FEDERAL COURT OF AUSTRALIA

Yum! Restaurants Australia Pty Ltd v Full Bench of Fair Work Australia [2011] FCA 1315

THE COURT ORDERS THAT:

1.    The application be dismissed.

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

THE COURT ORDERS THAT:

1.    The application be dismissed.

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

REASONS FOR JUDGMENT

1    Kentucky Fried Chicken Pty Ltd (‘KFC’) and Yum! Restaurants Australia Pty Ltd (‘Yum’) seek to challenge two decisions of the Full Bench of Fair Work Australia (‘the Full Bench’). This Court ordered by consent on 8 June 2011, inter alia, that the two applications be heard together. During the first day of the hearing, the parties also consented to a single judgment being delivered for both proceedings.

2    Yum challenges a decision of the Full Bench delivered on 11 March 2011 which dismissed its application made pursuant to Item 4 of Sch 6 of the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) (‘the Transitional Act’) to make a modern enterprise award to replace the Pizza Hut – SDA Employee Relations Award 2000 (‘the existing Pizza Hut Award’): Yum Restaurants Australia Pty Ltd v Shop, Distributive and Allied Employees Association [2011] FWAFB 1077 (‘the Yum decision’). In the same proceedings, the second respondent, the Shop, Distributive and Allied Employees Association (‘SDA’) applied to terminate the existing Pizza Hut Award pursuant to Item 5 of Sch 6 of the Transitional Act. The SDA’s application was upheld by the Full Bench.

3    The KFC decision similarly concerned an application by KFC pursuant to Item 4 of Sch 6 of the Transitional Act to implement a modern enterprise award to replace the KFC National Enterprise Award (‘the existing KFC Award’): Kentucky Fried Chicken Pty Ltd v Shop, Distributive and Allied Employees Association [2011] FWAFB 1078 (‘the KFC decision’). Such application was dismissed. Also before the Full Bench was an application by the SDA to terminate the existing KFC Award pursuant to Item 5 of Sch 6 of the Transitional Act. The Full Bench also upheld the SDA’s application.

4    The Court notes that the two decisions of the Full Bench are very similar, since virtually identical issues were raised in each matter. The Full Bench in the KFC decision states at [5] that ‘this decision should be read in conjunction with our decision in relation to the Pizza Hut application’.

5    The relevant legislative provisions for the making of a modern enterprise award, and for the termination of the existing awards, are contained in the Transitional Act and the Fair Work Act 2009 (Cth) (‘the FW Act’) and are set out hereunder.

BACKGROUND

6    Yum, the first named applicant, is the Australian operator of the ‘Pizza Hut’ franchise.

7    The existing Pizza Hut Award was made in 1993 by Vice President Moore with the consent of the SDA and Pizza Hut employers. Such award was revised in 1994 and 2000 but on each occasion the amendments were made mostly by consent. The Pizza Hut Award applies to the franchises that are named as respondents to the award. Such award did not extend to Queensland or South Australian franchises. At [13] of the Yum decision the Full Bench stated that by making its application Yum ‘seeks to expand the award to cover all current and future franchisees in all states and territories’.

8    The existing KFC Award was made in 1995 with the consent of the SDA and KFC. Changes by consent were made in 2001. The existing KFC Award did not apply in Western Australia or Queensland.

DECISIONS OF THE FULL BENCH

9    The applications of Yum and KFC were essentially predicated upon their claims that because of the long history of agreements making unique provisions for their employees, there was a need for those conditions to prevail in the future and that the Fast Food Industry Award 2010 (‘the Fast Food Award’) did not adequately serve their requirements.

10    In both the KFC and the Yum decisions, the Full Bench considered the eight matters that must be taken into account when considering whether to replace or to terminate an agreement under Item 4 and Item 5 of Sch 6 of the Transitional Act (as set out later in this decision).

YUM DECISION

11    Yum submitted that the content of the Fast Food Award would be of little relevance to Pizza Hut restaurants which have been covered by the existing Pizza Hut Award for over 15 years, and that there would be significant impact on the employees of Pizza Hut if the existing Pizza Hut Award was not modernised. Yum also submitted that there was no existing single modern award that would cover all Pizza Hut employees. Yum referred extensively to the circumstances which led to the making of the existing Pizza Hut Award.

12    The SDA submitted that such evidence did not demonstrate sufficient reason to justify a modern enterprise award and sought termination of the existing Pizza Hut Award. The SDA submitted that the Fast Food Award would cover the ‘overwhelming majority of employees of Pizza Hut’. The SDA drew attention to the fact that Yum had participated in and had made submissions for the formulation of the Fast Food Award and its submissions had been taken into account in the making of the Fast Food Award. Accordingly, the SDA submitted that Yum should not be entitled, by this application, to ‘relitigate’ such matters.

13    Contrary to Yum’s submissions, the Full Bench found that the Fast Food Award should have application to all the relevant Pizza Hut employees currently covered by the existing Pizza Hut Award and should also extend to employees of franchises in South Australia and Queensland.

14    Debate took place before the Full Bench concerning the definition of ‘enterprise-specific terms and conditions’ which was to be considered pursuant to Item 4(5)(e) and Item 5(4)(e) of Sch 6 to the Transitional Act. The Full Bench concluded that it did not intend to ‘adopt an overly technical approach to the term’. The Full Bench said [32]:

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.

