining has been all one way and the Application was introduced as leverage for AGL Loy Yang to achieve its broader reforms. Further, it submits termination of the Agreement will force the parties into a process of taking direct action, with the potential for this type of disputation in an essential services industry a matter of public interest.

[98] In reply, AGL Loy Yang submitted this is not a case where there has been “unconscionable conduct” in bargaining so as to excite the public interest. It relied in particular on the failure of the CFMEU to secure bargaining orders and the more recent involvement of the Commission, from which there have been no findings critical of the parties to the bargaining.

Reduction of Labour Costs

[99] The CFMEU submitted the termination of the Agreement will not assist in delivering any significant productivity benefits but instead only provide labour savings. It submitted the fact there are no productivity considerations in AGL Loy Yang’s application that would lead to a finding that the termination is in the public interest on productivity grounds does not weigh in favour of terminating the Agreement.

[100] AGL Loy Yang submitted the Commission does not need to find the termination is “in the public interest” on productivity or other grounds but simply that the termination is “not contrary to the public interest.” It also submitted that it is not a public interest consideration whether or not the termination of the Agreement delivers what, if any, productivity benefits or what, if any, labour cost savings, to the relevant enterprise.

Maintaining safety standards at the Mine and Station

[101] The other Unions submitted it is a matter of public interest that safety standards are maintained at the Mine and the Station through a collective agreement and that the Agreement has numerous key clauses obligating the parties to maintain health and safety standards, in respect of which there are no applicable clauses in the Award.

[102] AGL Loy Yang submitted there is no evidence that would support a finding that a consequence of the termination of the Agreement will be a reduction in safety standards and cited Mr Rieniets’ evidence that AGL Loy Yang would act consistently with its obligations with respect to health and safety if the Agreement was terminated.

Consideration – public interest

[103] As was enunciated in Aurizon, there is nothing inherently inconsistent with the termination of an enterprise agreement and the continuation of collective bargaining in good faith. In this matter, there is nothing to suggest that the parties will cease their pursuit of a new agreement and bargaining will stop if the Agreement is terminated.

[104] It is also relevant to highlight from Aurizon that it cannot be expected that the terms and conditions of an agreement will continue unaltered in perpetuity after it has passed its expiry date. The Act contemplates the terms and conditions may be altered by making a new agreement or by terminating the existing agreement.

[105] The bargaining positions of the parties will be altered by the termination of the Agreement but this must be viewed within the context of the scheme of the Act, which clearly contemplates termination, subject to the satisfaction of prescribed conditions. Bargaining will still be available and it will still be subject to the good faith bargaining requirements of the Act and the Commission’s capacity to make bargaining orders.

[106] The unions and the employees of AGL Loy Yang will still have the capacity to organise and engage in protected industrial action as a means of exerting legitimate pressure on AGL Loy Yang during ongoing bargaining for a new agreement. The Commission can still lend assistance to the negotiations between the parties through the s.240 Application process.

[107] The Act clearly contemplates an agreement that still applies to employees being terminated. As was recognised in Aurizon, s.226 of the Act is not limited to circumstances in which an agreement no longer applies to any employee. The Act prescribes a safety net upon termination in such circumstances. It is not the previous agreement and nor are undertakings mandatory. The prescribed safety net is the Award, which is the relevant modern award created during the Award Modernisation process, and the NES.

[108] The union submissions that termination of the agreement would be contrary to the public interest because it would adversely impact on co-operative and productive relations and the simple, fair and flexible framework to enable collective bargaining must be viewed in light of this legislative context. 

[109] I am not persuaded on the evidence that there will be such an impact on the Latrobe Valley or employment levels from the termination of the Agreement as to attract the requisite public interest. I regard this evidence as little more than speculative. It assumed certain outcomes at the end of the three month undertaking period, which may not come to pass and alleges job losses based on uncertain estimates in the face of evidence from AGL Loy Yang that there are no plans or expectations that job losses will occur upon termination, other than voluntarily. The challenges facing the Latrobe Valley are longstanding and predate the bargaining between the parties. There was no evidence of the contribution AGL Loy Yang and its employees make to the Latrobe Valley economy or have made since privatisation of the industry and the contentions of the CFMEU relied on spending habits that may or may not exist. I also regard the contention that termination would set a precedent for other operators in the Latrobe Valley as a speculative, as opposed to a likely foreseeable consequence. Any subsequent application to terminate an agreement would be a product of its own bargaining scenario and determined on its own merits.

