DECISION

Fair Work Act 2009
s.604 - Appeal of decisions

"Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union" known as the Australian Manufacturing Workers' Union (AMWU)
v
Visy Board Pty Ltd T/A Visy Board
(C2017/5985)

Appeal against decision [[2017] FWC 5529] of Commissioner McKinnon at Melbourne on 24 October 2017 in matter number C2017/3408; restriction of use of casual workers engaged through third parties; obligation to offer full time employment to workers after a period; whether permitted matters; permission to appeal refused.

Introduction and Background

[1] By its amended notice of appeal lodged on 16 November 2017, the “Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union” known as the Australian Manufacturing Workers’ Union (AMWU) appeals a decision 1 (Decision) of Commissioner McKinnon determining an application made by the AMWU under s.739 of the Fair Work Act 2009 (Act) for the Fair Work Commission (Commission) to deal with a dispute in accordance with the dispute settlement procedure in the Visy (Smithfield, Warwick Farm, Dandenong, O’Connor) Enterprise Agreement 2016 (Agreement). Permission to appeal is required.

[2] The issue that gave rise to the dispute the subject of the application before the Commissioner concerned a failure or refusal by Visy Board Pty Ltd (Visy) to offer full-time employment to two workers who were employees of a labour hire company with whom Visy contracts and who had completed a continuous full time period of three months engagement at the relevant Visy site.

[3] The AMWU and Visy agreed on three questions that required determination. It is necessary only that we reproduce the first of these which was as follows:

Q- Is clause 16 of Visy (Smithfield, Warwick Farm, Dandenong, O’Connor) Enterprise Agreement 2016 (the “Agreement”) a “permitted matter” as that term is used under the Fair Work Act 2009, s 172(1)(a), insofar as the clause operates to require an employer to offer employment to an employee of a third party, namely, an employee of a labour hire company?

[4] At [5] of the Decision, the Commissioner set out the question in terms more economical than the parties had themselves drafted but in substance it was the same question.

[5] As is evident from the first question, Visy challenged the jurisdiction of the Commissioner to determine the dispute, because the relevant provisions of clause 16 of the Agreement compelling the transition of casual workers engaged through third parties to full time employment with Visy were not about “permitted matters” within the meaning of s.172(1) of the Act. Clause 16 of the Agreement is as follows:

“16. CASUALS

16.1 The Company may engage employees for up to three (3) months on a casual basis to cover short-term fluctuations in work load and short-term absences. Casuals are either direct employees or workers engaged via a labour hire company to undertake process work. This provision:

a) is intended to provide increased flexibility in use of casual labour during seasonal/peak periods of demand;

b) is not intended to be used for engaging employees on a long term casual basis;

c) casuals will not be used to undermine permanent employees at the site(s); and

d) will have no effect on existing opportunities for full-time employees to work overtime where required.

16.2 A casual will be paid at the minimum rate applicable at each site for each ordinary hour worked, and in addition a casual loading of 25%. The casual loading of 25% will be paid to a casual employee in lieu of any entitlement to notice of termination, annual leave, paid personal/carer’s leave, redundancy or other benefits.

16.3 Subject to clause 16.1, where the engagement of a casual employee at a particular site is to continue beyond a continuous full time period of three (3) months, then at the end of that 3 month period the Company shall offer full time permanent employment to the casual employee.

Subject to this clause the intention is that casuals not be re-engaged and their position not be filled by another casual within the following three (3) month period. If there is a need to re-engage a casual for a few days to cover short term absences, the Company will discuss the matter with the elected employee representatives and agree upon an appropriate solution. A casual employee must not be terminated and re-engaged to avoid an obligation under this provision.

Information with respect to casual employees will be made available to delegates upon request.”