15    The Full Bench found at [39] that Yum was ‘an active participant in the award modernisation process and made submissions that were adopted by the Australian Industrial Relations Commission (AIRC) that a fast food industry award should be made separate …’.

16    Importantly, at [44] the Full Bench stated that it did not believe that Yum showed that its operations were distinguishable from other employers engaged in the fast food industry to warrant the need for a different penalty rate scheme, nor for different conditions for delivery drivers and managerial employees.

17    The Full Bench concluded that Yum had failed to establish that it was unique from other fast food employers and thus required a separate modern award. At [49] the Full Bench dismissed the Yum application to modernise the existing Pizza Hut Award and granted the application by the SDA to terminate the existing Pizza Hut award.

KFC DECISION

18    KFC relied upon similar submissions to Yum, emphasising the hitherto long standing conditions of employment which distinguished the operations of KFC from other fast food operations.

19    The Full Bench considered the evidence led by both KFC and the SDA in accordance with the matters to be taken into account under the Transitional Act when determining whether to terminate or replace an existing award.

20    KFC submitted before the Full Bench that the Fast Food Award had little relevance to KFC employees and that such award is inappropriate for KFC franchises. In reply the SDA submitted that KFC was involved in the process of making the Fast Food Award and that during this process KFC had made similar submissions to those of Yum.

21    The Full Bench at [29] of the KFC decision found:

Given the similarity in the circumstances and the submissions between the Pizza Hut application and this matter our reasoning and conclusions are essentially the same.

22    In fact, the Full Bench’s conclusions from [29]-[39] of its decision largely resemble its conclusions in the Yum decision. At [38] of the KFC decision the Full Bench said:

In all of the circumstances we do not believe that KFC Pty Ltd has made out a case for the modernisation of the FKC Award. We dismiss the KFC Pty Ltd application and grant the application by the SDA to terminate the KFC Award.

THE APPEAL

23    Both KFC and Yum’s submissions in support of their applications are essentially identical. The applicants rely on the following three grounds in the appeal, namely that the Full Bench:

(a)    misunderstood and failed to apply the ‘modern enterprise awards objective’

(b)    took into account matters not relevant to the exercise of its discretion; and

(c)    failed to take into account matters relevant to the exercise of its discretion.

24    The Court will consider each ground separately, although the grounds of appeal may overlap to some extent.

GROUND 1: DID THE FULL BENCH APPLY THE MODERN ENTERPRISE AWARDS OBJECTIVE?

The applicants’ submissions

25    The applicants submitted that in fulfilment of its statutory obligations, the Full Bench ‘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’, being the express requirement of Item 6(2) in Sch 6 of the Transitional Act; that the application of the ‘modern enterprise awards objective’ constitutes a jurisdictional requirement which informs or guides the approach to the consideration of those matters which the Full Bench ‘must take into account’ under Item 4(5) of Sch 6 of the Transitional Act; that a proper reading of the KFC decision and the Yum decision leads to the conclusion that the Full Bench did not apply the modern enterprise awards objective and that the failure to do so constitutes a jurisdictional error.

26    It is submitted by the applicants that the failure is evidenced by several of the Full Bench’s findings, including its failure to give due weight to the fact that the existing KFC Award and the existing Pizza Hut Award (hereafter for convenience referred to as the ‘awards’) each comprised an ‘enterprise award-based instrument’ under Item 3(1) of Sch 6 of the Transitional Act; that the applicants’ proposed modern enterprise award contained provisions generally in accordance with the awards; that the awards had a history going back to 1993; that modern awards, principally the Fast Food Award, would apply to the applicants and their franchises if the awards were not modernised and that the conditions of that award were unsuitable to the operations of Yum and of KFC; and that existing conditions of the awards would be replaced by ‘significantly different’ terms if the Fast Food Award applied. The applicants further submitted that if the awards were modernised there was not likely to be a:

…significant impact upon employees employed at other fast food employers covered by the Fast Food Award; and that it was not clear if the awards were modernised whether there would be any change in actual terms and conditions of the applicants’ employees.

27    The applicants further submitted that the Full Bench failed to recognise and accept the existence of terms and conditions which were tailored to reflect the employment arrangements which had been enshrined in the awards. Further, it was submitted that the Full Bench diminished the importance of the existing terms and conditions which had been formulated in the awards to reflect the employment arrangements developed for the applicants’ specific enterprises.

28    The applicants submitted that such errors relate to the Full Bench’s failure to give appropriate weight to the matters which the Full Bench said ‘were taken into account’ in its consideration.

29    The applicants rely upon the principle that a failure to provide proper consideration to a matter is the equivalent to providing no consideration to such matter, as referred to in Bat Advocacy NSW Inc v Minister for Environment Protection, Heritage and the Arts [2011] FCAFC 59 at [44]; Minister for Immigration and Citizenship v Khadgi & Anor (2010) 274 ALR 438 at [58]-[62].

30    The applicants further submitted that the ‘recognition’ of the ‘modern enterprise award objective’ referred into in Item 6(2) of Sch 6 of the Transitional Act was fundamental and mandatory; that such objective required consideration to be given to the existing awards; that Sch 6 of the Transitional Act is specifically designed to provide a mechanism for the preservation and modernisation of enterprise instruments and gives recognition that an ‘enterprise instrument’ (such as the awards) may be appropriate for modernisation; that by concentrating attention upon the award modernisation process and the applicants’ involvement in the consultative process and of the outcomes for modern awards, the Full Bench did not recognise and apply the modern enterprise awards objective.