[110] I do not accept the proposition that the loss of various industrial standards of the electrical power generation industry in the Latrobe Valley would make the termination contrary to the public interest. As detailed above, the Award and NES provide for “proper industrial standards” within the meaning given to that term by Kellogg. In any event, AGL Loy Yang has given an undertaking and a commitment to provide market competitive terms and conditions beyond it, with which I am satisfied it will comply.

[111] I do not consider the bargaining conduct of AGL Loy Yang arouses public interest considerations. Clearly the bargaining between the parties has been protracted and hard. There are previous decisions of the Commission involving the parties that include findings about the nature of the bargaining up until mid-2016 and I do not propose to make fresh determinations regarding that period of time. However, I do not accept the CFMEU submission that the bargaining has been one-sided. The number of conferences before Commissioners Gregory and Roe and Commissioner Roe’s observation in the Recommendation that all parties have seriously and consistently participated in the process, considered and responded to proposals made, and have made significant concessions, satisfies me that this is not the case. 

[112] The scheme of the Act contemplates hard bargaining. It also equips parties, including these parties, with various avenues in the event of protracted and hard bargaining. These avenues include the termination of the Agreement and they will be unaffected by the termination of the Agreement.

[113] I also do not consider the evidence sustained the proposition that safety standards would be reduced by termination of the Agreement.

[114] I have considered all of the circumstances of this matter and I am satisfied it is not contrary to the public interest to terminate the Agreement.

Is it appropriate to terminate the Agreement?

[115] As outlined above, the approach to assessing appropriateness by taking into account all the circumstances, as enunciated by the Full Bench in Aurizon, is to have reference to the construction of s.226 and the contextual matters that bear upon that construction as well as giving specific consideration to the matters identified in ss. 226(b)(i) and (ii):

“All of the circumstances also need to be taken into account in considering whether termination of the agreements is appropriate. In particular the views of employers and employees covered by the agreement, their circumstances, and the impact of termination need to be taken into account. The requirement in s. 226(b) to take into account all of the circumstances including those set out in 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. In assessing appropriateness by taking into account all of the circumstances, we approached the task by reference to the construction of s. 226 and the contextual matters that bear upon that construction dealt with earlier as well as giving specific consideration to the matters identified in s . 226(b)(i) and (ii).” 45 (Reference omitted)

[116] I intend to adopt this approach.

[117] AGL Loy Yang is in favour of termination and submitted the termination of the Agreement is likely to have the following effects on it:

• It will remove certain restrictive work practices imposed by the Agreement;



• It will allow it to review its workforce structure and enable it to more readily and reasonably reorganise its operations to suit its interests, improving productivity and profitability and respond more flexibly to the changing energy marketplace; and



• It will remain free to negotiate the making of a new enterprise agreement within the framework of the Act to suit its medium and long term interests.

[118] AGL Loy Yang submitted the termination of the Agreement is appropriate for the following reasons:

• The negotiation process and the likelihood of reaching agreement if the Application is dismissed;



• The state of the electrical power generation industry; and



• Removal of restrictive practices is not unfair or exploitative.

[119] As to the negotiation process, AGL Loy Yang made the following submissions:

• Bargaining has been on foot for a replacement agreement for over 15 months and it has been upfront about the need for change to the industrial arrangements at the Station and the Mine throughout.



• It has actively engaged in negotiations and while in late 2015, it offered its employees the opportunity to accept a four year agreement with a 5% annual wage increase with only modest changes in the spirit of pursuing an incremental approach to implement productivity and efficiency outcomes, this approach was overwhelmingly rejected by the employees and opposed by all bargaining representatives.



• Since April 2016, the parties have been engaged in bargaining with the assistance of the Commission pursuant to its s.240 application. AGL Loy Yang endorsed the Recommendation of Commissioner Roe and arranged for a proposed agreement giving effect to the Recommendation to be put to a vote. The CFMEU was vocal in its opposition to the Recommendation and the employees voted down the proposed agreement despite the fact it retained the content of the Agreement as the base and made a limited number of amendments to it.



• This dispute is evidently an intractable one.



• The overwhelming evidence indicates that the continued operation of the Agreement is hindering the parties from reaching agreement as to replacement terms and conditions.



• Applications under s.225 form part of the simple, flexible and fair bargaining framework to which Part 2-4 of the Act is directed. It is precisely in bargaining disputes such as the one presently before the Commission where it is appropriate to utilise the flexibility to change the status quo by terminating the relevant enterprise agreement. This outcome will, in fact, enable and facilitate bargaining in good faith to further the agreement making process.



