FEDERAL COURT OF AUSTRALIA

Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union (No 2) [2015] FCA 136

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

The issues

1    These proceedings raise for consideration two questions concerning the interaction between the Fair Work Act 2009 (Cth) (“the FW Act”) and an enterprise agreement made under the Act.

2    Sections 55(1) and 56 of the FW Act provide:

55    Interaction between the National Employment Standards and a modern award or enterprise agreement

National Employment Standards must not be excluded

(1)    A modern award or enterprise agreement must not exclude the National Employment Standards or any provision of the National Employment Standards.

56    Terms of a modern award or enterprise agreement contravening section 55 have no effect

A term of a modern award or enterprise agreement has no effect to the extent that it contravenes section 55.

3    The Centennial Northern Mining Services Enterprise Agreement 2011 (‘the Agreement”) provides, by cl 19.5:

19.    ANNUAL LEAVE

…

19.5    On termination of employment an employee is paid for accrued but untaken annual leave at their hourly rate of pay applicable to their ordinary weekly rate of pay as prescribed in Clause 13.1 plus average bonus.

4    Section 90 of the FW Act states a National Employment Standard in the following terms:

90    Payment for annual leave

(1)    If, in accordance with this Division, an employee takes a period of paid annual leave, the employer must pay the employee at the employee’s base rate of pay for the employee’s ordinary hours of work in the period.

(2)    If, when the employment of an employee ends, the employee has a period of untaken paid annual leave, the employer must pay the employee the amount that would have been payable to the employee had the employee taken that period of leave.

5    Does cl 19.5 of the Agreement contravene s 55 of the FW Act? The applicant seeks a declaration that it does not. It argues that the obligation in s 90(2) refers back to the standard established by s 90(1), so there is no conflict with cl 19.5 of the Agreement.

6    Clause 30 of the Agreement deals with “Workforce Reductions” and provides for “severance pay” (of one week for each completed year of service – cl 30.5) where termination of employment occurs due to redundancy. In addition, where redundancies occur due to technological change, market forces or diminution of reserves “retrenchment pay” (of two weeks for each completed year of service with a minimum payment of two weeks – cl 30.6) is payable. However, cl 30.8 provides:

30.    WORKFORCE REDUCTIONS

…

30.8    The amount of retrenchment payment due to an employee is not to be more than the employee would have received had the employee remained in employment with the Company until the age of sixty (60) years.

7    Section 194 of the FW Act provides (relevantly here):

194    Meaning of unlawful term

A term of an enterprise agreement is an unlawful term if it is:

(a)    a discriminatory term; …

(Emphasis in original.)

8    Section 195 of the FW Act provides:

195    Meaning of discriminatory term

Discriminatory term

(1)    A term of an enterprise agreement is a discriminatory term to the extent that it discriminates against an employee covered by the agreement because of, or for reasons including, the employee’s race, colour, sex, sexual orientation, age, physical or mental disability, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin.

Certain terms are not discriminatory terms

(2)    A term of an enterprise agreement does not discriminate against an employee:

(a)    if the reason for the discrimination is the inherent requirements of the particular position concerned; or

(b)    merely because it discriminates, in relation to employment of the employee as a member of the staff of an institution that is conducted in accordance with the doctrines, tenets, beliefs or teachings of a particular religion or creed:

(i)    in good faith; and

(ii)    to avoid injury to the religious susceptibilities of adherents of that religion or creed.

(3)    A term of an enterprise agreement does not discriminate against an employee merely because it provides for wages for:

(a)    all junior employees, or a class of junior employees; or

(b)    all employees with a disability, or a class of employees with a disability; or

(c)    all employees to whom training arrangements apply, or a class of employees to whom training arrangements apply.

(Emphasis in original.)

