FEDERAL COURT OF AUSTRALIA

Construction, Forestry, Mining and Energy Union v John Holland Pty Ltd

[2015] FCAFC 16

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

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

REASONS FOR JUDGMENT

Besanko J:

1    I have had the advantage of reading in draft the reasons for judgment of Buchanan J. I agree with his Honour that the appeal should be dismissed. Subject to two matters, I agree with his Honour’s reasons.

2    First, I did not share his Honour’s doubts about whether the reference in s 186(3) of the Fair Work Act 2009 (Cth) (“the Act”) to “the group of employees covered by the agreement” was a reference to the whole class of employees to whom the agreement might in the future apply, rather than the group of employees which actually voted on whether to make the agreement. In my opinion, the former construction is clearly the correct one. That was the basis upon which this matter has proceeded, and I did not understand either party on the appeal to argue to the contrary. It is the approach taken in previous cases dealing with s 186(3) of the Act. More to the point, it is the construction which accords with the other provisions in the Act. Section 53(1) of the Act provides that an enterprise agreement covers an employee or employer, if the agreement is expressed to cover (however described) the employee or the employer, and is to be contrasted with when an enterprise agreement applies to an employee (s 52(1)). I agree that the other two matters identified by Buchanan J (paragraphs 38 and 39) support the construction which I think is the correct one.

3    Secondly, I think the concept of collective bargaining will have quite a limited role in determining whether the group of employees covered by the agreement was fairly chosen. It is true that enterprise-level collective bargaining is referred to in the object of the Act (s 3(f)), and that s 578(a) requires the Fair Work Commission to take into account the objects of the Act in performing functions or exercising powers in relation to a matter under the Act. Furthermore, the special expertise of the Fair Work Commission must be acknowledged. Nevertheless, it was not argued by the appellant that an agreement voted on by employees falling within the particular job classifications could not cover other job classifications. To apply a criterion of collective bargaining in those circumstances involves a comparison between the number of employees who voted on the agreement, and the number who might be covered by the agreement. Reasonable minds not only might differ but are likely to differ as to when the comparison is such that collective bargaining is engaged as a relevant consideration under s 186(3). That suggests, to my mind, that if the concept of collective bargaining has a role in the determination of the issue posed by s 186(3) of the Act, it is quite a limited one.

Associate:    

Dated:    24 February 2015

REASONS FOR JUDGMENT

BUCHANAN J:

The present appeal

4    In the judgment under appeal the primary judge ruled that a Full Bench of Fair Work Australia (now the Fair Work Commission) (“the FWC”) had committed jurisdictional error.

5    The Full Bench had set aside a decision by a member of the FWC (Deputy President McCarthy) which approved an enterprise agreement made under the Fair Work Act 2009 (Cth) (“the FW Act”) between the first respondent (“John Holland”) and three of its employees.

6    The present appeal challenges the conclusion that the Full Bench committed jurisdictional error. It proceeds, in large part, upon a challenge to the meaning which the primary judge ascribed to various provisions of the FW Act.

Background

7    It is important first to note the character and effect of the enterprise agreement which John Holland proposed to the three employees in question and for which it sought approval.

8    The primary judge recorded the background circumstances as follows:

1    The applicant, John Holland Pty Ltd (John Holland), carries on business as a construction and engineering company.

2    At an unspecified date, John Holland was awarded the head construction contract to build the new children’s hospital in Perth. During December 2011, the applicant employed three employees to perform building and construction work at that site. The employees commenced work on the site in January 2012. John Holland as head contractor, planned to perform the vast majority of work through subcontractors and to employ only a relatively small number of employees directly for the purposes of carrying out the children’s hospital contract. John Holland expected that the total number of its direct employees at the children’s hospital site would be around 25, in the positions of labourers and form workers and also the possibility of employees in the key roles as tow crane operators, riggers and doggers.

3    On 12 January 2012, John Holland had a meeting with the three employees at the site office in relation to the making of an agreement under the Australian Fair Work Act 2009 (Cth) (the Fair Work Act). The agreement making process was explained at that meeting. At the meeting, each of the three employees appointed themselves as bargaining agents for the purpose of negotiating the entry into an agreement with John Holland.

4    On 13 February 2012, the three employees voted in favour of entering into the agreement. At the time that the agreement was entered into John Holland was also tendering as head contractor for other government projects in Western Australia, such as the Perth waterfront project and the Kalgoorlie gaol project, and some private projects. Also, at that time, John Holland employed a broad range of employees in work classifications nationally from clerical to construction work.

…

6    The three employees who voted in favour of the agreement were the only employees covered by the agreement who were employed by John Holland at the time that it was made. The job classifications referred to in cl 1.1(b) of the agreement were set out in an appendix to the agreement and included job classifications in addition to those in which each of the three employees were employed.

7    It was also common ground that the wage rates for the employees covered by the agreement were significantly higher than the wages prescribed under the applicable award and that no agreements had been entered into of the kind described in cl 1.2 of the agreement.

