FEDERAL COURT OF AUSTRALIA

Yum! Restaurants Australia Pty Ltd v Full Bench of Fair Work Australia [2012] FCAFC 114

THE COURT ORDERS THAT:

1.    The appeal is dismissed.

2.    The Appellant is to pay the costs of the Second Respondent.

Note:    Entry of orders is dealt with in r 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The appeal is dismissed.

2.    The Appellant is to pay the costs of the Second Respondent.

Note:    Entry of orders is dealt with in r 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

The Court:

1    The present appeals concern two separate decisions made by the Full Bench of Fair Work Australia in March 2011.

2    In one decision the Full Bench dismissed an application by Yum! Restaurants Australia Pty Ltd to make a modern award to replace the Pizza Hut – SDA Employee Relations Award 2000 and also granted an application by the Shop, Distributive and Allied Employees Association (the “Association”) to terminate that award: Re Pizza Hut – SDA Employee Relations Award 2000 [2011] FWAFB 1077, 205 IR 117.

3    In the other decision the Full Bench dismissed a like application to make a modern award to replace the KFC National Enterprise Award 2001 and granted a like application by the Association to terminate that award: Re KFC National Enterprise Award 2001 [2011] FWAFB 1078, 205 IR 128.

4    The issues arising in each application before the Full Bench were substantially identical.

5    Separate Applications for Writs of Certiorari & Mandamus were filed in this Court on 11 April 2011 seeking (inter alia) the quashing of the decisions of the Full Bench.

6    Those Applications were heard together and a single judgment delivered. Each Application was dismissed: Yum! Restaurants Australia Pty Ltd v Full Bench of Fair Work Australia [2011] FCA 1315, 199 FCR 75.

7    A separate Notice of Appeal was filed in each proceeding in February 2012. Again, the two appeals were heard together and there is no objection to this Court delivering a single set of reasons. In issue is the correct construction and application by the Full Bench of Fair Work Australia of Items 4 and 6 of Division 2 in Part 2 of Schedule 6 to the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) (the “Transitional Provisions Act”).

8    Each of the Notices of Appeal contained a variety of Grounds of Appeal. Senior Counsel on behalf of the Appellants, however, helpfully identified the three issues to be resolved on appeal as being:

    whether the Full Bench of Fair Work Australia, when making a decision as to whether or not to make a modern enterprise award pursuant to Item 4(5), is also required to “recognise” the modern enterprise awards objective set forth in Item 6;

    whether the Full Bench of Fair Work Australia applied that “objective” when making each of its decisions, irrespective of whether or not it was required to do so; and

    whether the Full Bench of Fair Work Australia misconstrued Item 6 and improperly “approached the exercise of the discretion from the position that there should be a single industry standard”.

It was accepted by the Appellants that it was necessary for them to establish jurisdictional error; any error in the weight given by the Full Bench to one consideration as opposed to another, it was rightly accepted, fell short of jurisdictional error. It was also accepted that in resolving these three issues it was sufficient for the Court to consider the reasons for decision of the Full Bench in the Pizza Hut proceeding. No difference was sought to be drawn between the reasons for decision in that proceeding and the KFC proceeding. Indeed, in the KFC decision the Full Bench expressly adopted and referred to its reasons in the Pizza Hut decision.

9    It is concluded that:

    when making a decision pursuant to Item 4(5), consideration must be given to those mandatory considerations set forth in Item 4(5) and also to the “modern enterprise awards objective” set forth in Item 6(2);

    the Full Bench did give consideration to that “objective”; and

    the Full Bench did not misconstrue Item 6.

The appeals are thus to be dismissed with costs.

The Power to make a Modern Enterprise Award & Termination

10    The power to make a modern award is found in Division 2 of Part 2 of Schedule 6 to the Transitional Provisions Act.

11    Part 2 sets forth what it describes as “The enterprise instrument modernisation process”. Division 1 within Part 2 defines what is there referred to as an “enterprise instrument”.

12    Division 2 within Part 2 addresses “the enterprise instrument modernisation process”. Within Division 2, Item 4(1) defines the “enterprise instrument modernisation process” as “the process of making modern awards under this Division to replace enterprise instruments”. Items 4(2) and (3) provide that an application to “make a modern award … to replace an enterprise instrument” may only be made by a person covered by the “enterprise instrument” and within the period specified. Item 4(4) provides that a “modern enterprise award” must be made by a Full Bench of Fair Work Australia.