9    The applicant seeks a declaration that cl 30.8 is not an unlawful term within the meaning of s 194 of the FW Act.

10    As an alternative, if cl 30.8 is unlawful the applicant seeks a declaration that cll 30.6 (retrenchment pay), 30.7 (no liability to make a retrenchment payment in identified circumstances, such as redeployment) and 30.8 fall within the operation of s 253 of the FW Act and are of no effect. Section 253 of the Act provides:

253    Terms of an enterprise agreement that are of no effect

(1)    A term of an enterprise agreement has no effect to the extent that:

(a)    it is not a term about a permitted matter; or

(b)    it is an unlawful term; or

(c)    it is a designated outworker term.

Note 1:    A term of an enterprise agreement has no effect to the extent that it contravenes section 55 (see section 56).

Note 2:    A term of an enterprise agreement permitting or requiring deductions or payments to be made has no effect if it benefits the employer and is unreasonable in the circumstances (see section 326).

(2)    However, if an enterprise agreement includes a term that has no effect because of subsection (1), or section 56 or 326, the inclusion of the term does not prevent the agreement from being an enterprise agreement.

11    It may be noted that s 253(1)(b) operates “to the extent that” a term is an unlawful term. One matter which requires attention, therefore, is whether cll 30.6 and 30.7 of the Agreement fall within the operation of s 253 if cl 30.8 is an unlawful term.

12    The applicant also sought an order prohibiting the Fair Work Commission (“the FWC”) from proceeding further in a particular matter before it where some of those issues arise for consideration. No further attention need be given to this issue as, according to the applicant, the FWC has stayed those proceedings pending hearing and determination of the present application. The order for prohibition was not pressed.

The parties

13    The applicant operates an underground coal mine (the Newstan Colliery) in New South Wales. It employs members of the first respondent, which is an association of employees registered under the Fair Work (Registered Organisations) Act 2009 (Cth). The second respondent is the FWC which was joined as a necessary party to the application that it be restrained. It will be convenient to refer hereafter to the first respondent as “the respondent”. The applicant and respondent are the parties to the Agreement.

14    On 22 December 2014 the Australian Chamber of Commerce and Industry (“ACCI”) applied for leave to intervene in the proceedings. ACCI is an association representing eight State and Territory chambers of commerce and 29 industry associations and thereby, it claims, more than 300,000 businesses.

15    The application for leave to intervene was made not knowing what arguments would be made by the parties but upon the basis that ACCI was currently engaged in proceedings before the FWC, opposed to the Australian Council of Trade Unions (“the ACTU”) concerning the operation and proper construction of s 90(2) of the FW Act.

16    ACCI identified an issue in its contest with the ACTU before the FWC (proceedings which concern applications by the ACTU to vary 118 modern awards) as being whether s 90(2) should be read with s 90(1) of the FW Act, or “in isolation” from s 90(1). The FWC has given some indication that it may wish, in its own deliberations, to take into account what the Court might say in the present proceedings. The ACTU has not applied to intervene in the present proceedings.

17    The parties to the present proceedings are each represented by senior and junior counsel. The respondent opposed the proposed intervention of ACCI. The applicant did not oppose the proposed intervention but made no further submissions about it. I dealt with the application for leave to intervene on 6 February 2015 and rejected it (Centennial Northern Mining Services Pty Ltd v Construction, Forestry, Mining and Energy Union [2015] FCA 59). I did so because I was not satisfied that ACCI’s contribution on the questions of construction would be sufficiently different from the applicant to merit separate or independent consideration and I was not satisfied that ACCI’s involvement in the award variation proceedings in the FWC, or its general representative role, gave it a sufficiently direct interest to be separately heard in its own right.

The agreed facts

18    The parties subscribed to a statement of agreed facts for the purposes of the proceedings (Evidence Act 1995 (Cth), s 191). That statement of agreed facts set out some basic procedural history.

Other evidence

19    Further affidavit evidence was filed by each of the parties. I shall rely on it hereunder to the extent necessary but the issues which require attention are primarily ones which arise from the interaction between the terms of the Agreement and the provisions of the FW Act to which I have already referred.