31    Further, the applicants submitted that they should not be required to demonstrate as a prerequisite to succeeding in their applications that the employment practices provided under the awards cannot be continued. The applicants submitted that the Full Bench should have asked itself whether the applicants had developed suitable terms and conditions for their employees rather than focusing attention upon whether the applicants had shown that their operations were distinguishable from other employers so as to establish the need for a different industrial regime. The applicants submitted that they have demonstrated that their operations indeed warranted different treatment by virtue of the fact that the awards have been made to cover and support their employees.

The Statutory Regime

32    Two distinct concepts are created by the FW Act and the Transitional Act, namely the ‘modern award’, together with the ‘modern awards objective’, and secondly the ‘modern enterprise award’ together with the ‘modern enterprise award objective’.

33    A ‘modern award’ is defined in the Dictionary to the FW Act as being ‘a modern award made under Part 2-3’. Part 2-3 of the FW Act, entitled ‘Modern Awards’, makes provision for the making of awards and s 134 thereof is entitled ‘The Modern Awards objective’. As prescribed by s 134(1) of the FW Act, the Full Bench is required to ensure that modern awards provide ‘a fair and relevant minimum safety net of terms and conditions’ and thereafter lists the numerous items which are to be taken into consideration in the making of a modern award. This is the ‘modern awards objective’.

34    Section 168A of the FW Act defines a ‘modern enterprise award’ as follows:

(2)     A modern enterprise award is a modern award that is expressed to relate to:

(a)    a single enterprise (or a part of a single enterprise) only; or

(b)     one or more enterprises, if the employers all carry on similar business activities under the same franchise and are:

(i)     franchisees of the same franchisor; or

(ii)     related bodies corporate of the same franchisor; or

(iii)     any combination of the above.

35    Section 168B of the FW Act defines the modern enterprise awards objective as follows:

168B The modern enterprise awards objective

What is the modern enterprise awards objective?

(1)     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.

When does the modern enterprise awards objective apply?

(2)     The modern enterprise awards objective applies to the performance of FWA’s functions or powers under this Act, so far as they relate to modern enterprise awards.

36    The application by KFC and Yum for modern enterprise awards were made under Sch 6 of the Transitional Act (‘Sch 6’). Sch 6 is entitled ‘Modern Enterprise Awards’ and Part 2 thereof is entitled ‘The Enterprise Instrument Modernisation Process’. Relevantly, Part 2 Division 1 applies to ‘Enterprise Instruments’, which are defined in Item 2(1) as follows:

2 Enterprise instruments

(1)    Each of the following is an enterprise instrument:

(a)    an enterprise award-based instrument;

(b)     an enterprise preserved collective State agreement;

(c)     a Division 2B enterprise award.

37    The awards (i.e. the existing KFC and Pizza Hut Awards) comprise enterprise instruments. Item 4(1) of Part 2 refers to the enterprise instrument modernisation process, and Item 4(2) provides:

On application, FWA may make a modern award (a modern enterprise award) to replace an enterprise instrument.

38    Item 4(4) of Part 2 provides that a modern enterprise award must be made by a Full Bench.

39    Item 4(5) and Item 5(4) set out the matters that the Full Bench must take into account when considering whether to replace or terminate (as provided by Item 5(1) and Item 5(3) of Sch 6) a modern enterprise award. The criteria itemised in Item 4(5) and Item 5(4) of Sch 6 are identical. Item 4(5) relevantly provides:

In deciding whether or not to make a modern enterprise award, [emphasis added] 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, but 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 impact 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.

40    In the process of making a modern enterprise award, the Full Bench must also have regard to the ‘minimum wages objective’ and the ‘modern enterprise awards objective’. See Item 6(1) of Sch 6, which relevantly provides:

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.

41    Further, the ‘minimum wages objective’ is defined in s 284 of the FW Act which relevantly provides:

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.

42    The Court notes that if no application to modernise or terminate an enterprise instrument was made before 31 December 2013, then the existing KFC and Pizza Hut awards would terminate at that time pursuant to Item 9(4) of Sch 6 of the Transitional Act.

Consideration

(a) Interpretation of Sch 6 of the Transitional Act

43    The Court will firstly consider the proper interpretation of Item 4(5) of Sch 6 of the Transitional Act. If the Full Bench were required, by the Transitional Act, to apply the modern enterprise awards objective when considering whether or not to make a modern award or to terminate the existing awards, and it failed to do so, jurisdictional error could result.

44    Significantly the modern enterprise awards objective is not specifically referred to in Item 4(5) of Sch 6 as one of the several factors to be considered by it. However, the subject matter most analogous to the modern enterprise awards objective is that referred to in Item 4(5)(c) which requires the Full Bench to consider the content or likely content of the award conditions (in this instance the Fast Food Award) referred to in Item 4(5)(b). Further, by virtue of Item 4(5)(d), the Full Bench must consider the terms and conditions applying in the industry.

45    The Full Bench, by virtue of Item 4(5)(e), must also consider ‘the extent to which the enterprise instrument provides enterprise-specific terms and conditions of employment’. It follows that the Full Bench must consider the terms that had been negotiated in the past and those terms and conditions being reflected in the awards sought to be replaced.