[6] The Commissioner concluded that clauses 16.1 and 16.3 restrict or qualify Visy’s right to use independent contractors in a way that is not sufficiently related to job security and to that extent it is not about permitted matters. 2

Grounds of Appeal

[7] The AMWU advances four grounds of appeal which may be summarised as follows. First, the AMWU contends that the Commissioner erred in failing to distinguish between partial restrictions (which are allowable) and general prohibitions (which are not) on the use of labour hire. It contends that the provisions of the Agreement at issue do not amount to a general prohibition but rather are terms that allow a measured and reasonable use of labour hire whilst not undermining the job security of permanent employees. Secondly, it contends that the Commissioner erred in concluding that the provisions of the Agreement that “restrict or qualify” Visy’s right to use independent contractors are not permitted matters contrary to the decision in Re Rural City of Murray Bridge Nursing Employees, ANF (Aged Care) – Enterprise Agreement 2004. 3

[8] Thirdly, the AMWU contends that the Commissioner erred in concluding that the restrictions in clause 16 of the Agreement on the use by Visy of independent contractors did not relate sufficiently to the employment security of employees to whom the Agreement applied. Fourthly, it contends that the Commissioner determined matters that she was not asked by question 1 to determine, and moreover in doing so the Commissioner did not give notice of that fact to the AMWU, nor allow the AMWU an opportunity to respond to the matters, presumably thereby denying the AMWU procedural fairness.

[9] Although it is strictly not necessary in an appeal of this kind that the public interest be enlivened before permission to appeal is granted, the AMWU contends that the public interest is enlivened because there is some disparity in first instance decisions concerning whether and to what extent enterprise agreements may contain terms which limit or restrict an employer’s capacity to engage labour hire personnel or contractors and a decision of a Full Bench on the issue would be of assistance in giving to parties engaged in enterprise bargaining over such issues certainty as to the validity of claims made during bargaining and the terms of enterprise agreements subsequently made.

[10] For the reasons that follow, we are not persuaded that the Decision is attended by appellable error. Nor are we persuaded that permission to appeal should be granted in the public interest or otherwise.

The Decision

[11] The Commissioner begins her consideration by examining the statutory provisions concerning permitted matters, relevantly matters pertaining to the requisite relationship and of the more recent and relevant jurisprudence concerning these matters. The Commissioner then turns to an examination of the provisions at issue and in concluding that the answer to the first question is “no”, the Commissioner reasons as follows:

“Are clauses 16.1 and 16.3 about permitted matters?

[22] Clause 16 of the Agreement must be read in the context of the Agreement as a whole, including relevant terms of the Graphics Arts - General - Award 2000 and the Metal, Engineering and Associated Industries Award 1998, incorporated into the Agreement as at 1 March 2006. For present purposes, it is sufficient to deal with clauses 16.1 and 16.3 of the Agreement.

[23] Clause 16.1 applies certain limits to the use of casual and labour hire employees under the Agreement. The intention is to provide increased flexibility during seasonal/peak periods of demand but not to engage employees on a long term casual basis. “Casuals” will not be used to undermine permanent employees at the sites covered by the Agreement and nor will their use have any effect on existing opportunities for full-time employees to work overtime where required. “Casuals” are defined in clause 16.1 as “either direct employees or workers engaged via a labour hire company to undertake process work” and the terms “casual” and “casual employee” are used interchangeably throughout clause 16.

[24] Clause 16.3 provides that, subject to clause 16.1, if a casual employee is to be engaged for more than three months, Visy “shall” offer them full time permanent employment at the end of the three month period. There is also an intention that casuals not be re-engaged or replaced for a further three month period, and the option to discuss and “agree upon an appropriate solution” with elected employee representatives if there is a need to re-engage a casual for a few days to cover a short term absence. Finally, clause 16.3 requires information about casual employees to be made available to delegates on request.

[25] Both clauses 16.1 and 16.3 of the Agreement are clear on their terms. Together, they place limits on Visy’s ability to use labour hire workers in the following ways:

● they can only be engaged for up to three months;

● they can only be used to cover short-term workload fluctuations or absences;

● they cannot be used as a substitute for permanent employees working overtime; and

● they cannot be used for three months after a period of work with Visy without the approval of elected employee representatives, and only then to cover short term absences.

[26] In each of these respects, the terms restrict or qualify Visy’s right to use independent contractors.  It follows that in each respect, the terms are not about permitted matters.  