9    Clause 1 of the proposed agreement provided:

1.    SCOPE AND APPLICATION OF THE AGREEMENT

1.1    This agreement is made under the Fair Work Act 2009 (Cth) and subject to clause 1.2 those bound by this Agreement are:

(a)    John Holland Pty Ltd ABN: 11 004 282 268 (the Company); and

(b)    All employees of John Holland Pty Ltd performing building or civil construction work in Western Australia in accordance with a classification specified in this Agreement (Employees).

1.2    Any project or site specific agreement entered into by the Company or by any Joint Venture or similar business arrangement of which the Company is part, will cover and apply to the Company and any employees at that particular project or site to the exclusion of this Agreement.

10    As the primary judge recorded, John Holland was in the process of tendering for a number of projects, both government and private, at the time the agreement was made. The agreement contained ten classification bands and applied potentially to a number of different occupations. Although the three employees worked at the new children’s hospital site in Perth, the proposed agreement was to apply potentially throughout Western Australia, subject to the possibility of particular project or site agreements being made.

Making the agreement

11    The procedures for creating enterprise agreements are specified in the FW Act by Part 2-4 of Chapter 2. The objects of the Part are stated by s 171:

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.

12    It may readily be seen that the emphasis in these statutory objects is upon the notion of giving effect to bargains made by parties to the bargaining process, rather than upon determination by the FWC of what might be a suitable outcome. The role of the FWC is to “facilitate” bargaining, rather than to control it.

13    Various forms of agreement are made possible by s 172. For present purposes, s 172(2) is most relevant:

172    Making an enterprise agreement

…

Single-enterprise agreements

(2)    An employer, or 2 or more employers that are single interest employers, may make an enterprise agreement (a single-enterprise agreement):

(a)    with the employees who are employed at the time the agreement is made and who will be covered by the agreement; or

(b)    with one or more relevant employee organisations if:

(i)    the agreement relates to a genuine new enterprise that the employer or employers are establishing or propose to establish; and

(ii)    the employer or employers have not employed any of the persons who will be necessary for the normal conduct of that enterprise and will be covered by the agreement.

Note:    The expression genuine new enterprise includes a genuine new business, activity, project or undertaking (see the definition of enterprise in section 12).

14    An enterprise must be understood as having its defined meaning stated in s 12, namely:

enterprise means a business, activity, project or undertaking.

15    An agreement which is made with any employee organisation (i.e. if no employees had been engaged for the normal conduct of the enterprise) is called a “greenfields agreement” (s 172(4)). However, if any employee had been engaged who would be necessary for the normal conduct of the enterprise the agreement must be made with those employees who were to be covered by the agreement (s 172(2)(a)). There must now be at least two such employees (s 172(6)). Prior to the commencement of s 172(6) on 1 January 2013 it was possible for an agreement to be made with only one employee.

16    It is apparent therefore that, depending on the time in the life of an enterprise (including a project) that an agreement is proposed, there may be a very small number of employees with whom an agreement may be made. It was possible, legally, for an agreement to be made with as few as three employees as John Holland proposed.

17    In the case of either a greenfields agreement, or one made with employees, the existence of an approved agreement will have the consequence that industrial action may not be organised or engaged in until the nominal expiry date of the agreement (s 417). The nominal expiry date must not be more than four years after the date of approval (s 186(5)).

18    An employer may, of course, delay proposing an enterprise agreement to employees until some later time – e.g. after a substantial number of employees have been engaged for a project – but that presents some practical uncertainties, both for an employer and for employees. First, the terms and conditions of employment will not have been settled at the time of engagement, except perhaps by the terms of a “modern award”, but such terms may, as in the present case, be inferior. Secondly, negotiations for the terms of an agreement may be more complicated as the numbers of affected employees increase and the prospect of “protected” industrial action in aid of negotiating positions is a real one (see s 408 and following).

19    On one view at least, employees who accept engagement on a project on the basis of terms and conditions which have been finally settled for a period will know what their entitlements are, and that industrial action to secure some higher entitlement is forbidden.

20    Nevertheless, obviously questions may arise about the extent to which it is “fair” for a very small group of employees to fix the terms and conditions of a larger group of employees who may be engaged during a period of years into the future. Whatever position is taken, once an agreement is approved it endures for up to four years and no protected industrial action is possible during the term of an agreement. Future employees, therefore, have less (if any) opportunity to bargain.

Coverage and application

21    Section 53 of the FW Act dictates when an enterprise agreement will “cover” an employee. Section 52 of the FW Act states when an enterprise agreement “applies” to an employee.

22    It follows from the legislative arrangements that an employee might be covered by the terms of more than one agreement. The legislative arrangements, however, do not permit more than one such agreement to apply to the employee at the same time (s 58).

23    Sections 51, 52 and 53 of the FW Act provide:

51    The significance of an enterprise agreement applying to a person

(1)    An enterprise agreement does not impose obligations on a person, and a person does not contravene a term of an enterprise agreement, unless the agreement applies to the person.

(2)    An enterprise agreement does not give a person an entitlement unless the agreement applies to the person.