13    Those requirements, it may be accepted, were satisfied in the present proceedings.

14    Within that Division Item 4(5) provides as follows:

4 The enterprise instrument modernisation process

…

(5)    In deciding whether or not to make a modern enterprise award, and in determining the content of that award, FWA must take into account the following:

(a)    the circumstances that led to the making of the enterprise instrument rather than an instrument of more general application;

(b)    whether there is a modern award (other than the miscellaneous modern award) that would, for the enterprise instrument, cover the persons who are covered by the instrument, or whether such a modern award is likely to be made in the Part 10A award modernisation process;

(c)    the content, or likely content, of the modern award referred to in paragraph (b) (taking account of any variations of the modern award that are likely to be made in the Part 10A award modernisation process);

(d)    the terms and conditions of employment applying in the industry in which the persons covered by the enterprise instrument operate, and the extent to which those terms and conditions are reflected in the instrument;

(e)    the extent to which the enterprise instrument provides enterprise-specific terms and conditions of employment;

(f)    the likely impact on the persons covered by the enterprise instrument, and the persons covered by the modern award referred to in paragraph (b), of a decision to make, or not make, the modern enterprise award, including any impart on the ongoing viability or competitiveness of any enterprise carried on by those persons;

(g)    the views of the persons covered by the enterprise instrument.

(h)    any other matter prescribed by the regulations.

Item 5 is the source of power to terminate an “instrument” and Item 5(4) is in substantially identical terms to Item 4(5). The only difference is that Item 5(4)(f) refers to the likely impact of “a decision to terminate, or not to terminate, the enterprise instrument”.

15    Item 6 provides as follows:

6 The modern enterprise awards objective

(1)    The modern awards objective and the minimum wages objective apply to FWA making a modern enterprise award under this Division.

(2)    However, in applying the modern awards objective and the minimum wages objective, FWA must recognise that modern enterprise awards may provide terms and conditions tailored to reflect employment arrangements that have been developed in relation to the relevant enterprises. This is the modern enterprise awards objective.

Each of the expressions employed in Item 6(1) – namely “modern awards objective” and the “minimum wages objective” – are further defined by the Fair Work Act 2009 (Cth). Item 4(1)(b) of Schedule 2 to the Transitional Provisions Act provides that unless a contrary intention appears expressions used in the Schedules have the same meaning as they have in the Fair Work Act. No relevant contrary intention appears.

16    Section 134 of the Fair Work Act, accordingly, defines the “modern awards objective” as follows:

The modern awards objective

What is the modern awards objective?

(1)    FWA must ensure that modern awards, together with the National Employment Standards, provide a fair and relevant minimum safety net of terms and conditions, taking into account:

(a)    relative living standards and the needs of the low paid; and

(b)    the need to encourage collective bargaining; and

(c)    the need to promote social inclusion through increased workforce participation; and

(d)    the need to promote flexible modern work practices and the efficient and productive performance of work; and

(e)    the principle of equal remuneration for work of equal or comparable value; and

(f)    the likely impact of any exercise of modern award powers on business, including on productivity, employment costs and the regulatory burden; and

(g)    the need to ensure a simple, easy to understand, stable and sustainable modern award system for Australia that avoids unnecessary overlap of modern awards; and

(h)    the likely impact of any exercise of modern award powers on employment growth, inflation and the sustainability, performance and competitiveness of the national economy.

This is the modern awards objective.

When does the modern awards objective apply?

(2)    The modern awards objective applies to the performance or exercise of FWA's modern award powers, which are:

(a)    FWA's functions or powers under this Part; and

(b)    FWA's functions or powers under Part 2-6, so far as they relate to modern award minimum wages.

The expression “minimum wages objective” is defined in s 284 of the Fair Work Act which provides as follows:

The minimum wages objective

What is the minimum wages objective?

(1)    FWA must establish and maintain a safety net of fair minimum wages, taking into account:

(a)    the performance and competitiveness of the national economy, including productivity, business competitiveness and viability, inflation and employment growth; and

(b)    promoting social inclusion through increased workforce participation; and

(c)    relative living standards and the needs of the low paid; and

(d)    the principle of equal remuneration for work of equal or comparable value; and

(e)    providing a comprehensive range of fair minimum wages to junior employees, employees to whom training arrangements apply and employees with a disability.