• The Commission can be satisfied, given the bargaining history between the parties, that the likelihood of the parties reaching agreement in the reasonably foreseeable future is very low whilst the Agreement remains on foot and will have a substantially greater chance of success if the Agreement is terminated.

[120] As to the state of the electrical power generation industry, AGL Loy Yang submitted it is markedly different from its more dominant period in the 1980s and early to mid-1990s and is experiencing a major transition. The terms and conditions of the Agreement reflect those in existence in the mid-1990s and the terms and conditions of the previous era of expanding State owned and run Latrobe Valley power generation.

[121] Further, AGL Loy Yang submitted private ownership, decreasing wholesale electricity prices, decreasing revenue, escalating operating costs, the requirement to be answerable to shareholders and the genuinely uncertain future of the industry all contribute to its rational desire to seek revised terms and conditions. Such conditions could be a move away from the terms in the Agreement to introduce flexibilities as to how and when it utilises its staff with the aim to deliver productivity gains, create operational efficiencies and allow it the flexibility to manage its workforce in line with demand.

[122] As to the removal of practices it says are restrictive, AGL Loy Yang submitted it does not seek to impose unfair or exploitative conditions on its employees. It submitted it is seeking to modify targeted provisions which are not only uncommon in enterprise agreements more generally, but which result in sizeable excesses (i.e. overtime liability) or “roadblocks” to productivity improvements. AGL Loy Yang also submitted that even if conditions such as fixed manning were altered in accordance with its wishes, the Station would continue to have the highest ratio of staffing per unit in the Latrobe Valley.

[123] The CFMEU opposes termination of the Agreement. Its preference is for the Agreement to be replaced by a further agreement. It submitted that all the circumstances relating to the public interest test are also applicable to the appropriateness test and that it was important to note:

• The bargaining for a replacement agreement is still proceeding.



• The bargaining is difficult because AGL Loy Yang is seeking to introduce reforms through reductions in the terms and conditions historically enjoyed by the employees.



• During the course of bargaining the CFMEU has significantly modified its position in relation to a number of items to come closer to an agreement while AGL Loy Yang has been reluctant to modify its claims other than to broaden its claims.



• Significant effort has been expended in the bargaining. It has proceeded with the assistance of the Commission and considerable progress has been made towards finalising a replacement agreement, such that by the end of September 2016 there were only five outstanding issues.



• The termination of the Agreement will force the CFMEU to reconsider its approach above and to press the employees’ claims to restore terms and conditions through industrial action.



• AGL Loy Yang has said that it will respond to any industrial action with a lock out of the entire workforce.

[124] The basis for the CFMEU’s opposition to termination is:

• It will change the regulatory framework underpinning the terms and conditions of the employees to the considerable detriment of its members;



• It is a step that represents a marked departure from the history of cooperative negotiations at Loy Yang for replacement agreements;



• It will allow AGL Loy Yang to avoid its commitment recorded in clause 4 of the Agreement to maintain wages and conditions until a replacement agreement is made;



• It will set a precedent for other employers in the industry that will make future bargaining in the industry more confrontational;



• It will result in job losses;



• It will have a deleterious impact on the La Trobe Valley;



• It is aimed at saving labour costs rather than improving productivity;



• The operations are profitable and productive meaning there is no business imperative to save costs;



• The bargaining for a replacement agreement has thus far been one-sided;



• The termination of the Agreement will harden the views of members in the bargaining and threaten the progress that has be made thus far; and



• Future bargaining will become confrontational and industrial action on both sides will be inevitable.

[125] The other Unions also oppose termination and submitted it is inappropriate on account of:

• The adverse effect on the Latrobe Valley community;



• Assisting employees to balance their work and family responsibilities through the superior terms of the Agreement;



• Achieving fairness and productivity through enterprise-level collective bargaining, including by maintaining terms and conditions which are common in the power industry in Victoria;



• Ensuring safety at AGL Loy Yang and safe working conditions;



• AGL Loy Yang’s intention to not abide by clause 4 of the Agreement to maintain its undertakings until a replacement agreement is made. 46

[126] As to the circumstances of employees and the likely impact termination would have on them, the CFMEU submitted termination will result in an erosion of industrial standards, with the employees no longer being entitled to terms and conditions enjoyed by other workers in the electrical power industry in Victoria. It submitted the undertaking is limited and will result in an immediate reduction in the terms and conditions of employment for the employees, who will then suffer a further reduction in terms and conditions of employment at the end of its three month period, as the terms and conditions in the Award are substantially below the standards provided for in the Agreement.