46    The SDA has submitted that, on the applications before it, the Full Bench was not making a modern enterprise award under Division 2 of Sch 6. Rather it was deciding ‘whether or not to make a modern enterprise award under such division’. Accordingly the requirement to have regard to the requirements of Item 6 (i.e. the modern enterprise awards objective) did not arise.

47    The applicants submitted that such a distinction is artificial, and has no substance. Further the applicants submitted that when determining whether or not to make a modern enterprise award and in determining the content of such award, the Full Bench must take into account not only the matters specified in Item 4(5), but also the modern enterprise awards objective and the minimum awards objective. The applicants submitted that it is ‘without doubt’ that recognition of the modern enterprise awards objective is ‘fundamental and mandatory’, and in respect of the applications before it, the Full Bench was required so to do.

48    When considering the interpretation of a statutory instrument, it is the task of a court to ascertain the intention of Parliament as reflected in the text of the statutory instrument: see Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 at [69] in which the High Court stated that the ‘primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all of the provisions of the statute’.

49    It must be assumed that the legislature, by the words at the commencement of Item 4(5) ‘in deciding whether or not to make a modern enterprise award’, intended those words to have some operation. That is, the legislature required the Full Bench to consider a two-stage process: firstly to determine whether or not the Full Bench should make a modern enterprise award; and if it determined so to do, then to consider as the second stage, the content of such an award.

50    On the applicants’ applications the Full Bench was considering whether to make, a modern enterprise award, but the Full Bench determined that it was not appropriate to do so. As a consequence of such decision no occasion arose for the Full Bench to address the second stage, namely to consider the content of any future award.

51    It follows that the mandatory considerations in Item 4(5)(a)-(h) were applied, and that at this stage the Full Bench was not required to consider, as a mandatory requirement, the modern enterprise awards objective. Such objective would need to be applied if the process reached the second stage, namely determining the content of a modern enterprise award.

52    The Court agrees with the submission of the SDA, 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’. The issues for consideration referred to in Item 6 are significant as they are intended to ensure that the content of a modern enterprise award will provide fair and relevant minimum safety net of terms and conditions taking into account the factors as set out in s 134(1) of the FW Act. However, this investigation does not arise for consideration until the preliminary decision, that is whether or not to make a new award, is made.

53    Accordingly, the Court upholds the submission of the SDA. It follows that the applicants’ first ground of appeal fails.

54    In the event that the above construction of Sch 6 of the Transitional Act is found to be erroneous, the Court makes the following findings upon the question whether the Full Bench did in fact consider the modern enterprise awards objective as part of its consideration when determining the applications before it.

(b) Was the modern enterprise awards objective applied?

55    Item 6 of Sch 6 of the Transitional Act imposes the requirement upon the Full Bench that in making a modern enterprise award, the modern enterprise awards objective and minimum wages objective are to be applied (see Item 6(1)). The Full Bench must recognise that individual terms and conditions may be required when making a modern enterprise award. Item 6(2) provides that ‘modern enterprise awards may provide terms and conditions tailored to reflect employment arrangements that had been developed in relation to the relevant enterprises’.

56    The Explanatory Memorandum for the Fair Work (Transitional Provisions and Consequential Amendments) Bill 2009 (‘the EM’) refers to the intended modernisation process. The EM states at [236]:

The modernisation of enterprise instruments is intended to produce a new self-contained modern award that can operate effectively in the new workplace relation system. These new instruments are modern awards for the purpose of the FW Bill.

57    At [241] of the EM reference is made of the criteria to be considered in deciding whether or not to make the modern enterprise award. At [242] of the EM the following is stated:

These criteria are broad and require FWA to consider and balance all relevant matters in deciding whether to make a modern enterprise award.

58    Subsequently reference is made at [244] to the fact that the Full Bench is required to consider whether ‘the relevant modern award provides terms and conditions that should be included in the modern enterprise award as an appropriate safety net.’

59    The Full Bench had before it, inter alia, details of the history of the making of the existing enterprise instruments. The statement of Stephen Champion provided comprehensive information concerning the making of the existing Pizza Hut Award dating from 1987.

60    The applicants emphasised the specific objectives of the conditions that had been negotiated in the existing awards, particularly the fact that many of their staff were part-time, often school or university aged people or people working second jobs or mothers with school aged children. The hours that were involved in the applicants’ operations were tailored to suit the needs of those persons. The applicants submitted that these factors had not been properly recognised when the Full Bench made its determination, and that the Full Bench failed to appreciate that recognition could be made of those circumstances which were peculiar to the applicants.

61    The Full Bench had substantial evidence before it which demonstrated that the operations of both Yum and KFC were different in many ways to those of other operations in the fast food industry. For example, the statement of Richard Wallis sought to draw a distinction between the type of food served in the restaurants of the applicants compared to fast food outlets generally and of other reasons which it claimed distinguished the operation of the applicants from fast food outlets generally. Details of comparative menus were also provided to the Full Bench of the applicants’ outlets compared to other competitors. At [23] of his statement Mr Wallis said:

The Pizza Hunt – SDA National Employee Relations Award 2000, and the employment arrangements it underpins, is just as much part of the unique brand and its unique operations as other aspects of the Pizza Hut’s operations and marketing.