52    When an enterprise agreement applies to an employer, employee or employee organisation

When an enterprise agreement applies to an employee, employer or organisation

(1)    An enterprise agreement applies to an employee, employer or employee organisation if:

(a)    the agreement is in operation; and

(b)    the agreement covers the employee, employer or organisation; and

(c)    no other provision of this Act provides, or has the effect, that the agreement does not apply to the employee, employer or organisation.

Enterprise agreements apply to employees in relation to particular employment

(2)    A reference in this Act to an enterprise agreement applying to an employee is a reference to the agreement applying to the employee in relation to particular employment.

53    When an enterprise agreement covers an employer, employee or employee organisation

Employees and employers

(1)    An enterprise agreement covers an employee or employer if the agreement is expressed to cover (however described) the employee or the employer.

Employee organisations

(2)    An enterprise agreement covers an employee organisation:

(a)    for an enterprise agreement that is not a greenfields agreement—if the FWC has noted in its decision to approve the agreement that the agreement covers the organisation (see subsection 201(2)); or

(b)    for a greenfields agreement—if the agreement is made by the organisation.

Effect of provisions of this Act, FWC orders and court orders on coverage

(3)    An enterprise agreement also covers an employee, employer or employee organisation if any of the following provides, or has the effect, that the agreement covers the employee, employer or organisation:

(a)    a provision of this Act or of the Registered Organisations Act;

(b)    an FWC order made under a provision of this Act;

(c)    an order of a court.

(4)    Despite subsections (1), (2) and (3), an enterprise agreement does not cover an employee, employer or employee organisation if any of the following provides, or has the effect, that the agreement does not cover the employee, employer or organisation:

(a)    another provision of this Act;

(b)    an FWC order made under another provision of this Act;

(c)    an order of a court.

Enterprise agreements that have ceased to operate

(5)    Despite subsections (1), (2) and (3), an enterprise agreement that has ceased to operate does not cover an employee, employer or employee organisation.

Enterprise agreements cover employees in relation to particular employment

(6)    A reference in this Act to an enterprise agreement covering an employee is a reference to the agreement covering the employee in relation to particular employment.

(Emphasis in original.)

24    For present purposes it is relevant to note s 53(1) – namely that an enterprise agreement covers an employee if it is expressed to do so.

Approving the agreement

25    Although the emphasis in the statutory scheme is upon bargaining by direct parties, the FW Act does provide for some measure of supervision of the terms of agreements by the FWC. The “basic rule” for when an enterprise agreement must be approved is set out in s 186 and “additional requirements” are stated by s 187.

26    Of particular relevance for the present appeal are s 186(3) and (3A):

186    When the FWC must approve an enterprise agreement—general requirements

…

Requirement that the group of employees covered by the agreement is fairly chosen

(3)    The FWC must be satisfied that the group of employees covered by the agreement was fairly chosen.

(3A)    If the agreement does not cover all of the employees of the employer or employers covered by the agreement, the FWC must, in deciding whether the group of employees covered was fairly chosen, take into account whether the group is geographically, operationally or organisationally distinct.

27    In Toyota Motor Corporation Australia Limited v Marmara [2014] FCAFC 84, a Full Court (referring to the expression “fairly chosen” in s 186(3)) said:

99    … That expression is not defined in the FW Act. It seems to have been assumed that there must have been a “choice” by someone as to the range of employees that would be covered, and it may be that this necessarily follows from the highly discretionary definition in the FW Act of what amounts to being “covered” by an enterprise agreement: see s 53(1). Subdivision A of Div 4 seems to be based on an assumption that the initiative for the making of an enterprise agreement will come from the employer, and it may be that s 186(3) should be read against such an understanding. …

28    In the case of a greenfields agreement it may be more readily accepted that any choice of the group to be covered by the agreement may involve an element of negotiation, having regard to the generally accepted representative character of unions. In the case of an agreement made with a group of employees, particularly a very small group, the dynamics are likely to be quite different.

29    Where only a small group of employees is involved, in my respectful view it does follow from the legislative scheme that the group of employees referred to in s 186(3) will have been chosen by the employer, as will the terms to be offered. Section 180(1) provides:

180    Employees must be given a copy of a proposed enterprise agreement etc.

Pre-approval requirements

(1)    Before an employer requests under subsection 181(1) that employees approve a proposed enterprise agreement by voting for the agreement, the employer must comply with the requirements set out in this section.

30    Requirements are then imposed on the employer to provide to the employees who will be covered by the agreement the written terms of the proposed agreement, advice about the voting arrangements and explanations about the terms and effect of the agreement.

31    Sections 181(1) and 182(1) provide:

181    Employers may request employees to approve a proposed enterprise agreement

(1)    An employer that will be covered by a proposed enterprise agreement may request the employees employed at the time who will be covered by the agreement to approve the agreement by voting for it.

182    When an enterprise agreement is made

Single-enterprise agreement that is not a greenfields agreement

(1)    If the employees of the employer, or each employer, that will be covered by a proposed single-enterprise agreement that is not a greenfields agreement have been asked to approve the agreement under subsection 181(1), the agreement is made when a majority of those employees who cast a valid vote approve the agreement.

(Emphasis in original.)