[127] The CFMEU relies on the survey and report of Ms Whelan, 47 which it said shows the opposition of employees to termination and indicates the major impact of a wage decrease, most particularly the resultant financial stress. It submitted the views and circumstances revealed in the survey and report of Ms Whelan weigh heavily against a finding that it is appropriate to terminate the Agreement.

[128] The other Unions and their witnesses who are employees oppose the termination of the Agreement and submitted it would have an adverse effect on them as employee organisations due to the differences between the Agreement and the Award in clauses relating to consultation and dispute resolution, employee/union representatives and individual flexibility arrangements.

[129] They submitted employees would suffer a drastic drop in wages and terms and conditions of employment which would likely result in a loss of job security and them no longer being able to maintain current financial commitments or support family members or be with them due to a loss of work-life balance. The other Unions relied on their witness evidence in this respect.

[130] In responding to the views of the CFMEU and the other Unions, AGL Loy Yang firstly relied on its submissions in response to the CFMEU submissions made on public interest matters relating to the interest of the community of the Latrobe Valley, employment levels and industry standards. It expanded on its “public interest” submissions regarding the impact on co-operative and productive workplace relations at the site, the impact on the bargaining position of the parties and the reduction in labour costs.

[131] The CFMEU submitted termination would impact bargaining in the following ways:

• There will be an adverse impact on the employees’ position in the ongoing negotiations as it will change the underpinning statutory terms and conditions of employment to their detriment;



• AGL Loy Yang’s position will be further enhanced due to the weakened position of employees;



• The ability of the Commission to deal with the dispute in conciliation will be hampered;



• There will be a combative approach from both sides in response.

[132] AGL Loy Yang submitted the bargaining dispute between the parties is an intractable one. As to the claim that difficulties in bargaining is a result of AGL Loy Yang seeking to reduce long-standing entitlements, AGL Loy Yang submitted the scheme of the Act provides no guarantee beyond the nominal expiry date of an agreement and that the employees had twice rejected proposals for a replacement agreement which substantially retained their long-standing terms and conditions.

[133] AGL Loy Yang further submitted:

• its endorsement of the Recommendation was evidence of it having been prepared to modify its claims to a substantial degree;



• as to the proposition that termination may place it in a strengthened position vis-�-vis the Unions, this is an unremarkable consequence of the scheme in Part 2-4 of the Act and that all parties would have at their disposal other bargaining tools that may result in rebalancing the relative positions;



• the taking of protected industrial action will not be “caused” by the termination of the Agreement, with a PABO having been sought since March 2016;



• a change in the regulatory framework whereby employees fall back to the Award is a product of the way in which the Act operates in normal circumstances;



• the Commission should not refuse to terminate an agreement because agreements have been reached at a site without the resorting to such measures in the past;



• the fact that the AGL Group is profitable is simply a neutral factor when considering the appropriateness of termination.



• the fact that the Station and Mine operate at a reasonable level of productivity is also simply a neutral factor when considering the appropriateness of termination and private sector businesses are entitled to seek to become more productive.

[134] As to the union submissions that it would be inappropriate to terminate the Agreement because it would allow it to avoid its commitment to maintain certain wages and conditions until a replacement agreement is made, AGL Loy Yang submitted clause 4 of the Agreement restricts its enjoyment of statutory rights, or fruits of those rights, otherwise conferred by s.226 of the Act. It submitted that because this clause renders the Commission’s powers under s.226 nugatory and is repugnant to the collective bargaining scheme in Part 2-4 of the Act, it is of no effect and should not be given weight. 48 In the alternative, it submitted the weight clause 4 should be given should be diminished given the reasonable opportunity provided to employees to secure a replacement agreement.

[135] As to the likely impact on the CFMEU and other Unions, AGL Loy Yang submitted neither the CFMEU nor the other Unions are going to be materially impacted in any material or real sense.

[136] AGL Loy Yang submitted the termination of the Agreement will not affect the obligations of the parties to bargain in good faith or the ability of employees to access other provisions of the Act such as those relating to protected industrial action. It submitted termination is likely to have the following effect on employees:

• employees will be entitled to the maintenance of proper industrial standards by reason of:



• the underpinning Award and National Employment Standard (NES) entitlements;



• the three month undertaking to be provided which preserves a number of terms and conditions of importance to employees;



• maintenance of market-competitive terms and conditions post the period of any undertaking, which will sit well above the statutory minimum terms and conditions in any event;



• employees will remain free to negotiate the making of a new enterprise agreement suitable to their interests within the framework of the Act; and



• potential reductions in the amount of overtime or time-off-in-lieu paid and/or accrued by employees, but in the context of the current overtime excesses and in circumstances where the wages of the employees are overwhelmingly in excess of average personal income in the local district.