62    Mr Wallis’ statement also referred in detail to the flexible arrangements that had been made with the staff based on agreed levels of remuneration. He stated that Yum had devised suitable conditions with its employees irrespective of arrangements made by other fast food operators for their staff. In summary, Mr Wallis asserted that Yum had negotiated conditions which were special to the operations of Yum.

63    The statement of Craig Hosking, of KFC, provided details of hours of work, rates paid, rosters and other information relating to the working conditions of the employees under the existing arrangements with KFC and its employees. Mr Hosking stated that if KFC had been required to pay penalty rates, instead of a loaded rate as negotiated, labour would be reduced with a consequential diminution in sales.

64    A statement and supplementary statement of Daniella Dimartino was provided by the SDA which included a comparative analysis of the hourly rates and remuneration under the existing awards compared to those which would be provided under the Fast Food Award. Such statement also provided details of the competition existing between Yum and KFC compared to other fast food outlets throughout Australia.

65    The above statements are but some of the many statements of evidence which the Full Bench considered and which demonstrated that the existing awards provided terms and conditions for the applicants’ employees different from the conditions prescribed by the Fast Food Award.

66    The Full Bench at [39] of its Yum decision stated that ‘the consensual nature of the enterprise award is a factor in support of its retention’. It thereafter noted the desire for ‘enterprise specific terms and conditions’, but it then observed:

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.

67    The Full Bench noted that Yum had been an ‘active participant’ in the award modernisation process and had made submissions to the Australian Industrial Relations Commission that a fast food industry award should be made distinct from the General Retail Industry Award 2010. It noted [at 39] that ‘Changed circumstances and the way in which the modernisation process operated’ required ‘a reconsideration of the appropriateness of an enterprise award’.

68    The above observations show that the Full Bench had a thorough understanding of Yum’s contentions that its employees required conditions of employment different to those governed by the Fast Food Award.

69    It was against the above background that the Court must consider whether the Full Bench did not 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’.

70    The Full Bench acknowledged at [41] that the part-time provisions of a Fast Food Award could be described as ‘less flexible’ for the applicants than the corresponding provisions of the existing awards. However it found that if this were a problem for the applicants, it would arise only when the agreements ceased to apply and only when the existing arrangements were not ‘replicated in a replacement agreement’. However, the Full Bench considered that the provisions of the Fast Food Award allowed for flexibility by agreement. The Full Bench also considered that problems which might be experienced by Pizza Hut might be experienced in a similar way by other fast food operators. Significantly the Full Bench referred to the ‘loaded rates’ in the Pizza Hut Awards and agreements and considered that those concepts could continue under an agreement negotiated with SDA.

71    In the KFC decision, the Full Bench observed the significant history between KFC and SDA in relation to the formulation of the awards and observed that there was no reason in principle why negotiation for particular conditions could not continue subject to the question of safety net considerations and the satisfaction of the ‘better off overall test’ (‘BOOT’). Significantly at [31] of its decision the Full Bench accepted that the part-time provisions of the Fast Food Award could be described as less flexible for employers than in the corresponding provisions of the existing KFC Award. However, at [32] of the KFC decision, the Full Bench observed that there were ‘avenues available to employers covered by the Fast Food Award to apply the part-time provisions in a way that allows flexibility by agreement and complies with the requirements of the award’. It also observed at [32] of the KFC decision: ‘We also consider that the alleged problems are not confined to KFC and its franchisees. They are common to many other fast food operators who operate in a similar or identical manner’.

72    Although the applicants submitted that the Fast Food Award did not adequately address the business competiveness and viability of the applicants’ enterprises, it is apparent from the decisions that the Full Bench was very much aware of the history of the negotiations leading to the current instruments but considered that it was not sufficient to distinguish, under the modern enterprise awards objective, the awards from the Fast Food Award.

73    The conclusion of the Full Bench is consistent with the recognition that the need may exist for particular conditions as is referred to in [256] of the EM which states:

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 been developed in relations to specific enterprises.

74    Para 258 of the EM envisaged that 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’. Para 258 also envisaged that the Full Bench ‘will be able to maintain any enterprise specific arrangements in a modern enterprise award where it considers that this is appropriate to do so’.

75    Para 259 of the EM states that in setting the terms and conditions, the Full Bench could take account of long-standing conditions, provided the Full Bench’s discretion was not fettered by such history. The EM states at [260]:

This is not intended, however, to impose an obligation on FWA to only include tailored terms in modern enterprise awards. Rather, the Item is designed to ensure that FWA has regard to the fact that an enterprise instrument may contain tailored terms because they had been developed to meet the needs of a particular enterprise.

76    In this instance the Full Bench determined that it was not appropriate to maintain the award conditions negotiated by Yum and KFC. The Court does not accept the applicants’ submission that the Full Bench did not take into account the modern enterprise awards objective, or ignored the historical differences which gave rise to the existing awards. The Full Bench specifically addressed the terms and conditions of the existing awards but found that they did not outweigh the other considerations, namely, the fact that other operators in the fast food industry would have similar problems in their operations and the fact that there would be flexibility remaining to enable specific issues to be resolved between themselves and SDA despite the provisions of the Fast Food Award applying.

77    The Court considers 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.

GROUND 2: DID THE FULL BENCH TAKE IRRELEVANT MATTERS INTO CONSIDERATION?