32    In my view, it is clear from those prescriptions that the references in s 186(3) and (3A) to whether “the group of employees covered by the agreement was fairly chosen” must, in a case of the present kind, be a reference to a choice by the employer.

33    There is no requirement that employees who vote to make an agreement must have been in employment for any length of time, and there is no requirement that they remain in employment after the agreement is made. Presumably, the presently employed members of such a group will act from self-interest, rather than from any particular concern for the interests of future employees. The potential for manipulation of the agreement-making procedures is, accordingly, a real one. However, no suggestion of that kind is made in the present case and the possibility may therefore be put to one side for the purpose of the discussion. That is an important consideration because it suggests, as the primary judge thought, that determination of whether the group of employees was fairly chosen in the present case needed to bring to account the business rationale for the choice, as well as deal with any possibility of unfair exploitation. It was not irrelevant in that assessment to bear in mind, as the primary judge said, that the agreement provided benefits, not detriments, for those to whom it would apply.

A question of construction

34    One question which has troubled me is whether it is correct to accept, as appears to have been the case, that the reference in s 186(3) to “the group of employees covered by the agreement” is a reference to the whole class of employees to whom the agreement might in future apply, rather than the group of employees which actually voted on whether to make the agreement.

35    It may at once be observed that the second-mentioned group is fixed in time and known, whereas the wider, potential group is not fixed at any point in time and may be very difficult to evaluate or assess, depending on the breadth of coverage specified by the terms of the agreement and, perhaps, the nature and complexity of the employer’s business.

36    The virtual impossibility of knowing with certainty the composition of the whole group within the potential coverage of the agreement, compared with the complete certainty about those to whom a vote is in fact offered, makes the choice of the first alternative construction an attractive one unless such a construction is excluded by the terms of the statute. However, that is not the construction which has so far been accepted and there appear to be sound reasons for preferring the other, wider construction.

37    First, the traditional concepts of application and coverage, which are now reflected in ss 52 and 53 of the FW Act, recognise the difference between actual application (i.e. to then present employees) and potential coverage (extending to the whole class of employees at any point in time). The procedural steps required for making an agreement with employees focus, of necessity, on the need for majority support by those present employees who will be covered by the agreement but once an agreement is made the matters which require consideration by the FWC in relation to whether an agreement must be approved are not necessarily confined in the same way.

38    Secondly, there are other indications in the FW Act that a distinction must be made between the group of present employees who will be covered by an agreement and the wider group who will be covered if the agreement is made. Indications of that sort may be seen in the procedures to assist “good faith bargaining”, whereby a bargaining representative (which may be a union – s 176(1)(b)) may apply to the FWC for a “majority support determination” or a “scope order”. In either case, the FWC must address the question (similarly to s 186(3) and (3A)) whether “the group of employees who will be covered by the agreement was fairly chosen” and whether the group is geographically, operationally or organisationally distinct (s 237(2)(c), (3A); s 238(4A)). In context, it appears clear that this is a wider group (corresponding to potential coverage) than the group of present employees who wish to bargain or whose immediate interests are those being represented.

39    Thirdly, and perhaps most decisively, as counsel for the respondent pointed out in the present case, s 186(3) and (3A) apply to both greenfields agreements and agreements made with employees. They would have no context or operation in relation to a greenfields agreement unless the wider view was taken.

40    That wider view is the one which has been taken by the FWC, and it was accepted by all parties to the present appeal.

41    One reason I have spent some time examining the correctness of the common assumption about this issue is that upon the view that the group to be considered under s 186(3) and (3A) reflects potential (not present) coverage it will often (perhaps usually) be impossible to state with much precision or certainty what that coverage might entail in a practical sense in the years to come, or how the group might at any particular point in time be composed. However, that seems to me to be the consequence of the legislative scheme. The evaluation which the legislature has committed to the FWC must therefore be carried out with that consequence being understood and accepted. That is relevant to an examination of some of the findings of the Full Bench.

The approval proceeding

42    John Holland lodged an application for approval of the agreement on 13 February 2012. The appellant (the CFMEU) asked for, and was given, an opportunity to be heard in opposition to approval.

43    Deputy President McCarthy, in his decision on 22 May 2012 (John Holland Pty Ltd re Western Region Agreement Western Australia 2012 - 2016 [2012] FWAA 4449) recorded:

[4]    The Employer’s Declaration in Support of Enterprise Agreement (the Employer’s Declaration) lodged explained that:

“John Holland Pty Ltd employs a broad range of employee work classifications nationally from clerical to construction on a mix of national, regional and project agreements. In accordance with that, this Agreement in particular will cover all employees performing building or civil construction work on a regional basis (that being in this case Western Australia) except for any employees on site-specific project arrangements.”

…

[9]    Ms Jenna Pascoe, the National Employee Relations Adviser for the Group gave evidence supporting Mr Dalton’s submissions. She also evidenced that as at 20 March 2012 the Applicant employed nearly 2000 employees nationally and 346 in Western Australia. She stated that of those 346 employees, only three were employees that would be covered by the Agreement, or in her terminology were “blue collar workers” and that quite a few employees are covered by other agreements but she could give no advice regarding which agreements covered those 343 employees.