[137] AGL Loy Yang submitted the most likely outcome, particularly following the three month undertaking period, is a moderate impact on employees when compared to the current terms and conditions of employment. It submits the terms of the undertaking correspond with the terms in clause 4 of the Agreement and the likelihood is that a new enterprise agreement will be made within the three month period of the undertaking, given all parties remain committed to securing a new agreement. It also submitted that to the extent termination of the agreement carries with it risk of an adverse impact on employees, that risk is one the employees and bargaining representatives were well aware of and have chosen to accept.

[138] AGL Loy Yang submitted that while the evidence of the witnesses for the other Unions and the employee survey material of the CFMEU must be considered, it should be approached with caution because of the likelihood of an agreement being reached within the three month undertaking period, the evidence of Mr Clinch that AGL Loy Yang would always be likely to maintain competitive rates of remuneration and the lack of evidence supporting the assumption that termination of the Agreement would result in a 30% reduction in employee remuneration. To the extent that some employees might suffer a diminution in their overall rates of remuneration, it submitted the levels of overtime contributing to this are not objectively justifiable and do not form part of the guaranteed remuneration of any employee under the Agreement.

[139] AGL Loy Yang summarised its position as follows:

• It has made appropriate and indeed extensive attempts to negotiate a replacement enterprise agreement, and has on two occasions provided its employees with an opportunity to accept reasonable enterprise agreement proposals.



• Those proposals having been rejected, including a proposal made in accordance with a Recommendation from a Fair Work Commissioner, the Commission must conclude that the negotiation of a new enterprise agreement is most unlikely, unless there is a significant change to the bargaining dynamic.



• That change is likely to come from a decision terminating the Agreement. Equally it may come from a situation whereby its employees take protected industrial action. Alternatively there may be a combination. All of these possibilities are specifically contemplated by and provided for by the Act.



• As is now clear from decisions such as Aurizon, Peabody 49 and Griffin Coal,50 the Act contemplates that enterprise agreements may be terminated upon application in appropriate circumstances, and that, neither the impact on bargaining or potentially adverse impacts on employees will be a sufficient reason for a termination decision not to be made.



• Just as the employees and their bargaining representatives are entitled to take protected industrial action if they meet the Act’s thresholds for the taking of protected industrial action, it should also not have to meet a benchmark for the termination of the Agreement which is any higher than that contemplated by the Act.



• In the lengthy negotiation process, including under the auspices of the Commission, which has preceded the making of and pursuit of the Application, it has acted reasonably and has done nothing to disentitle it to an order terminating the Agreement.



• By its undertaking that it will maintain key terms for a period of three months, and by its undertaking to negotiate in good faith during that period, including with the assistance of the Commission as required, the likelihood of any adverse impact on employees is significantly ameliorated, and may be completely ameliorated if (as is likely) agreement is reached to a replacement enterprise agreement within the three month period.



• Although there was an attempt by the ASU to suggest that termination of the Agreement would have an adverse impact on the union as bargaining representative, that evidence did not survive cross examination of its organiser, Mr Rizzo. There is no other evidence or credible suggestion of an adverse impact on any other bargaining representative.



• It can be accepted that the majority of employees oppose termination of the Agreement, and their reasons for doing so must be respected. Equally, however, it is its strong preference for the Agreement to be terminated. There is no warrant for giving one strongly-held view greater weight than the other.



• All bargaining representatives oppose termination, and their views must also be considered, although it is respectfully submitted that those views are unremarkable in the evaluation of whether it is appropriate to terminate the Agreement.



• In all of these circumstances, including having proper regard to the mandatory considerations, it is appropriate to terminate the Agreement, and therefore the Commission must do so.

[140] In summarising its position, the CFMEU submitted the likely effect of termination of the Agreement will be:

• To significantly reduce the terms and conditions of the employees;



• To alter the bargaining positions of the parties;



• To push the parties further apart in bargaining;



• To alter the approach to bargaining adopted by the parties to date;



• To make the negotiations more protracted;



• To cause the employees to reconsider many of the concessions that have been offered; and



• To cause the employees to consider taking protected industrial action to regain what is lost by the termination of the Agreement.

[141] The CFMEU submitted these matters tell against the termination of the Agreement being appropriate.

Consideration – appropriateness

[142] I consider it is appropriate to terminate the Agreement taking into account all the circumstances, including the views of AGL Loy Yang, the employees and the CFMEU and the other Unions, and their circumstances, including the likely effect the termination will have on each of them. These are my reasons for reaching that conclusion.