78    Several grounds are relied upon by the applicants in support of a submission that the Full Bench took into account matters which were not relevant for the exercise of its discretion. The grounds relied upon constitute no more than a dissection of words and phrases used by the Full Bench in its decisions. To dissect the decisions in this manner constitutes an erroneous approach to the interpretation of a Tribunal’s decision-making. In Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 at 287, the Full Court said:

The reasons for the decision under review are not to be construed minutely and finely with an eye keenly attuned to the perception of error: Politis v Commissioner of Taxation (Cth) (1988) 16 ALD 707 at 708 (Lockhart J).

79    Nevertheless the Court will consider the substance of each matter so raised.

Uniformity

80    The applicants submitted that the modern enterprise awards objective required the Full Bench to recognise the existence of tailored terms and condition which should be preserved, and that instead, the Full Bench erroneously considered that uniformity in workplace conditions was paramount. The applicants submitted that their operations justified the continuation of the provisions which suited their operations; that such conditions had been devised for their operations had been carefully crafted to suit them and were separate and distinct from conditions that might have prevailed in other fast food operations; and that there was no requirement upon the applicants to establish that their operations were ‘unique’.

81    The applicants submitted that the Full Bench erred in finding that negotiated conditions should not be continued, thereby leaving it to the applicants to attempt to renegotiate them in the future. The applicants submitted that this was not a factor mentioned or contemplated by the criteria for consideration in Item 4(5) of Sch 6 of the Transitional Act.

82    The applicants further submitted that the fact that the applicants might negotiate an agreement with the SDA to recover conditions which they had negotiated over the years was an irrelevant consideration. It was not a factor which was listed in the factors to be taken into consideration by the Full Bench when it was deciding whether or not to make a modern enterprise award.

83    The applicants also submitted that whilst the Full Bench recognised that separate terms and conditions had been negotiated in the past by the applicants, it did not suggest any criticism was to be made of those conditions.

84    The applicants’ submissions are rejected. The Full Bench concluded that the conditions prevailing in Yum and KFC’s existing awards were different from the Fast Food Award provisions. However, the Full Bench stated at [49] in the Yum decision:

…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.

85    Accordingly, the Full Bench recognised that the fact that the consensual nature of the existing awards was a factor for consideration. However, that fact did not outweigh the greater objective of securing a single award covering the whole industry.

86    The Full Bench was not required to find that pre-existing conditions should not be continued in the future in a modern enterprise award because they were considered to be no longer appropriate. The Full Bench apparently considered that the individually negotiated conditions for the applicants may have been beneficial for them. However, with modern award development, the Full Bench found that separate conditions applying to individual organisations were not desirable unless there were very cogent reasons. In this instance, the Full Bench found that no such reasons existed. A ‘single safety net’ formulation by the Full Bench was not obligatory, but it was considered appropriate for their continued application.

Operation of the award

87    The applicants refer to paragraph [42] of the Yum decision in which the Full Bench held that there were ‘avenues available’ to apply the Fast Food Award provisions in a manner which allowed for flexibility by ‘agreement’ and further, that problems which might be experienced by Yum would be similarly experienced by other fast food operators.

88    The statement of Matthew Blackburn which was before the Full Bench referred to perceived difficulties with the rigid requirements of the Fast Food Award and the consequences of such award provisions upon the operations of Yum. In the KFC proceedings, the statement of Craig Hosking was provided to the Full Bench which gave evidence of the desired flexibility in KFC operations, for example by rostering off staff on days when demand was quiet. ‘Dramatic changes’ were foreshadowed by Mr Hosking if the Fast Food Award applied instead of the existing agreement to ensure that labour costs were maintained at existing levels. Mr Hosking also spoke of the possible need to impose a surcharge on sales on weekend and on other days to cover additional penalty rates. He also testified to the low margin, high volume business of KFC and of the necessity to maintain volume sales.

89    At [42] of the Yum decision the Full Bench provided its response to the case that was being put forward by both Yum and KFC stating:

We consider that there are avenues available to apply the Fast Food Award provisions in a way that allows flexibility by agreement and complies with the requirements of the Award. We also consider that the alleged problems are not confined to Pizza Hut and its franchisees. They are common to many other take away pizza and fast food operators who operate in a similar or identical manner. The availability of a review of award provisions for the industry as a whole in 2012 and 2014 also diminishes the significance of this matter further.

90    And at [44]:

We do not believe that Yum has established that its operations are distinguishable from other employers such as to establish the need for a different penalty rate regime. The availability of flexibility and consistency of costs should be balanced against the impact on employees and appropriate community standard penalty payments. Again if the balance is not right and the attainment of loaded rates under the Fast Food Award is considered overly restrictive then the content of that award could be reconsidered as part of the award review processes.

91    The above paragraphs reflect the Full Bench’s conclusions that flexibility could be made by agreement even if the Fast Food Award applied to the operations of KFC and Yum. That is the Full Bench recognised that there might, in the future, be the need to adjust the terms and conditions and expressly mentioned the fact that the parties were at liberty to seek to negotiate special conditions in the future. Such was a relevant matter for consideration under Item 4(5)(d) and (f) of Sch 6 of the Transitional Act.