This is the minimum wages objective.

…

17    The interrelationship between Items 4 and 6 and the drafting of those provisions, leaves much to be desired. Clearly, for instance, the parliamentary draftsman had some distinction in mind when using the expression “must take into account” in Item 4(5) and the different expression “must recognise…” employed in Item 6. But what that distinction is remains elusive. It is nevertheless clear that the mandate imposed by Item 6(2) is confined in its operation – Item 6(2) is confined to the necessity for Fair Work Australia to recognise “that modern enterprise awards may provide terms and conditions tailored to reflect employment arrangements that have been developed in relation to the relevant enterprises”. The operation of Item 6(2) is, in that manner, confined; the manner in which recognition is to be given to terms and conditions being “tailored” in the manner specified nevertheless also remains elusive. Perhaps “recognise” is intended to mean no more than that Fair Work Australia should be “aware of” or “conscious of” the prospect that modern enterprise awards may provide “tailored” terms and conditions.

18    But such potential difficulties in construing these phrases may presently be left to one side.

Consideration of the Modern Enterprise Awards Objective

19    The first of the three issues raised by the Appellant in each appeal questions whether Division 2 of Part 2 of Schedule 6 draws a distinction between:

    the decision-making process whereby a decision is made to make or not make a modern enterprise award pursuant to Item 4(5); and

    the process of making and determining the content of an enterprise award consistent with Item 6.

If there is such a distinction, it is only the matters in Item 4(5) which must be taken into account when “deciding whether or not to make a modern enterprise award”. The “objectives” set forth in Item 6, if the distinction applies, would not need to be taken into account when making that decision; the “objectives” only come into play when engaging in the process of “making a modern enterprise award”. Item 6, on this approach, is directed to the subsequent consideration of the contents of a modern enterprise award once a decision is made to make such an award.

20    The primary Judge accepted that there was such a distinction and accepted that “Item 6 is a ‘different item’ from Item 4(5) and is concerned with the second stage, namely when the Full Bench is ‘making a modern enterprise award’”: [2011] FCA 1315 at [52], 199 FCR 75 at 84. It is respectfully concluded that the primary Judge erred in so concluding. His Honour nevertheless went on to further conclude that “even though it was not mandatory for the Full Bench to do so, the Full Bench, by its deliberations, applied the modern enterprise awards objective when deciding whether or not to make modern enterprise awards in favour of the applicants”: [2011] FCA 1315 at [77], 199 FCR 75 at 87.

21    Items 4 and 6 operate together such that the “objective” set forth in Item 6(2) forms part of the single decision-making process engaged in when considering “whether or not to make a modern enterprise award”. There are not two clearly separated decision-making processes whereby Item 4(5) alone dictates the considerations to be taken into account when deciding whether or not to make a modern enterprise award and thereafter separate consideration is given to the objectives referred to in Item 6 when determining the content of the modern enterprise award. Rejected are the submissions advanced by Senior Counsel on behalf of the Respondents that consideration should be given at the outset to whether or not an award should be made, and only thereafter to the content of any award.

22    So much, it is concluded, necessarily follows from:

    the conceptual difficulty of determining whether a modern enterprise award should be made without at the same time giving consideration to the possible content of a modern enterprise award, if one were to be made;

    the conceptual difficulty of even embarking upon the process of determining whether or not to make a modern enterprise award free of any consideration being given to the “modern enterprise awards objective”;

    the terms of Item 4(5) itself which refer at the outset to a composite decision-making process of “deciding whether or not to make a modern enterprise award, and in determining the content of that award”;

    the heading to Division 2, the heading to Item 4 and the terms of Item 4(1) which refers to a single “enterprise instrument modernisation process”; and

    the terms of Item 4(5)(f), in particular, namely a legislative mandate to consider “the likely impact … of a decision to make, or not make, the modern enterprise award”.

23    Limited assistance may also be gleaned from the Explanatory Memorandum to the Fair Work (Transitional Provisions and Consequential Amendments) Bill 2009 which provided in part as follows:

256.    The modern enterprise awards objective requires FWA to recognise that modern enterprise awards may provide tailored terms and conditions of employment that reflect arrangements that have developed in relation to specific enterprises.