[143] I am satisfied AGL Loy Yang supports the termination of the Agreement while the employees, the CFMEU and other Unions oppose the termination of the Agreement.

[144] The termination of the Agreement is sought within the context of protracted and hard bargaining extending since July 2015, with the CFMEU formally involved since 28 September 2015. All parties are seeking enhanced terms and conditions. Proposals, with wage increases of 5% per annum for a four-year agreement and 21% over four years respectively, have previously been put to the employees for approval but have been rejected.

[145] For its part, AGL Loy Yang says it has pursued productivity and efficiency outcomes through the removal of practices that are restrictive, uncommon in enterprise agreements more generally and which result in sizeable excesses or “roadblocks” to productivity improvements.

[146] I have reviewed the evidence in relation to the clauses in the Agreement that AGL Loy Yang would like to address. Consistent with the approach taken by the Full Bench in Aurizon, I am satisfied the pursuit of the changes by AGL Loy Yang seems to have a rational basis. The provisions cited in evidence regulating work practices appear restrictive and prone to inefficiency. The capacity to effect operational changes that might enhance productivity and flexibility seems compromised. There is a significant incidence of overtime, a prohibition on “forced” redundancies and restrictions on the use of contractors.

[147] It is submitted the changes to the Agreement sought by a financially strong AGL Loy Yang will not deliver productivity benefits but are instead about cost cutting and because AGL Loy Yang is merely seeking to improve its financial position, this should weigh against a finding that termination of the Agreement is appropriate. However, the legislature has not limited the eligibility to apply for the termination of an agreement to employers suffering financial distress. The appropriateness of granting AGL Loy Yang’s application must be assessed against the requirements of s.226 of the Act. In the circumstances of this Application, I do not consider the fact that AGL Loy Yang is a profitable and productive business should weigh against termination of the Agreement. As outlined above, it has previously put two offers with the wage increases outlined and I consider it has a rational basis for pursuing the changes it seeks to make to the Agreement and it is legitimate for it to seek to become more efficient and productive through bargaining.

[148] I accept there are longstanding provisions in the Agreement of value to the employees, the CFMEU and other Unions. I also recognise that the only involvement of AGL Loy Yang in the history of the negotiation of the terms and conditions that have found their way into the Agreement over the years was during the last negotiating round, when it held a 32.5% shareholding in the Station and Mine, and that this current bargaining round is the first time it has held 100% ownership of the Station and Mine. I accept AGL Loy Yang has inherited longstanding terms and conditions that appear restrictive, inflexible and inefficient.

[149] I have outlined my findings in relation to the Latrobe Valley community above and I am not persuaded on the evidence that there will be such an impact on the Latrobe Valley or employment levels from the termination of the Agreement so as to weigh against a finding that it is appropriate to terminate the Agreement. Having considered the evidence regarding the present state of the electrical power generation industry, predictions regarding its future and the possible implications for AGL Loy Yang, including its financial outlook, I accept that the industry is going through a period of transition and is subject to variables. The transition to other energy sources and the closure of Hazelwood Power Station are some examples. I also accept there are matters external to AGL Loy Yang that it cannot control. These include the process of setting wholesale energy prices, varying prices driven by changes in demand, oversupply in the NEM and the tripling of coal royalties. Operating within this industry context, AGL Loy Yang needs to remain responsive, competitive and viable. The economic reality compels it to explore productivity improvements and efficiencies through bargaining.

[150] It has been submitted by the CFMEU that it is inappropriate to terminate the Agreement because the bargaining has thus far been one-sided. As previously outlined, I do not accept the proposition that bargaining has been one-sided or that AGL Loy Yang has only sought to broaden its position. The CFMEU’s application for bargaining orders against AGL Loy Yang was dismissed and both parties have fulsomely engaged in the s.240 conferences conducted by the Commission. AGL Loy Yang was prepared to accept the Recommendation of Commissioner Roe on its terms and endorse the proposal as the resolution to the bargaining dispute as a way of moving forward. This was despite the Recommendation not representing its preferred outcome or being as preferable to it as the “minimalist approach” offer it had made in August 2015 51 that was the subject of the first vote.

[151] Progress has been made in some areas but a deadlock has been reached in respect of the negotiations involving clauses that are key to both parties. AGL Loy Yang seek changes to the Agreement it says will deliver flexibility and improve productivity while the CFMEU, other Unions and employees wish to protect terms and conditions they have historically enjoyed that they say protect employment (“no forced redundancies”, “minimum staffing levels” and “restrictions on outsourcing to contractors”). They say AGL Loy Yang is merely seeking to improve its already healthy financial position by reducing its labour costs.