Significance of award history

92    The applicants submitted that the Full Bench should not have considered whether the changes which had been made since 2000 to its existing awards had the consequence that its award history was ‘diminished’. At [41] of the Yum decision the Full Bench held:

We accept that the part-time provisions of the Fast Food Award can be described as less flexible for the employers than the corresponding provisions of the Pizza Hut Award and Pizza Hut - SDA National Employee Relations Agreement 2009 and Pizza Hut - SDA National Employee Relations Agreement 2010 (the Agreements). To the extent that this is a problem for Pizza Hut, it does not arise immediately - only when the Agreements cease to apply - and then only if the existing arrangement is not replicated in a replacement agreement.

93    At [46] the Full Bench said in the Yum decision:

We agree that the possible impact of not modernising the award on parties to the Pizza Hut Award arises on expiry of the Agreements with the change of the award for the application of the BOOT. We repeat our comments above about the appropriateness of this. 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. But it is not precluded from retaining all of its current employment arrangements. 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.

94    The applicants submitted that each of the above paragraphs demonstrates that the Full Bench adopted an erroneous approach because rather than considering whether the rates and entitlements were distinguishable, the Full Bench should have been addressing the question of whether the terms and conditions developed by Yum and KFC were appropriate for those employers.

95    The Court finds that there has been no error by the Full Bench as alleged. As part of its deliberations, the Full Bench was entitled to consider the extent to which the enterprise instrument provided enterprise-specific terms and conditions of employment as required by Item 4(5)(e) of Sch 6. Further, the Full Bench was required to consider the likely impact on a person covered by the enterprise instrument and the ramifications of a decision to make or not to make the enterprise award as specified in Item 4(5)(f) of Sch 6.

Application of ‘common rule’

96    The applicants submitted that the Full Bench should not have taken into consideration that a ‘level playing field’ would result by removing the potential comparative advantage to the applicants provided by the existing awards.

97    Effectively the applicants submit that the Full Bench should not have taken into account the manner in which the award modernisation process operated and the fact that there was availability for the review of modern award provisions for the fast food industry as a whole in 2012 and 2014 as was considered at [42] and [44]-[45] of the Yum decision.

98    The Full Bench had before it voluminous evidence of Ms Dimartino concerning the proximity of competitors, trading hours and industrial instruments under which they operated. The Full Bench was able to compare those conditions with the arrangements which both Yum and KFC enjoyed under their existing awards. There is no basis, in these circumstances, for the Full Bench not drawing a conclusion of the ‘impact on the ongoing viability or competitiveness of any enterprise carried on by those persons’ as a consideration under Item 4(5)(f) of Sch 6.

Matters for further negotiation

99    The applicants submitted that the Full Bench findings would result in a loss of flexibility to the applicants under the Fast Food Award. The applicants submitted that the Full Bench engaged in speculation when it referred to ‘loaded rates of pay’ and other enterprise specific terms and conditions may or were ‘likely to continue to be available under agreements negotiated with the SDA’ and that this is not a relevant matter for its consideration.

100    The statement of Matthew Blackburn referred to the fact that the loaded rate negotiated between the applicants and its employees was of great advantage to Yum; that opening on public holidays which was a loss making day would be exacerbated if penalty rates applied instead of the loaded rate. Similarly, the statement of Craig Hosking provided for KFC confirmed that penalty rates would result in a diminution in the employing of labour.

101    Mr Hosking’s statement also referred to the need to recognise that trade fluctuated seasonally and that rostering was performed according to anticipated customer demand. Mr Hosking considered that inflexible conditions would be unsustainable and that dramatic changes would have to be made to ensure that KFC were to maintain labour costs at existing levels.

102    The SDA referred to the statement and supplementary statement of Ms Dimartino. Ms Dimartino provided a comparative analysis of the remuneration which would be earned by actual employees rostered to work in various jobs in Pizza Hut franchise business, under the Fast Food Award.

103    It is unnecessary for the Court to consider the detailed components set out in the comparative analysis.

104    The Full Bench found at [47]-[48]:

Yum did not run its case by accepting that it had an advantageous position compared to its competitors. Rather it 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. If the Fast Food Award provisions require reconsideration on the basis of the types of arguments advanced by Yum, then they can just as conveniently, and in our view more appropriately, be dealt with by the entire industry covered by the modern award as part of a future award review.

In all of the circumstances we do not believe that Yum has made out a case for the modernisation of the Pizza Hut Award. We dismiss the Yum application and grant the application by the SDA to terminate the Pizza Hut Award.

105    The Full Bench was entitled to make observations in its consideration of the likely impact of the modern award provided by Item 4(5)(d) and (f) of Sch 6 of the Transitional Act, and the Court rejects the submission that by the above observations, the Full Bench took into account irrelevant considerations.

Conclusions

106    The Full Bench was required, in its deliberations, to consider those matters in Item 4 and Item 5 of Sch 6 of the Transitional Act, but was also entitled in the exercise of its discretion to consider other matters. The Court is satisfied that the Full Bench did not take into account any irrelevant considerations in either the Yum or the KFC decisions, and as such no jurisdictional error resulted.

107    Accordingly this ground of appeal fails.

GROUND 3: DID THE FULL BENCH FAIL TO TAKE INTO ACCOUNT VARIOUS RELEVANT MATTERS?

108    The applicants assert that the Full Bench failed to take into account various relevant matters in making its decision. For example, the applicants claim that the Full Bench failed to take into account a reasonable inference which could be drawn from the absence of any evidence ‘concerning the impact or likely impact on persons covered by relevant modern awards that there will be no deleterious effect on them if FWA was to make or not make the proposed award’.