(Endnotes omitted)

44    Argument on the issue of whether the group of employees was fairly chosen proceeded (correctly, as I have found) on the basis that attention was required to the whole scope of future coverage of the agreement. Thus, Deputy President McCarthy recorded the competing positions as follows:

[15]    The CFMEU argues that the Applicant has attempted to throw a blanket over an area to cover work that may, or may not materialise and artificially exclude those very workers who will do the work. The Agreement they say is, in effect, a safety net for John Holland and ensures that as and when new projects are proposed they do not need to bargain with employees who will be employed on those enterprises. It says the applicant achieves this end by establishing a State wide agreement for construction works but then excluding employees where there are site specific project arrangements through the terms of clause 1.2 of the Agreement.

[16]    The Applicant argues there are genuine operational reasons for a project to be covered by a separate project agreement because it enables employees’ interests to be protected under the FW Act in making a project agreement. The Applicant also asserts that the only employees chosen were all of the employees of the Applicant covered by the Agreement at the time of its making.

45    Deputy President McCarthy concluded:

[19]    The group of employees here are geographically distinct in that the Agreement applies in Western Australia only. They are also operationally distinct in that it applies to building or civil works. The employees chosen do not appear to me to be organisationally distinct.

[20]    Practices of the industry concerned and the past practices of the Applicant are also relevant to my considerations of fairly chosen. I do not sense anything in the making of this Agreement as evincing any intention by the Applicant to circumvent the objects of the FW Act and, in particular, an intention to prevent or frustrate the right of employees to be represented and collectively bargain.

46    Some observations may conveniently be made at this point about the proposition that bargaining would be stifled at new projects if the agreement applied to them. Clause 1 of the agreement, it will be remembered, provided that the agreement would extend to new projects in Western Australia unless a specific project or site agreement was made, in which case that specific agreement would apply instead.

47    The concern of the CFMEU appears to have been that, first, it would not be necessary to have a specific project or site agreement but, secondly, any proposal for such an agreement could not be supported by protected industrial action because the agreement for which approval was being sought would prevent such protected action occurring while that agreement applied. And it would apply until actually displaced.

48    One practical difficulty with this argument is that it assumes that a valuable bargaining tool (protected industrial action) has been removed from future employees, but the assumption, in my view, lacks force. As I said earlier, in the initial stages the possibilities for negotiation involve only a union or a small number of employees, but not both (unless, perhaps, a union is the bargaining representative for one or more employees – i.e. they have not appointed themselves or someone else for that purpose – see s 176(1)(b) and (c)). If a union is to be involved in negotiating a greenfields agreement there will be no employees present to take protected industrial action. If a proposal is put to a small number of initial employees on a site or at a project their capacity for effective industrial action is likely to be minor. It cannot be assumed that an employer would wait until particularly vulnerable to industrial action to propose an agreement for a new site or project.

49    Furthermore, the contention that future employees would have no right to take protected industrial action would be true whenever an agreement was made. That is a feature of the legislative scheme.

50    As the CFMEU’s arguments accepted, it may not safely be assumed that there would be a proposal for a site or project agreement at any particular place which would, in future, displace the agreement under consideration. However, if there was to be such a proposal there was no fetter on the operation of the FW Act or upon the ability of negotiating parties to make a bargain and have a further site or project specific agreement approved. In that process a union might be a bargaining representative for any of its members unless they appointed a different bargaining representative (s 176(1)(b) and (c)). In my respectful view, the argument which Deputy President McCarthy rejected involved fallacious reasoning, and a basic misconception to the effect that cl 1 of the agreement would frustrate the operation of the FW Act or interfere with the prospect of collective bargaining.

The Full Bench decision

51    Argument before the Full Bench also proceeded, as it had before Deputy President McCarthy, on the footing that the “group” of employees was represented by the whole of the potential coverage of the agreement. The Full Bench recorded:

[10]    It was submitted by the CFMEU that the Deputy President did not make a definitive finding as required by s.186(3) as to what was the group of employees covered by the Agreement. It was said that it was impossible to determine whether the group was fairly chosen as the group itself is not capable of being identified or defined because of the operation of the exclusion provision in clause 1.2 of the Agreement. Further it was submitted that, contrary to the findings made by the Deputy President, the coverage of the Agreement was not geographically, operationally or organisationally distinct as it excluded by its terms some employees within the geographical area in which it applied, it excluded some employees within its operational coverage (building and/or civil construction work) and it was clearly not organisationally distinct. …

…

[12]    John Holland submitted that the Deputy President, in considering whether the group of employees was “fairly chosen”, did make specific findings in relation to the coverage and application of the Agreement and took into account whether the group of employees was geographically, operationally or organisationally distinct. The Deputy President found that the Agreement covered construction work in Western Australia where there is not a project-specific agreement, and that the group of employees was geographically distinct and operationally distinct but not organisationally distinct. It was said that these findings were correct and that the CFMEU should not be allowed on appeal to challenge the findings as to the distinctiveness of the group as these were not contested before the Deputy President.