[27] The same cannot be said for the requirement to provide information to employees and relevant unions about casual employment. That is clearly a matter pertaining to the employment relationship and a term about permitted matters.

[28] As to the requirement to offer full time permanent employment to labour hire workers after 3 months, in my view, there are important differences between clause 16.3 of the Agreement and the clause considered in Murray Bridge discussed above. In that case, a requirement to offer permanent employment applied only once more than 20% of the workforce was made up of labour hire workers and only then “based on specific positions and shifts identified as being needed by the company.” In the absence of specific workforce need (that is, a specified position or shift) the requirement to offer employment to labour hire workers did not apply.

[29] In Murray Bridge, the Full Bench considered the term as a ‘partial prohibition on the use of labour hire employees’, but weighed against this its objective of increasing permanent employment by placing obligations on the employer “in the circumstances specified”. Those circumstances, in my view, included the number of labour hire workers engaged as a proportion of the overall workforce as well as the existence of a specific workforce need. These were matters that had a direct effect on the employees in question.

[30] Clause 16.3, on the other hand, operates in isolation from any consideration of workforce numbers or composition. As clause 16.1 makes clear, the operation of clause 16 “will not be used to undermine permanent employees at the site.” That is, it will not operate in a way that has a direct effect on employees.

[31] In my view there is also no connection in clause 16.3 between the requirement to offer employment to labour hire workers after a period and the competence and reliability of the workforce. There is no reference, let alone any requirement, for those who are to be offered employment to have any relevant skills, competencies or characteristics. Clause 16.3 is dealing with the fact of recruitment, rather than any standards or procedures used to select employees.

[32] In this respect, clause 16.3 requires Visy to offer full time permanent employment to labour hire workers if their engagement is to continue beyond three months. As a practical matter, the requirement reinforces the limit on engagement to three months and the prohibition on engagement for a further three months. The only option if such workers are to continue to be used is to offer them full time, permanent employment. In my view, this undermines job security by compelling Visy to act in a way that is likely to increase its permanent workforce regardless of the circumstances.

[33] In my view, clause 16.3 restricts or qualifies Visy’s right to use independent contractors in a way that is not sufficiently related to job security.  To that extent, it is not a term about permitted matters.” 4 

Consideration

[12] We begin by dealing briefly with the fourth ground of appeal. We do not consider that Ground 4 has any substance. It was plainly necessary for the Commissioner to form a view as to the operation of clause 16.1 since clause 16.3, according to its terms, operates subject to clause 16.1. In order to properly understand the full scope and operation of clause 16.3 it was necessary for the Commissioner to understand and to form a view about clause 16.1 to the extent that it affected the operation of clause 16.3. We do not consider that the AMWU was denied procedural fairness since in our view, that clause 16.1 and its effect would be an issue in respect of the breadth and effect of clause 16.3 is obvious from the opening words found in 16.3 which commences with “[S]ubject to clause 16.1”. Moreover, it appears to us that the AMWU recognised that this was so since it made a submission to that effect before the Commissioner. The AMWU submitted that:

“While there are many aspects to cl 16, question 1 looks to how sub-cl 16.3, read in conjunction with sub-cl 16.1, could be construed to require the respondent to offer employment to employees of third parties” 5

[13] If we are wrong about this then the observations of the Commissioner as to the operation or effect of clause 16.1 are no more than obiter and are plainly not binding on the parties in resolution of the issue in dispute by arbitration. The making of one or more obiter observations in a decision does not, in and of itself, enliven a requirement or duty on the part of the decision maker to put a party on notice of that fact or to give that party an opportunity to address the matter that is the subject of the obiter observation. This is because the obiter observation is neither binding nor does it affect the right or obligation of any party.