257.    The intention of this item is that the factors listed in paragraphs 134(1)(a)-(h) and 284(1)(a)-(e) of the [Fair Work Bill 2008] relating to the modern awards objective and minimum wages objective respectively should apply to the making of modern enterprise awards, as they do to the making of modern awards generally. However, the minimum terms and conditions for a modern enterprise award may not necessarily be the same as those that apply to an industry or occupation-based modern award.

258.    An enterprise may have developed employment arrangements over a period of time that meet the particular needs of that enterprise and reflect the way in which the enterprise operates. The criteria that FWA will apply in deciding whether to make a modern enterprise award require FWA to consider any enterprise specific arrangements that apply in a particular enterprise. FWA will be able to maintain any enterprise specific arrangements in a modern enterprise award where it considers that this is appropriate to do so.

The explanation provided, perhaps, proffers little further guidance than is provided by the terms of Items 4 and 6. But the explanation is consistent with the process being a single integrated process which requires consideration of the objective in Item 6 at the time the initial decision as to whether or not to make a “modern enterprise award” is made.

A Recognition of the Modern Enterprise Awards Objective

24    Notwithstanding departure from the conclusion of the primary Judge as to the interrelationship between Items 4 and 6, it is nevertheless further concluded that his Honour was clearly correct when he separately concluded that “the Full Bench, by its deliberations, applied the modern enterprise awards objective when deciding whether or not to make modern enterprise awards in favour of the applicants”: [2011] FCA 1315 at [77], 199 FCR 75 at 87.

25    The format of the reasons for decision of the Full Bench in the Pizza Hut proceeding commences with an “Introduction” and then proceeds to a summary of “The Statutory Framework”. The Full Bench then provides a summary of the evidence before setting out its analysis which clearly follows the matters set forth in Item 4(5), namely:

    the circumstances that led to the making of the Pizza Hut Award (Item 4(5)(a));

    whether a modern award would cover Pizza Hut employees (Item 4(5)(b));

    the content of the modern award (Item 4(5)(c));

    the terms and conditions applying in the industry (Item 4(5)(d));

    the extent to which the Pizza Hut Award contains enterprise specific terms and conditions (Item 4(5)(e));

    the likely impact on persons covered by the Pizza Hut Award and the likely impact on persons covered by the Fast Food Award and other relevant modern awards (Item 4(5)(f));

    the views of persons covered by the Pizza Hut Award (Item 4(5)(g)); and

    other matters prescribed by the Regulations (Item 4(5)(h)).

Consideration of the parties’ submissions on these matters is then followed by the Full Bench’s “Conclusions”.

26    There are three principal reasons for concluding that the Full Bench not only directed its attention to those matters set forth in Item 4(5) but also considered the “modern enterprise awards objective”.

27    First, in setting forth “The Statutory Framework” the Full Bench expressly refers to the necessity, when making a modern award, for it to “have regard to the minimum wages objective and the modern enterprise awards objective” and also the “modern enterprise award objective” as defined in Item 6: [2011] FWAFB 1077 at [6]-[7], 205 IR 117 at 119-120.

28    Second, the submissions advanced to the Full Bench and the evidence relied upon went beyond Item 4(5) and extended to the subject-matter of Item 6. Thus, in summarising the submissions advanced, the Full Bench (for example) noted:

[14]    Yum submits that the circumstances that led to the making of the Award establish that:

a.     …

b.    The enterprise instrument rationalised award coverage on a national basis replacing a myriad of awards with an award containing terms and conditions of employment tailored to the particular circumstances of Pizza Hut.

…

And the evidence before the Full Bench addressed the terms and conditions of employees of the Appellants which were different from those embraced in other awards.

29    Third, and as noted by the primary Judge, the Full Bench’s sequential analysis of those matters set forth in Item 4(5) extends to a consideration of the “modern enterprise awards objective” as it could apply to the “making of a modern enterprise award” – if one were to be made. Thus, and only by way of example, the Full Bench addressed Item 4(5)(e) and Item 6 as follows:

The Extent to which the Pizza Hut Award contains Enterprise Specific Terms and Conditions.