52    The Full Bench referred to the possibility, under cl 1.2 of the agreement, that particular projects were excluded from its coverage if a separate agreement for the project applied and said:

[25]    Given the nature of the exclusion provision, we doubt that it would be possible to make any definitive finding as to the group of employees covered by the Agreement as required for the purposes of s.186(3). This would depend upon how many building and civil construction employees are now covered or may in the future be covered by site-specific arrangements. At most the group to be covered by the Agreement may be described as comprising some of John Holland’s employees working on some building and civil construction sites at some locations in Western Australia. As it is not possible to identify with any certainty the group of employees to be covered by the Agreement, it is not possible to be satisfied that the group of employees was fairly chosen as required by s.186(3) or to apply the requirements of s.186(3A).

(Emphasis added.)

53    The Full Bench went on to conclude, for essentially the same reason that the “group” of employees should not be regarded as geographically, operationally or organisationally distinct as such conclusions would be unsafe having regard to the uncertainty of actual future coverage.

54    Finally, the Full Bench said:

[34]    … We also consider that the operation of the Agreement, as made with the three employees, would undermine collective bargaining by other employees in a manner not compatible with the objects of Part 2-4, and that the exclusion provision in the clause is contrary to the purpose and policy of the Act.

[35]    We have taken these factors into account in considering whether the group of employees covered by the Agreement was fairly chosen within the meaning of s.186(3). We have also had regard to the difficulty in the present matter of making any definitive finding as to the group of employees covered by the Agreement. In the circumstances of this matter, we do not consider that a conclusion could be reached that the group of employees was fairly chosen. In reaching such a conclusion, we consider that the Deputy President erred both in the application of the relevant legislative provisions and in the exercise of discretion.

55    It seems to follow from this analysis that any agreement which yielded in advance to the possibility of future project specific agreements, or which was made with a very small number of employees where potential coverage was much greater, could not safely be approved consistently with the requirements of the FW Act. As I indicated earlier, the alternatives would appear to be either greenfields agreements before any employee had been engaged or agreements made only when a project was well established, but in neither case accommodating the possibility of further bargaining during the life of the agreement.

The judgment under appeal

56    The primary judge distilled the first challenge made by John Holland to the Full Bench decision as follows:

23    The first broad ground of review, which contained two aspects, impugned the manner in which the Full Bench approached the task of applying s 186(3) on the basis that it misconstrued s 186(3) and s 186(3A) of the Fair Work Act. More specifically, John Holland contended that the Full Bench misunderstood the task required under s 186(3) of the Fair Work Act in that it asked itself the wrong question about the possible future size and composition of the membership of the group of employees rather than identifying the chosen group from a proper construction of the agreement. Further, it was said that the Full Bench imported an extraneous test into s 186(3A) in that it considered that the chosen group could not be geographically distinct because a project or site agreement could be ad hoc or random in nature.

57    After discussing matters which it might be permissible, or not permissible, to take into account under s 186(3) and (3A), the primary judge said:

34    In my view, there is nothing in the language of s 186(3) and s 186(3A) of the Fair Work Act which conditions the exercise by Fair Work Australia of the power under s 186(3) to approve an agreement, upon Fair Work Australia being satisfied as to the number of employees who will, or may, during the term of the agreement, be covered by the agreement.

35    Accordingly, in my respectful view, in finding that it was unable to make the assessment of whether the group of employees was fairly chosen because it could not say with any certainty how many employees would, or may, be covered by the agreement throughout its term, the Full Bench misapprehended its statutory task and fell into jurisdictional error.

36    It was common cause that there were no agreements of the kind referred to in cl 1.2 in existence at the time that the agreement was made. There was nothing unfair in including a clause which contemplated that circumstances may arise when employees who would otherwise have been covered by this agreement may be covered by a different agreement. However, in my view, the inclusion of a clause which contemplated a potential change in circumstances did not affect the fairness of the criteria chosen as identifying a group of employees who were, in the absence of such circumstances, to be covered by the agreement. In other words, the inclusion of cl 1.2 did not preclude Fair Work Australia from embarking upon an assessment of the fairness of the fundamental criteria specified by the makers of the agreement.

58    The second challenge by John Holland concerned the finding by the Full Bench that the agreement would undermine collective bargaining. The primary judge said:

38    Section 578(a) relevantly provides that Fair Work Australia must, in exercising its powers, take into account any objects of the Fair Work Act and the objects of any part of the Act. However, I am of the view that the general words in s 578(a) do not permit Fair Work Australia to imbue the words of the statute with concepts which are not to be found in those words when properly construed. In my view, the proper construction of s 186(3) is informed by s 186(3A). That section prescribes the nature of the considerations to which Fair Work Australia is to have regard in exercising its power under s 186(3). Therefore, in my view, Fair Work Australia is not at liberty to exercise its s 186(3) powers on some other basis in reliance upon the general provisions in s 578(a) of the Fair Work Act. In other words, the general words in s 578(a) must yield to the specificity embodied in s 186(3A) in relation to the proper construction of the words “was fairly chosen” in s 186(3).