[14] As to the remaining three grounds of appeal, the AMWU made lengthy submissions, which we do not reproduce, but through which, in summary the AMWU advanced the following:

•  the meaning of the phrase “matters pertaining to the relationship” of the requisite kinds described in s.172(1) of the Act has a lengthy historical jurisprudential pedigree and has evolved to allow greater encroachment through regulation by industrial instruments of matters which might be regarded as falling within the domain of managerial prerogative;

•  an expansive view of the kinds of matters that touch upon contractors but which fall within the boundary of permitted matters was said to have been taken by the majority in re National Union of Workers; Re Agreement with Exel (Australia) Logistics Pty Ltd 6 (Exel);

•  on this expansive view in Exel, it is said that the majority arguably expanded the boundary of permitted matters well beyond the confines identified French J in Wesfarmers Premier Coal Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (No 2)  7 (Wesfarmers);

•  the expansive view is said also to be reflected in the Explanatory Memorandum to the Fair Work Bill 2008 which, inter alia, provided as follows:

670.                Although the precise words used have changed from time to time, the courts have construed each manifestation of the formula in a similar way.  There is substantial jurisprudence about what the phrase means.  It is intended that paragraph 172(1)(a) should be read in line with that jurisprudence.  The courts’ interpretation of the formulation has evolved over time in line with changing community understandings and expectations about the kinds of matters that pertain to the employment relationship, and it is expected that this approach will continue.

671.                Whether a particular term is about matters pertaining to the employment relationship will depend on its precise construction, as well as the circumstances surrounding the particular employment relationship.  Frequently, it will be obvious that a term pertains to the employment relationship – e.g., a term about the payment of wages or a term about hours of work and shift patterns.  However, there are some terms where it is not so immediately clear whether the terms are about matters pertaining to the employment relationship (see, e.g., the discussion in Re Schefenacker Vision Systems Australia Pty Ltd, AWU, AMWU Certified Agreement 2004 [2004] AIRC 1064.

672.                It is intended that the following terms would be within the scope of permitted matters for the purpose of paragraph 172(1)(a):

·terms relating to particular staffing levels (subject to any other applicable legislative requirements or limitations) particularly if those terms are aimed at ensuring the health, safety and well-being of employees;

·terms relating to conditions or requirements about employing casual employees or engaging labour hire or contractors if those terms sufficiently relate to employees’ job security – e.g.  a term which provided that contractors must not be engaged on terms and conditions that would undercut the enterprise agreement;

·terms that would provide that casual employees are converted to permanent employees after a set period of time;

·terms that would prevent an employer from seeking a contribution or indemnity from an employee in respect of personal injuries or losses suffered by that person where such injuries or losses were cause by the employee in the course of their employment.

673.                The following terms would not be intended to be within the scope of permitted matters for the purpose of paragraph 172(1)(a):

·terms that would contain a general prohibition on the employer engaging labour hire employees or contractors;

· terms that would contain a general prohibition on the employer employing casual employees;

· terms that would require an employer or employee covered by to the enterprise agreement to make a donation to a political party or charity;

· terms that would require an employer to source only products from a particular supplier or Australian made products (unless, e.g., such a term was directly related to employees’ job security);

·terms that would require an employer to engage or not engage particular clients, customers or suppliers who had agreed to commit to certain employment, environmental or ethical standards (unless, e.g., such a terms (sic) was directly related to employees’ health and safety);

·terms that relate to corporate social responsibility, e.g., terms requiring an employer to participate in charity events or commit to climate change initiatives.

674.                The permitted matters in paragraph 172(1)(a) are focussed on the employment relationship.  One effect of this is that terms that are about the relationship between an employer and an employee organisation may not pertain to the employment relationship, even where the terms are closely associated with the organisation’s representation of employees under the agreement. 

675.                Paragraph 172(1)(b) permits terms in agreements that are about matters pertaining to the relationship between the employer or employers, and the employee organisation or employee organisations that will be covered by the agreement.  For an agreement term to fall within paragraph 172(1)(b), the term needs to relate to the employee organisation’s legitimate role in representing the employees to be covered by the agreement. 8 

•  the approach of the majority in Exel reflects that which is said to be the sentiment in the Explanatory Memorandum and this approach should guide the Commission as to the kinds of contractor provisions which are permitted matters in enterprise agreements;

•  the decision in Wesfarmers should be applied only in a way that is consistent with the Explanatory Memorandum so that only a general prohibition on the engagement of contractors or labour hire in enterprise agreement is not a permitted matter;

•  as to the specific provisions at issue that which is required is an examination of the purpose of the impugned term read in context;

•  read in context the clear purpose of the impugned term is to provide job security to employees of Visy who are covered by the Agreement. Specifically the impugned term has the purpose of protecting and maintaining well-paid and secure employment which is not to be undermined by casual employment whether directly or indirectly engaged;

•  the Commissioner was in error in concluding to the contrary.