[31]    Conflicting arguments were advanced in relation to this criterion. Yum contends that each of the matters detailed above arising as they do from the terms of the Pizza Hut Award and developed through its 15 plus year history are enterprise specific provisions. The SDA submits that the existence of a term in an enterprise award does not mean that it is an enterprise specific term. It submits that in order to fall within the concept, construed in a purposive manner, a term must be demonstrated to be required or desirable because of a particular feature of an enterprise. Terms which were proposed to be appropriate for an industry award in the award modernisation process, should not now be construed as enterprise specific terms.

[32]    We do not intend to adopt an overly technical approach to the term “enterprise specific terms and conditions”. The concept involved, as far as it bears on the discretion to modernise and retain an enterprise award, is the extent to which specific provisions developed to suit the needs of an enterprise will be lost if the award is not modernised and retained. We consider that the matters raised by Yum as conditions that will be replaced by significantly different terms if the Fast Food Award applies fall within this description and should be considered as such.

The Full Bench also reverted to a consideration of “enterprise specific terms and conditions” in its “Conclusions” when it said (in part):

[39]    In our view the consensual nature of the enterprise award is a factor in support of its retention. It indicates that there has been a desire for enterprise specific terms and conditions and an acceptance of that notion by the SDA. However the fundamental review of award structures brought about by award modernisation and the single national safety net established by modern awards reduces the significance of this factor …

30    The submission that the Full Bench confined its attention to those matters set forth in Item 4(5) and did not also “recognise” the “modern enterprise awards objective” is thus rejected.

Misconstruction of Schedule 6, Item 6

31    The final submission on behalf of the Appellants was that jurisdictional error is exposed by the manner in which the Full Bench applied the “modern enterprise awards objective”. The Appellants submitted that the Full Bench did not address what that objective “encompasses” and that the degree of attention given to that objective by the Full Bench was “inconsistent with the proper application of the … objective”.

32    Such errors are said to be exposed in the “Conclusions” of the Full Bench. By way of example, the Appellants rely upon (inter alia) the statement by the Full Bench that “the fundamental review of award structures brought about by award modernisation and the single national safety net established by modern awards…”: [2011] FWAFB 1077 at [39], 205 IR 117 at 125-126. This reference to there being a “single national safety net”, it is submitted, exposes the fact that the Full Bench “approached the exercise of the discretion from the position that there should be a single industry standard”. That approach, it is submitted, is further exposed by a number of other statements made by the Full Bench, including the following:

[42]    ... We also consider that the alleged problems are not confined to Pizza Hut and its franchisees. …

[43]    … Negotiating on the basis of the penalty regime in the Fast Food Award will be in common with many other fast food employers. …

…

[46]    As noted above the Pizza Hut award contains clauses which could be described as enterprise specific terms and conditions. The significance of this factor is covered by our comments above about the actual impact of a change in award safety net on those provisions which apply under enterprise agreements and the Pizza Hut Award at the moment.

[47]    … Yum will be in no different position to other employers. It may be required to increase its loaded rate to properly encompass the different award penalties. … In circumstances where the same constraints will affect competitors — possibly much earlier — it cannot be said that such a situation will affect the viability of Pizza Hut operations. Insofar as competitiveness is concerned, the situation can only lead to a more level playing field than the current situation, where it appears that Pizza Hut employers may have a competitive advantage.

[48]    Yum … sought to establish that the Fast Food Award provisions are unsuited to its operations and the Pizza Hut Award provisions are more appropriate. However in our view it has failed to establish that it is in a unique position in this regard. Many other fast food operators are relevantly in an identical position to Pizza Hut employers in terms of their market and labour needs. …

The Appellants submit that such statements demonstrate that the Full Bench’s approach was that “modern enterprise awards” are not needed where “modern industry/occupational awards are in place”. It is submitted that the Full Bench “appears to have been overborne by the need for a single national modern award standard – an outcome which contradicts and fails to recognise the [modern enterprise awards] objective”. Accordingly, the Appellants say that the Full Bench acted in a manner “inconsistent” with the “modification” of the modern awards objective set forth in s 134 of the Fair Work Act such that modern enterprise awards “introduce or perpetuate overlap and provide a different safety net”.