39    Further, there are specific provisions in Pt 2-4 of the Fair Work Act which give Fair Work Australia powers to withhold approval on grounds which reflect conduct inconsistent with the objects of Pt 2-4 identified in s 171. Thus, for example, s 187(2) permits Fair Work Australia to withhold approval for an agreement if approval would not be consistent with, or would undermine, good faith bargaining. It is significant, therefore, that there is no similar provision permitting Fair Work Australia to withhold approval on the grounds that it is of the view that the approval of the agreement would undermine collective bargaining. In the absence of that power having been conferred expressly on Fair Work Australia, it is, in my view, not open to Fair Work Australia to exercise such a power under the rubric of s 186(3) of the Fair Work Act.

59    The distinction drawn by the primary judge in those two paragraphs between “collective bargaining” and “good faith bargaining” should be noted. I will return to it shortly.

Jurisdictional error by the Full Bench

60    The task of the FWC involved a value judgment based on its “satisfaction” or lack of satisfaction about specified matters. The ultimate assessment of whether the choice of group was fair involved a very broad judgment. That judgment was committed to the FWC. The FWC would commit jurisdictional error if it misunderstood, or failed to exercise, its jurisdiction (Public Service Association of South Australia v Federated Clerks’ Union of Australia, South Australian Branch (1991) 173 CLR 132).

61    In the case of the Full Bench, it would commit jurisdictional error if it failed to apply itself correctly to the particular task of deciding the appeal (Coal and Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 203 CLR 194 at [31]). That task also involves proceeding from a correct appreciation of the legislative scheme.

62    Although it is important to give full weight to the independent discretion of the FWC, and the Full Bench, I have come to the view that the findings of the primary judge with regard to each of the jurisdictional errors which he concluded that the Full Bench had made should not be disturbed.

63    The first error is revealed by [25] of the Full Bench decision set out earlier. It is an inevitable consequence of the fact that s 186(3) and (3A) are addressed to coverage in the wider sense I earlier identified, over a period of up to four years, that there will be very many cases where it will not be possible to meet the test posed by the Full Bench. In my respectful view, that test involved a misconstruction and misapplication of the statutory principles.

64    It was not relevant to an assessment of the question posed by s 186(3) that the Full Bench did not know how many employees would, or might, in future be covered by site specific agreements and hence excluded from the operation of the enterprise agreement. The possibility that the agreement might not apply to unknown future employees on unknown future sites did not alter the “coverage” of the agreement even though it might have an effect on whether the agreement “applied” to particular employees at particular sites. The criticism made by the Full Bench would apply with equal force to any agreement with the capacity to operate at future sites or projects not in existence, or actual contemplation, when the agreement was made. The extent of application of the agreement could not be known with certainty. In the words of the Full Bench, it would not be possible to make “any definitive finding” about that matter. However, in my respectful view that is a different position from the ascertainment of the “group of employees to be covered”, a task which involves an appreciation of the nature of the work to be regulated and rewarded by the agreement rather than how many employees may, in the years to come, carry out the work, or where.

65    I therefore agree with the primary judge that the Full Bench made a jurisdictional error about this issue.

66    The second error found by the primary judge is crystallised in the following passages in the Full Bench decision:

[30]    … In this case three employees on one site have bargained and agreed on an agreement with potentially very wide application to other employees who have not engaged in bargaining under Part 2-4 of the Act and will not be given the opportunity to bargain. …

…

[34]    … We also consider that the operation of the Agreement, as made with the three employees, would undermine collective bargaining by other employees in a manner not compatible with the objects of Part 2-4, …

67    Although the Full Bench was directed by s 578(a) to take into account the objects of Part 2-4 (as stated in s 171) it is far from clear how the Full Bench was able to conclude that an agreement made with three employees could “undermine” collective bargaining, or that it was relevant to state any conclusion in such broad terms.

68    It is not correct, with respect, to say (or suggest or infer) as the Full Bench did in [30], that there were in fact other employees who had been denied a chance to bargain. The “other employees” referred to were potential (and unknown) possible future employees who would never have a chance to bargain unless there was no agreement in place when they were engaged. Deprivation of that opportunity would arise in the case of any employee engaged during the term of an agreement.

69    It should be noted that the statutory objective in s 171(a) (which I set out earlier) refers to “collective bargaining in good faith”, but it is apparent that this statutory objective, and the reference in s 171(b) to “good faith bargaining”, must be understood in the overall context set by Part 2-4 of the FW Act.

70    Neither “collective bargaining” nor “good faith” is defined by the FW Act. There are, however, a number of procedural directions and discretions in the FW Act which concern “good faith bargaining requirements” (see s 228 and following). They include facilities for bargaining representatives to seek bargaining orders, majority support determinations and scope orders. None of those procedures was relevant to the present case.

71    It has not been suggested that it was impermissible for three employees to be asked to make an agreement or vote to do so. The FW Act permits such an agreement to be made and requires that it be approved if the statutory tests are met. Unless the proposed agreement failed to meet a relevant statutory test there could be no basis for introducing a further, more general, requirement of the kind adopted by the Full Bench.