[15] For its part, Visy submitted that the Decision is consistent with the law. It contends that clause 16.3 of the Agreement does not sufficiently relate to employees’ job security and therefore is not a matter pertaining to the relationship between Visy and its employees who are covered by the Agreement. Visy contends that the Commissioner correctly identified that it is not a mere restriction or qualification on the right to use independent contractors. Rather, it is a restriction or qualification that is not sufficiently related to job security.

[16] We consider that Visy’s submissions are correct and consequently we reject the AMWU’s submissions to the extent that it contends that the Commissioner misapplied the law and erred in her conclusion.

[17] In Airport Fuel Services Pty Ltd v Transport Workers’ Union of Australia 9 (Airport Fuel Services) a Full Bench endeavoured to summarise the jurisprudence concerning matters pertaining (in the context of contractor provisions) and concept of genuinely trying to reach an agreement. As to the later summary, a Full bench in Esso Australia Pty Ltd v Australian Manufacturing Workers’ Union10 (Esso) identified a degree of tension between two of the summary propositions advanced, which appeared to arise from a perceived need to reconcile the various propositions and obiter observations in the earlier decisions to which the decision in Esso also referred.11 However the summary in Airport Fuel Services of the jurisprudence concerning matters pertaining has not been criticised and is as follows:

[22] In summary, from the legislation, the jurisprudence and the Explanatory Memorandum to the Fair Work Bill 2008 it can be concluded that:

● “Permitted matters” are “matters pertaining to the relationship between an employer that will be covered by the (enterprise) agreement and that employer’s employees who will be covered by the agreement”, “matters pertaining to the relationship between the employer … and the employee organisation … that will be covered by the agreement”, matters concerning employee authorised deductions from wages and matters concerning how the agreement will operate. 12

● It is intended that terms relating to conditions or requirements about employing casual employees or engaging labour hire or contractors, which sufficiently relate to employees’ job security such as a term which provided that contractors must not be engaged on terms and conditions that would undercut the enterprise agreement, would be within the scope of permitted matters which are matters pertaining to the employment relationship. 13

● It is not intended that “terms that would contain a general prohibition on the employer engaging labour hire employees or contactors” or “terms that would require an employer to engage or not engage particular clients, customers or suppliers who had agreed to commit to certain employment, environmental or ethical standards (unless, e.g., such a terms [sic] was directly related to employees’ health and safety)” would be within the scope of permitted matters which are matters pertaining to the employment relationship. 14

● Terms restricting or qualifying the employer’s right to use independent contractors are not matters pertaining to the employment relationship. 15

● For a term to be about matters pertaining to the relationship between the employer and the employee organisation that will be covered by the agreement, the term needs to relate to the employee organisation’s legitimate role in representing the employees to be covered by the agreement. 16

[18] We see no reason to doubt or qualify the summary.

[19] It must however be borne in mind that the question whether a particular provision of an enterprise agreement deals with matters pertaining to the relationship between an employer that will be covered by the agreement and that employer’s employees who will be covered by the agreement involves an exercise of interpreting or characterising the provision in issue, bearing in mind that the provision may be one (as is the case with clause 16 of the Agreement) intermingled with a number in dealing generally with the subject matter of indirectly engaged casual personnel. Thus determining whether a particular provision falls within or without the permitted boundary will be a question of degree.