[152] On two occasions, a majority of employees have voted to reject a proposal for a new Agreement that used the current Agreement as its basis, offered four pay increases of 5% and fell short of AGL Loy Yang’s broader reform agenda. On both occasions, the proposals were not endorsed by either the CFMEU or the other Unions.

[153] Given the strongly held views the parties have adopted on this fundamental area of dispute, the length and history of the negotiations, the rejection of the two proposals put to the employees including one reflecting the Recommendation made after extensive assistance in the negotiations from the Commission, I am satisfied that the dispute is intractable as things currently stand. I am persuaded that a change in the status quo through the termination of the Agreement will better support good faith bargaining for a new agreement that delivers productivity benefits.

[154] I accept that termination of the Agreement will change the bargaining dynamic but this is not counter to the object of a fair framework for collective bargaining and facilitating good faith bargaining. 52 I also accept the underpinning terms and conditions of employment for the employees will alter. However, unless circumstances give rise to a workplace determination, bargaining will continue until there is agreement. The bargaining power of the unions and employees will remain. They continue to have the capacity to exert legitimate industrial pressure through protected industrial action, having successfully obtained a PABO. The assistance of the Commission in the s.240 process will also remain available and the parties will remain subject to the good faith bargaining requirements. Ultimately, such an outcome from termination is contemplated by the scheme of the Act.

[155] The effect of the termination of the Agreement on AGL Loy Yang seems uncontroversial. Certainly termination will remove work practices it claims are restrictive and leaves it open for operational changes to be implemented. AGL Loy Yang will of course be free to negotiate a new agreement within the framework of the Act and this is its intention.

[156] The evidence said to demonstrate the negative impact of termination on the unions focussed on the loss of clauses relating to consultation and dispute resolution, employee/union representatives and individual flexibility arrangements. While I accept the dispute resolution clause in the Agreement is broader in scope than the Award’s, the evidence overall was not compelling. Further, I regard the evidence suggesting a reduction in union bargaining power due to the loss of “employment security clauses” because it would precipitate significant redundancies thereby reducing union membership, as speculative in the face of Mr Clinch’s evidence regarding AGL Loy Yang’s intentions in relation to redundancies. The evidence suggesting a reduction in union bargaining power should, in any event, be weighed against the ongoing availability of the s.240 Application process and good faith bargaining requirements, together with the capacity to take protected industrial action in support of bargaining for a new agreement, all of which would not be disturbed by termination of the Agreement.

[157] I accept there is opposition to the termination of the Agreement from the Employees. This is not insignificant and their concern at the prospect of diminished terms and conditions of employment compared to the ones they currently enjoy is understandable. I have also had regard to the fact that the guaranteed income of the employees is significantly supplemented by overtime payments. The evidence and submissions of the CFMEU and other Unions was directed at the consequences of the employees either reverting to the Award and NES or being faced with a salary or wage reduction of 30%. While I have noted the potential impact said to flow from these scenarios, the Award and NES is the safety net upon termination that has been prescribed by the legislature and the 30% reduction scenario is based on an assumption unsupported by evidence and not put to the AGL Loy Yang witnesses. I am required to take into account the likely effect that the termination will have on the employees and in this case, the employees will not revert to the statutory minima upon termination.

[158] An undertaking for a three month period post termination preserving the same terms and conditions as the undertaking in Clause 4 of the Agreement has been given and, if necessary following this period, there is a commitment to pay market-competitive terms which will be “well above” the statutory minimum. The evidence Mr Clinch gave in this respect was not challenged. Consistent with the approach in Aurizon, given that AGL Loy Yang has or proposes to give the undertaking, its terms and the ongoing commitment are matters relevant in my assessment of whether it is appropriate to terminate the Agreement.

[159] The evidence and submissions of the CFMEU and the other Unions assumes scenarios in which agreement is not reached and the commitment to pay market-competitive terms and conditions is not honoured. As stated above, I am satisfied AGL Loy Yang will comply with both the undertaking and the commitment it has given to provide market-competitive terms and conditions. The effect of the undertaking ceasing in three months’ time, and to be followed by the ongoing commitment of AGL Loy Yang, must be assessed having regard to the conditions under which ongoing bargaining will occur. 53 These are outlined above in paragraph [154]. Throughout the post-termination period, the parties will be at liberty to negotiate a new agreement and if one is reached, it is reasonable to expect that the bargaining power retained by the unions and employees will have assisted in securing wages and conditions for the employees similar to those currently enjoyed, thereby alleviating the concerns about a significant adverse impact on employees. Assessed this way, I consider the undertaking provides a reasonable opportunity for the employees to reach a new agreement.