Annual leave

20    The central practical issue between the parties is whether payment for the periods of annual leave on termination of employment must include payment of “annual leave loading” or, alternatively, rostered overtime, shift and weekend penalty payments as it does when payment is made with respect to periods of annual leave actually taken during employment.

21    The difference is reflected in the terms of the Agreement in the following provisions (cl 19.5 is included again for convenience):

19.    ANNUAL LEAVE

…

19.5    On termination of employment an employee is paid for accrued but untaken annual leave at their hourly rate of pay applicable to their ordinary weekly rate of pay as prescribed in Clause 13.1 plus average bonus.

Payment for Annual Leave

19.6    An employee taking annual leave must be paid the greater of:-

(a)    the employee’s ordinary weekly rate of pay plus a loading of 20% of that rate; or

(b)    the employee’s ordinary weekly rate of pay plus rostered overtime, shift allowance, weekend penalty rates and bonus.

22    It may be seen that terminating employees receive only payment for average bonus (in addition to their ordinary weekly rate of pay) and not any component for rostered overtime, shift allowance or weekend penalty rates or a guaranteed 20% loading. The payment to be made is not a payment for a period of leave actually taken between periods of ordinary work but, rather, a single payment to acquit an accrued obligation which is not, in fact, being taken (i.e. as leave).

23    The applicant’s argument about the operation of s 90(2) of the FW Act is that the entitlement which it guarantees is referrable to the obligation arising under s 90(1) – i.e. base rate of pay for ordinary hours which would have been worked during the period of annual leave. The respondent argues that s 90(2) requires payment of the whole amount which would actually have been payable during a period of annual leave – i.e. as calculated under cl 19.6 of the Agreement.

24    One apparent intent of s 90 is to provide a coherent regime of minimum obligations concerned with payment for periods of annual leave taken during employment or paid out when the employment ends. The phrase in s 90(2) “the amount that would have been payable”, therefore, might simply mean the amount which would have been payable consistently with s 90(1), as the applicant argued.

25    The respondent contended for a different meaning, namely that s 90(2) required payment of whatever amount was payable (i.e. legally payable) if the annual leave had been taken. For present purposes, the respondent argued that this test was satisfactorily applied by asking what would have been paid (i.e. in accordance with the applicant’s legal obligations).

26    The applicant accepted that s 90(2) was ambiguous and that the task of construction involved acting on a preference for one of the two competing meanings.

27    Before I deal with the competing constructions, I should mention that they do not raise the same question as the question raised by the application itself – i.e. whether cl 19.5 of the Agreement contravenes s 55 of the FW Act. That is a question to which I shall return.

28    There was no dispute about the principles of statutory construction to be applied – e.g. Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 at [69]-[71]. There was no dispute that s 90(2) is unclear and ambiguous.

29    Section 90 appears in Part 2-2 of Chapter 2 of the FW Act, which sets out the National Employment Standards. Section 61(1) provides:

61    The National Employment Standards are minimum standards applying to employment of employees

(1)    This Part sets minimum standards that apply to the employment of employees which cannot be displaced, even if an enterprise agreement includes terms of the kind referred to in subsection 55(5).

Note:    Subsection 55(5) allows enterprise agreements to include terms that have the same (or substantially the same) effect as provisions of the National Employment Standards.

30    Section 90 appears in Division 6 of Part 2-2, which states the National Employment Standards relating to annual leave. Section 87 states the general entitlement to annual leave for employees other than casual employees (see s 86). Apart from s 90, ss 93 and 94 also make provision for payment of annual leave which is accrued, but not taken. They each permit paid annual leave to be “cashed out” but not so as to reduce the entitlement to paid annual leave to be less than four weeks. Whether “cashing out” is permitted by the terms of a modern award or enterprise agreement (s 93) or by agreement (s 94) an employee must be paid:

at least the full amount that would have been payable to the employee had the employee taken the leave that the employee has forgone.

(Emphasis added.)

