Peter Punch, Partner at Carroll & O’Dea Lawyers, provides an initial reaction to the government’s announcement of the details of the Fair Work Act review and argues for conservative expectations of the review.

The Terms of Reference for and the membership of the panel to review the Fair Work Act 2009 (Cth), announced on 20 December 2011, have been generally greeted with approval from stakeholders in workplace relations, albeit with caution in some quarters. I discount the hyperbole of politicians in this context.

While I do not know anything much about John Edwards (the appointee who is an economist and member of the Reserve Bank Board), I can say without fear of contradiction by anyone who knows anything about workplace relations law in this country that Professor Ron McCallum and Michael Moore (recently retired Federal Court judge) are eminently suited to their roles and indeed it is hard to think of more appropriate appointees.  I would go further and say that their appointments are inspired choices and a big display of real “nous” by the new Minister, Bill Shorten (although no doubt he was not the only one involved in the selection).

As to the Terms of Reference, they may seem a little narrow for the liking of some, but I respectfully agree with Professor Breen Creighton who has offered the observation that the reference to the “Objects of the Act” will give the panel sufficient scope to deal with whatever it believes needs attention.

But what realistically can we expect from a review that has to report within six months of now? Even if there is an extension to the time frame to report (which I guess is always a possibility), we are not looking at this thing taking a year or more.  We will have a report to consider by mid year (or thereabouts) I would expect.

It has been very noticeable that the big employer organisations have been agitating for a “root and branch” review of this “union friendly” legislation for some time.  Their problem is that wholesale changes to the Act are unlikely to be recommended, and in any event are not going to happen in the current political cycle – and surely they know this.  I thought that one aspect of the Terms of Reference that sends the message about the limited nature of this review is Term 2 which directs the Panel to report on “Areas where evidence indicates [my emphasis] that the operation of the Fair Work legislation could be improved consistent with the objects of the legislation” – ie, the Panel is to undertake an empirical and objective analysis of claimed deficiencies in the legislation; so don’t bother with generalised complaints and whinging please – let’s have the evidence! (By which I think must be meant “flesh and blood” cases and data.)

So which areas might attract the attention of the Panel?  I don’t think we can make any definitive predictions at this stage – perhaps more will be revealed when we see the foreshadowed Background Paper. However, I would anticipate the following issues being high on the agenda:

1. Collective bargaining at the enterprise level – do we need more detailed rules about “bargaining in good faith” (as the employers contend)?
2. Do we need easier access to arbitration – ie do we need a partial return to the old system (see my additional comments)?
3. Should there be more flexibility in the arrangements that employers and employees can agree upon (noting here that FWA’s application of the “Better Off Overall Test” has on some occasions seen flexible arrangements acceptable to employers, employees and unions knocked back)?
4. Do unions have too many and too broad rights under this legislation (as the employers contend)?

No doubt there will also be a myriad of “micro” matters that will attract public submission – two obvious ones are whether the transfer of business provisions operate as a disincentive to the new employer taking on any of the existing staff of the business concerned, and whether the decision of FWA in the Hull Moody agreement (allowing for annual leave pay to be paid in instalments in advance of leave being taken) needs to be overridden, to protect the purpose of annual leave.

As to the issue of easier access to arbitration, I believe this really does need to be looked at but it may be too much a “big picture” issue for this panel. The Qantas dispute has really shone the light on the issue (and I can tell you it was a big news item overseas – even as far as Russia, my contacts tell me!).

A couple of closing points on this issue:

1. The current test for getting compulsory arbitration of a bargaining dispute is very onerous indeed – there can be no doubt that Qantas took the “lock out/grounding” initiative because they had been advised that that was the only way they would get FWA to stop the industrial action and order compulsory arbitration;
2. There are tell-tale signs that a “conversation” is starting around bringing back, at least to some extent, compulsory arbitration of disputes – witness, for example, the recent resolution of the ALP National Conference, incorporating a policy of easier access to arbitration of industrial disputes, and Professor Anthony Forsyth’s online article in “the Conversation” last month entitled “Qantas case shows the need for interest arbitration”;
3. Generally speaking, support for more compulsory arbitration tends to come from those with less industrial bargaining power – ie unions without the ability (for varying reasons) to mount strong industrial action campaigns and employers who are vulnerable to significant loss if they suffer any concerted industrial action;
4. There is much to be said for the proposition that compulsory arbitration of industrial disputes is part of Australia’s culture (even if a unique part ) – after all it was “the system” for over 100 years up to 2006 – and many people still remember that it worked well in most cases.