72    In my respectful view, the criticism expressed by the Full Bench in [30] and [34] of its decision which I set out earlier was misplaced. The “employees” to whom the Full Bench referred were future employees. It was not to the point that an agreement was made before some employees were engaged: that was a feature of the process. It would be the inevitable result also of any greenfields agreement when no employee covered by the agreement would have an opportunity to vote to accept its terms. Ironically, in a sense, the agreement did provide the possibility of collective bargaining on a site by site or project by project basis but the Full Bench appeared to think this a disabling rather than meritorious feature.

73    Deputy President McCarthy had said:

[20]    … I do not sense anything in the making of this Agreement as evincing any intention by the Applicant to circumvent the objects of the FW Act and, in particular, an intention to prevent or frustrate the right of employees to be represented and collectively bargain.

74    There was no feature of the agreement identified by the Full Bench which suggested it was intended to, or might possibly, frustrate the operation of the FW Act in future or prevent good faith bargaining in accordance with the FW Act in an appropriate case when effect was given (if it ever was) to the possibility of negotiating a site specific or project agreement as contemplated by cl 1.2.

75    The Full Bench also said:

[31]    … While it is true that some bargaining may occur notwithstanding the Agreement, it is still the case that only some aspects of the bargaining options under the Act would be available to employees covered by the Agreement. For example, employees at a new site who fall within the terms of clause 1.1(b) would be covered by the Agreement and therefore would not be able to take protected industrial action in relation to the bargaining for a site or project specific agreement during the operation of the Agreement. The taking of protected action is part of the bargaining scheme of the Act. …

76    I referred earlier to the difficulties in the proposition that the possibility of protected industrial action was removed by cl 1.1(b). In a case of the present kind that proposition, in my respectful view, rests upon an assumption which does not withstand scrutiny. Where there is no existing agreement, there is nothing to stop an agreement being made before work on a project commences (e.g. a greenfields agreement) or as soon as a very small number of employees have been engaged. In either case the possibility of protected industrial action is removed at that point.

77    Furthermore, the consequences to which the Full Bench referred are those which are imposed by the FW Act itself. Such consequences cannot be brought to account to sustain a charge that the scheme of the FW Act was being subverted or undermined.

78    The Full Bench went on:

[32]    In relation to the potential for the selection of the group to undermine collective bargaining, we also note the provisions in the Act regarding the making and approval of greenfields agreements (e.g. s.182(3)). The agreement before us is not a greenfields agreement within the meaning of s.182(3). It is an agreement reached through bargaining with three employees. If it were possible to make an agreement with such a limited number of employees on one site with potential application to many sites and employees in a large geographical area such as Western Australia, this would mean that it is possible to make an agreement with a similar effect to a greenfields agreement for possibly a very large number of employees, without meeting the requirements of s.182(3).

79    The consequences of a greenfields agreement (made before any employee is employed) is that the restrictions on employee bargaining referred to in the preceding paragraph in the Full Bench decision are equally imposed. The FW Act recognises each form of bargaining. It does not prefer one over the other.

80    Section 182(3), which was referred to by the Full Bench in the last passage set out above, provides:

182    When an enterprise agreement is made

…

Greenfields agreement

(3)    A greenfields agreement is made when it has been signed by each employer and each relevant employee organisation that the agreement is expressed to cover (which need not be all of the relevant employee organisations for the agreement).

(Emphasis in original.)

81    Self-evidently, this provision refers only to greenfields agreements. It has nothing to say about an agreement made directly with employees. It is not relevant to suggest some circumvention of any “requirement” in s 182(3); failure to comply with its terms would spell invalidity, if it applied.

82    The Full Bench seems to have proceeded, in this part of its reasons, on an unexpressed preference for union negotiation, leading to greenfields agreements. Such a preference does not, with respect, reflect the statutory scheme. One consequence of that approach when it is followed is (as I have said) that there is no direct employee involvement at all. That may, or may not be, appropriate or the chosen course in particular cases but it cannot be elevated to the status of a rule. Such a consideration was not a relevant one in the assessment of matters under s 186(3) and (3A).

83    The Full Bench did not say directly that it may not be fair for an enterprise agreement made with three existing employees to cover a wide range of other classifications and jobs in which they may have no conceivable interest, or that the group thereby constituted may not be fairly chosen. I do not exclude the possibility that such an assessment may be available in a proper case but it is not necessary to pursue that question here.

84    I agree with the conclusion of the primary judge that the Full Bench made a second jurisdictional error in its reliance upon its specific finding that the agreement would undermine collective bargaining, for the reasons which it gave.

Conclusion

85    Those conclusions are sufficient to explain why I would dismiss the appeal. In my view, it is neither necessary nor desirable to attempt to be more definitive about the jurisdictional limits upon the way in which the FWC might approach its statutory task. Those limits are set by the FW Act, rather than by judgments of this Court. It is important to recognise, however, that within any such jurisdictional limits the judgments required (often broad and evaluative) are ones for the FWC, and not this Court.

86    I would dismiss the appeal.

Associate:

Dated:    24 February 2015

REASONS FOR JUDGMENT

Barker J:

87    I agree, generally for the reasons given by Buchanan J, which I have read in draft, that this appeal should be dismissed.

Associate:

Dated:    24 February 2015