33    Those submissions are rejected.

34    Properly construed, it is respectfully considered that the reasons of the Full Bench expose the fact that it approached the task of considering those matters which it was required to “take into account” (Item 4(5)) and also “recognise[d]” the “modern enterprise awards objective” set forth in Item 6.

35    It may be queried whether Item 6(2) is properly to be characterised as a “modification” of the modern awards objective. Item 6(2) unquestionably requires the Full Bench to “recognise” that modern enterprise awards may provide terms and conditions “tailored to reflect employment arrangements”. A modern enterprise award may thus contain terms “tailored” in the manner specified and thereby provide a different safety net.

36    Whatever may be the correct characterisation of Item 6(2), it is considered that the reasons for decision of the Full Bench properly “recognise” that a modern enterprise award may contain different terms and conditions. Indeed, the reasoning process of the Full Bench repeatedly grappled with the prospect of whether a modern enterprise award should be made to accommodate different enterprise-specific terms and conditions. The manner in which it approached and weighed the competing considerations was a matter entrusted to the Full Bench; any error would be an error within jurisdiction. Rather than exposing a decision-maker “overborne by the need for a single national modern award standard”, those reasons reveal that the Full Bench considered whether there should be “terms and conditions tailored to reflect employment arrangements that have been developed in relation to the relevant enterprise …”.

37    Although Senior Counsel for the Appellants was correct in his submission that the “Conclusions” of the Full Bench omit any specific reference to Item 6, it would an error to construe the reasons for decision of the Full Bench divorced from the evidence before it, the submissions put to it and the manner in which the parties’ competing positions were resolved. Even though the reasons for decision of the Full Bench may be scrutinised with a greater degree of care than (for example) an administrative decision-maker without legal qualifications (Endeavour Coal Pty Limited v Association of Professional Engineers, Scientists and Managers, Australia [2012] FCA 764 at [36]), they are not to be construed in a manner destined to discern error where none truly is to be found.

Conclusions

38    Although it is respectfully concluded that the primary Judge erred in his construction of Items 4 and 6 of Part 2 of Schedule 6 to the Transitional Provisions Act, it is further concluded that his Honour was correct in concluding that the Full Bench of Fair Work Australia did in fact apply the modern enterprise awards objective when deciding whether or not to make the proposed modern enterprise awards in question.

39    The appeals should thus be dismissed.

40    Where the Court exercises the jurisdiction conferred on it by the Fair Work Act, its power to award costs is limited: Fair Work Act s 570. However, the jurisdiction invoked by the Appellants in the present proceedings is the appellate jurisdiction of the Court conferred by s 24 of the Federal Court of Australia Act 1976 (Cth). Section 570 of the Fair Work Act does not confine the power of the Court to order costs when exercising its appellate jurisdiction: Construction, Forestry, Mining and Energy Union v CSBP Limited (No 2) [2012] FCAFC 64 at [9] to [12] per Keane CJ, Siopis and Rares JJ.

41    The power of the Court conferred by s 43 of the Federal Court of Australia Act is thus unconstrained by s 570 of the Fair Work Act. Notwithstanding the Appellants’ success in respect to establishing appellable error on the part of the primary Judge, the appeals were ultimately unsuccessful. The ordinary rule is that costs follow the event and that where an appeal is dismissed, the appellant must show “good reasons” why they should not pay the costs of the Respondent: Nikolaou v Papasavas, Phillips & Co (No 2) (1989) 166 CLR 394 at 408 per Mason CJ, Wilson, Brennan, Dawson, Toohey and Gaudron JJ. Nevertheless, the Court has an unfettered discretion to award costs under s 43(2) of the Federal Court of Australia Act and may, where there are special circumstances, apportion the costs payable between the parties: Inn Leisure Industries Pty Ltd (Provisional liquidator appointed) v D F McCloy Pty Ltd (No 2) (1991) 28 FCR 172 at 174 per French J. In the present proceedings, it is concluded that there are no such special circumstances and the Appellant in each proceeding should pay the costs of the Second Respondent. The Appellants were aware that they confronted a number of difficulties if they were to achieve success. They may have cleared one hurdle, but they faltered at the final jump.

42     It is considered that in each proceeding the appeal should be dismissed with costs.

Associate:

Dated:    21 August 2012