109    It is also submitted that the Full Bench failed to take into account the reasonable inference ‘arising from the evidence, from which the employers in the industry most directly competitive with the applicant, that there was no likely impact of FWA making the proposed award which was deleterious to them’.

110    The above are two examples of the kind of inferences which are said by the applicants to arise in the evidence and which the Full Bench failed to consider. Other matters relied upon by the applicants are the fact that the Full Bench failed to consider the BOOT; part-time employment; loaded rates of pay and classifications for various employees and that more than one modern award would cover or apply to the applicant.

111    The Court rejects those submissions for the reason that there was no mandatory statutory requirement on the part of the Full Bench to consider any of the matters referred to. The mandatory considerations which the Full Bench were required to consider are those set out in Item 4(5) of Sch 6. Item 4(5) does not include the inferences which the applicants claim should have been drawn. Nevertheless, the Full Bench did in fact consider all aspects of the competing claims of the applicants and of the respondents. For example, in respect of the BOOT test, the Full Bench said:

The adoption of enterprise terms from the enterprise award in enterprise agreements also diminishes the significance of the award history. The parties have been active in relation to enterprise agreements. The most recent enterprise agreement is in similar terms to the enterprise award. Conceptually there appears to be no reason why this could not continue, although the question of the terms of the respective safety net awards is relevant to future agreements and satisfaction of the BOOT. We discuss this consideration below in relation to the terms of each of the instruments.

112    As was observed by Gleeson CJ, Gaudron and Hayne JJ in Coal and Allied Operations Pty Limited v Australian Industrial Relations and Others (2000) 203 CLR 194 at [31]:

There would only have been jurisdictional error on the part of the Full Bench if it had misconceived its role or if, in terms used by Jordan CJ in Ex parte Hebburn Ltd; Re Kearsley Shire Council, it “misunder[stood] the nature of [its] jurisdiction ... or 'misconceive[d] its duty' or '[failed] to apply itself to the question which [s 45 of the Act] prescribes' ... or '[misunderstood] the nature of the opinion which it [was] to form”. The Full Bench did none of those things. [Footnotes omitted]

113    Further their Honours said at [32] in reference to the particular decision under review:

In his reasons for decision, Giudice J proceeded on the basis that the Full Bench could intervene only if there was error on the part of Boulton J. In this his Honour was correct. Giudice J held that there was error on the part of Boulton J. If he was wrong in that view (a matter upon which it is unnecessary to express an opinion), that was an error within jurisdiction not an error as to the nature of the jurisdiction which the Full Bench was required to exercise under s 45 of the Act. Accordingly, it was not an error in respect of which relief could be granted by way of prohibition or mandamus under s 75(v) of the Constitution.

114    In effect, although the claims made by the applicants in this application have been so framed as being errors going beyond jurisdiction, if any errors were committed by the Full Bench, they were in reality properly characterised as errors within jurisdiction. The Full Court in Bat Advocacy NSW Inc at [44] succinctly stated the duty of the Full Bench as follows:

The obligation of a decision-maker to consider mandatory relevant matters requires a decision-maker to engage in an active intellectual process, in which each relevant matter receives his or her genuine consideration (see Tickner v Chapman (1995) 57 FCR 451 at 462 and Minister for Immigration and Multicultural Affairs v Jia (2001) 205 CLR 507 at [105]). However, in the absence of any statutory or contextual indication of the weight to be given to factors to which a decision-maker must have regard, it is generally for the decision maker to determine the appropriate weight to be given to them. The failure to give any weight to a factor to which a decision-maker is bound to have regard, in circumstances where that factor is of great importance in the particular case, may support an inference that the decision-maker did not have regard to that factor at all. Similarly, if a decision-maker simply dismisses, as irrelevant, a consideration that must be taken into account, that is not to take the matter into account. On the other hand, it does not follow that a decision-maker who genuinely considers a factor but then dismisses it as having no application or significance in the circumstances of the particular case, will have committed an error. The Court should not necessarily infer from the failure of a decision-maker to refer expressly to such a matter, in the reasons for decision, that the matter has been overlooked. But if it is apparent that the particular matter has been given cursory consideration only so that it may simply be cast aside, despite its apparent relevance, then it may be inferred that the matter has not in fact been taken into account in arriving at the relevant decision. Whether that inference should be drawn will depend on the circumstances of the particular case (see Minister for Immigration and Citizenship v Khadgi [2010] FCAFC 145; (2010) 274 ALR 438 at [58]–[59]).

115    Accordingly the Court rejects the applicants’ final ground of appeal.

CONCLUSION

116    A claim for prerogative relief is dependant upon there being a failure to exercise jurisdiction, or exceeding the jurisdiction. The Court has found that no errors by the Full Bench in the exercise of its jurisdiction have been established. The factual consideration to be given to the factors contained in Item 4(5) of Sch 6 are matters for the Full Bench alone to determine, and the Court will not grant prerogative relief unless jurisdictional error exists: see Fox v Australian Industrial Relations Commission and Another (2007) 161 FCR 263 at [36]; Craig v The State of South Australia (1995) 184 CLR 163 at 179.

117    For the above reasons, the Court dismisses the applications.

Associate:

Dated:    18 November 2011