[160] Further, although the undertaking does not cover “job security” or redundancy provisions from the Agreement, neither does the undertaking in Clause 4 of the Agreement, the terms of which it reflects. Finally, I am cautious about the proposition of the unions that it would be inappropriate to terminate the agreement because it would allow AGL Loy Yang to avoid the undertaking it previously agreed to in Clause 4 of the Agreement. This is because it could be concluded that Clause 4 is of no effect and should be given no weight (see paragraph [134] above). Ultimately, I am not persuaded that the undertaking weighs in favour of a finding that it is not appropriate to terminate the Agreement. As was said in Aurizon:

“Ultimately, it cannot be expected that terms and conditions of employment contained in an enterprise agreement with continue unaltered in perpetuity after the agreement has passed its nominal expiry date. Terms and conditions may be altered by making a new agreement or by terminating the existing agreement. The statute guarantees the continuation of the safety net, not the terms and conditions contained in a nominally expired enterprise agreement.” 54

Conclusion

[161] In having regard to the requirements of s.226 of the Act and the material before me, I am satisfied that it is not contrary to the public interest to terminate the Agreement and that it is appropriate to terminate the Agreement after taking into account all the circumstances, including the views of AGL Loy Yang, the employees and the CFMEU and the other Unions, and their circumstances, including the likely effect the termination will have on each of them.

[162] I anticipate the termination will result in the parties re-evaluating their circumstances, so in accordance with s.227 of the Act, the termination will be prospective and take effect on and from 30 January 2017. An order to this effect will be issued today.

DEPUTY PRESIDENT

Appearances:

Mr F Parry QC and Ms R Sweet of counsel for AGL Loy Yang Pty Ltd

Mr T Slevin of counsel for CFMEU

Ms F Knowles of counsel for ASU, ETU and Professionals Australia

Hearing details:

2016.

Melbourne:

October 17, 18 and 28.

 1   AE894678.

 2   Exhibit A7 at [34].

 3   Transcript PN 132.

 4   Exhibit A5 at [30].

 5   Exhibit R7, Attachment GD2.

 6   Exhibit R7, Attachment GD3.

 7   Exhibit A3.

 8   Exhibit A7 at [13]-[17].

 9   Transcript PN [910]-[926].

 10   Exhibit A7 at [25]-[29] and [40]-[41] and Exhibit A5 [42]-[130].

 11   Exhibit A5 at [70].

 12   [2016] FWC 3376.

 13   Ibid.

 14   [2016] FWC 4364.

 15   [2016] FWCFB 6332.

 16   [2016] FWC 7839.

 17   Exhibit R3.

 18   Transcript PN 1364.

 19   Exhibit R6, Attachment GH 118.

 20   Exhibit A6 at [41] and Transcript PN [753]-[759].

 21   Exhibit R3.

 22   Exhibit A7 at [182].

 23   [2015] FWCFB 540.

 24   Ibid at [120]

 25   Ibid at [121].

 26   Ibid at [139].

 27   Ibid at [141].

 28   [2010] FWA 6468.

 29   [2015] FWCFB 540 at [142].

 30   Ibid at [143].

 31   Ibid at [149].

 32   Ibid at [151].

 33   Ibid.

 34   Ibid at [176].

 35   Ibid.

 36   Ibid at [125].

 37   (2005) 139 IR 34.

 38   Ibid at 40.

 39   Ibid at 41.

 40   [2015] FWCFB 540 at [167].

 41   Ibid at [152].

 42   Ibid at [167].

 43   Ibid at [160].

 44   Exhibit R7, Attachment GD8.

 45   [2015] FWCFB 540 at [167].

 46   Exhibit ASU1 at [11] and [30]-[32].

 47   Exhibit R8, Attachment KW3.

 48   Citing the discussion of the Full Court of the Federal Court in Toyota Motor Corporation Australia Limited v Marmara [2013] FCA 1351 at [74]–[113].

 49   Peabody Energy Australia PCI Mine Management Pty Ltd [2016] FWCA 1595.

 50   Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (AMWU) v Griffin Coal Mining Company Pty Ltd [2016] FWCFB 4620.

 51   Transcript PN [552]-[581].

 52   Aurizon Operations Limited; Aurizon Network Pty Ltd; Australian Eastern Railroad Pty Ltd [2015] FWCFB 540 at [159].

 53   Ibid at [113]-[114].

 54   Ibid at [176].

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