On that final point, I was very interested to hear Justice Steven Rothman (NSW Supreme Court judge and former Senior Counsel specialising in industrial law) comment at a recent seminar conducted by the Australian Labour Law Association in Sydney that Australia’s history shows that the public does not support (perhaps, will not tolerate) long term industrial warfare between parties, at great cost to everyone concerned – instead it has always supported a system which gets strikes before an independent third party quickly so they can be resolved and everyone can get back to work.

(Justice Rothman’s paper entitled “Reflections from Queen’s Square – Australian Labour Law Association Paper 5 December 2011” can be found on the Supreme Court’s web site, and I refer in particular to paragraphs 7 to 12 which are, I believe, instructive.)

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Peter Punch, Partner at Carroll & O’Dea Lawyers, examines the latest case to comment on special annual leave arrangements and its implications for employers looking for guidance on how to manage their employees’ annual leave.

The majority decision of a Full Bench of Fair Work Australia in the recent cases concerning approval of the special annual leave arrangements contained in the Hull-Moody Finishes Pty Limited Enterprise Agreement 2011 has come at an interesting time bearing in mind the scheduled review of the Fair Work Act 2009 (Cth) in 2012.

The majority (Vice President Watson and Senior Deputy President Hamberger) held that the agreement’s provisions – whereby employees were paid a specific “annual leave” component with their regular wages and then required to take a minimum of two weeks’ leave per year (although unpaid) – was not contrary to the National Employment Standard’s provisions relating to paid annual leave, and thus were permissible in the proposed agreement.

Commissioner Cambridge dissented, the main thrust of his decision being that the scheme proposed had the effect of “cashing out” and was both contrary to the “cashing out” provisions and the overall intention of the NES.

If one looks at the most relevant sections of the NES – namely sections 90 and 92 of the Fair Work Act – in isolation, one would have to agree with the majority that there is nothing in those sections that requires payment for annual leave when the leave is actually being taken, and the scheme in question was not “cashing out” because leave still had to be taken (although unpaid).

The decision, which will not be subject to further appeal or review, appears to be a significant one for those employers who might be looking at methods to prevent annual leave payments accumulating or to generally “manage” employees’ leave.  It also seems to provide a significant alternate option to the provisions allowing a limited form of “cashing out” under the FW Act under specific conditions.

On the one hand the majority decision is certainly based on a logical (although perhaps rather literal) reading of the relevant provisions. On the other, Commissioner Cambridge contended that the arrangement amounted in substance to “cashing out” if not in form.

Whichever view is correct, what seems to be the necessary consequence of the interpretation of section 90 adopted by the majority is that there is apparently nothing to stop an employer contracting at common law to pay all its employees their annual leave pay as an identified “annual leave part payment” component with their weekly pay.  That initiative would immediately eradicate the problem for employers of having to “manage” annual leave (ie making sure that employees take their leave so that the employer does not have a huge annual leave liability accruing).

I think this decision is worth considering in the coming review of the FW Act. In that context it would be worthwhile, in my view, if there was some dialogue on improvising provisions for the management of annual leave – so that employers do make employees take leave regularly and employees do not “hoard” leave. It is however a complex issue – on the one hand there is the long established “policy” of  annual leave being used for its real purpose of giving employees a proper break after each year of service, as against the desire of employees to make their own decisions about whether they take leave or take “the cash”.

But the issue does need attention because the Hull Moody Finishes decision is a sign that more exotic methods to deal with the problem are now being pursued.

Hull-Moody Finishes Pty Limited Enterprise Agreement 2011 [2011] FWAFB 6709

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