[20] At [28] – [33] of the Decision which we have earlier reproduced, the Commissioner gives consideration to the impugned provisions in her endeavour to answer the question posed by the parties. At [28] – [30] the Commissioner, in our view, correctly identified important differences between the impugned provisions and the provisions under consideration in Murray Bridge, in which a provision which arguably contained a partial prohibition on the use of labour hire employees by the employer was considered by the Full Bench to be a matter pertaining to the requisite relationship because the provision was also designed to increase permanent employment by placing obligations upon the employer to engage more permanent employees in the circumstances specified. 17 The Commissioner noted that the impugned provision did not have any such connection and operated in isolation of workforce numbers. Contrary to the AMWU’s contention, the Commissioner did not erroneously fail to apply Murray Bridge. The Commissioner considered Murray Bridge and distinguished, correctly in our view, the purpose and effect of the provisions of the agreement considered in Murray Bridge from those in clause 16 of the Agreement.

[21] At [31] of the Decision the Commissioner concluded, again we think correctly, that the impugned provision also bore no apparent connection with the skill, competence or reliability of the workforce, presumably so as to be regarded as touching upon the mode of recruitment, which would likely be a matter pertaining. 18

[22] Finally at [32] of the Decision the Commissioner correctly observed that as a practical matter the requirement to offer full time permanent employment to labour hire workers if their engagement continued beyond three months, reinforced the restriction on the engagement of labour hire workers for a period of three months and prohibited any further or replacement engagement of labour hire workers for a further three months. This point is emphasised in the second paragraph of clause 16.3 which provides that “the intention is that casuals not be re-engaged and their position not be filled by another casual within the following three (3) month period.” As clause 16.1 explains “[C]asuals are either direct employees or workers engaged via a labour hire company”.

[23] We therefore consider that the Commissioner’s conclusions that clause 16.3 of the Agreement, which compels Visy to employ a person who is an employee of another employer in particular circumstances and the attendant consequences for Visy’s capacity to use independent contractors is not a permitted matter, was correct.

[24] We consider that the Commissioner correctly construed and characterised the impugned provision, applied the applicable jurisprudence and arrived at the correct conclusion. We are also not persuaded that the matters raised by this appeal which are confined to a dispute inter partes call for more than the application of settled jurisprudence. We do not accept there is any diversity of opinion in the decisions of the Commission warranting a reconsideration of that which is now an orthodox and settled approach to the question of matters pertaining to the requisite relationship. We do not accept that there is some disparity between the approach taken in Exel and Wesfarmers. The summary given in Airport Fuel Services adequately sets out the approach. We are therefore not persuaded that this is an appropriate case in which to revisit, refine, elaborate or further explain the approach to be taken in determining whether a provision in an enterprise agreement dealing with contractor or labour hire workers is about permitted matters within the meaning of s.172(1) of the Act.

Conclusion

[25] For the foregoing reasons we are not persuaded that appellable error has been identified or that the public interest is enlivened by the Appeal. Nor are we persuaded that there is any other basis upon which permission to appeal should be given.

[26] Permission to appeal is therefore refused.

DEPUTY PRESIDENT

Appearances:

Mr B Terzic, on behalf of the AMWU.

Mr A Farr, Solicitor, for Visy Board Pty Ltd.

Hearing details:

2017.

Melbourne,

11 December.

 1   [2017] FWC 5529

 2   Ibid at [33]

 3   (2005) 142 IR 289

 4   [2017] FWC 5529

 5   AB 28 at [6]

 6   (2005) 146 IR 334

 7   (2004) 138 IR 362

 8   Explanatory Memorandum, Fair Work Bill 2008 107 – 109

 9   (2010) 195 IR 384

 10   (2015) 247 IR 5

 11   Ibid at [43]

 12   Fair Work Act 2009 (Cth) s.172(1)

 13   Explanatory Memorandum, Fair Work Bill 2008 108, 672

 14   Ibid, 673

 15   Wesfarmers Premier Coal Ltd v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (No 2) (2004) 138 IR 362 at [109]

 16   Explanatory Memorandum, Fair Work Bill 2008 109, 675

 17   That is, when the proportion of labour hire agency workers engaged by the employer exceeded 20% of the total of the employer's weekly paid employees

 18   See United Firefighters’ Union of Australia v Metropolitan Fire and Emergency Services Board [2016] FWCFB 2894

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