31    Owing to the context (award or enterprise agreement or private agreement ) and the statutory language (“at least the full amount”) it does not appear that s 93 or s 94 refer back to any minimum entitlement stated by s 90(1). What then of s 90(2), where the phrase at issue is:

the amount that would have been payable to the employee had the employee taken that period of leave.

32    A construction to the effect that s 90(2) protects the whole entitlement to annual leave certainly cannot be excluded. This appears to me to be a case where reference to extraneous material would assist.

33    The Explanatory Memorandum to the Fair Work Bill 2008 stated:

Clause 90 – Payment for annual leave

370.    Subclause 90(1) entitles an employee to be paid at their base rate of pay (as defined in clause 16) for the employee’s ordinary hours of work for the period of their absence on leave.

(The meaning of ordinary hours of work and base rate of pay are outlined at the beginning of this Part.)

371.    This is a minimum entitlement and would not prevent an employer and employee from agreeing to, or an award or enterprise agreement providing for, more generous payment terms.

372.    Subclause 90(2) provides that, on termination of employment, an employee is entitled to receive a payment in respect of any untaken paid annual leave. The payment will be equivalent to the amount that the employee would have been paid if the employee had taken the annual leave.

(Emphasis and italics added.)

34    In my view, this lends support to the argument that s 90(2) (unlike s 90(1)) is not confined to a statement of a minimum obligation, but is a statement to the effect that an employee should not suffer a reduction in the value of unpaid annual leave if employment comes to an end while paid annual leave remains untaken.

35    I therefore reject the construction argued by the applicant. I am not prepared, in effect, to read down s 90(2) in the face of the expectation stated in the Explanatory Memorandum when that construction is plainly open on the terms of s 90(2) itself.

36    That does not mean necessarily that this aspect of the application should be dismissed, although that may be the result.

37    Section 55(1) prohibits an enterprise agreement from excluding any provision of the National Employment Standards. Section 55(2) allows an enterprise agreement to include some expressly permitted terms. Clause 19.5 is not such a term. Section 55(4), (5) and (6) permit ancillary and supplementary terms and terms which have the same effect as provisions of the National Employment Standards. Terms which give the same entitlement operate in parallel with the National Employment Standards, which operate as minimum standards (s 55(6)).

38    The provisions of cl 19.5 purport to state an entitlement which is less than the entitlement I have determined is granted by s 90(2), when read with cl 19.6. In my view, although there may be some argument to the contrary (i.e. that there is no necessary inconsistency), cl 19.5 does operate on its face (“an employee is paid”) in a way which excludes the operation of s 90(2). Clause 19.5, therefore, has no effect (s 56).

39    The application for a declaration in the terms of Order 2 of the application should, therefore, be dismissed.

Retrenchment pay

40    Until 30 June 2006 coal mine workers in New South Wales were obliged to retire from coal mining at the age of 60 years. Section 5(1) of the Coal and Oil Shale Mine Workers (Superannuation) Act 1941 (NSW) prohibited the employment of mine workers of or above the age of 60 years. The prohibition was removed by the Coal and Oil Shale Mine Workers (Superannuation) Amendment Act 2006 (NSW) (s 3, Sch 1 cl [4]).

41    For so long as a coal mine worker could not work beyond the age of 60 years it was at least arguable that no discrimination would have been involved in a provision such as cl 30.8 of the Agreement. I do not need to consider further how any such argument might have been resolved.

42    However, it is unarguable that cl 30.8 will have a dramatically different effect upon a long-serving employee retrenched at age 60 or over (for example) than one retrenched at less than that age. Leaving aside any debate at the margins about a progressive reduction in entitlement as age 60 is approached, the effect of cl 30.8 is stark from age 60 on: no retrenchment payment is available no matter what the length of service.

43    The reason for that difference in outcome is the employee’s age. In my view, the conclusion is inescapable that the term of the Agreement having that effect (cl 30.8) is a discriminatory term (s 195 of the FW Act) and therefore an unlawful term (s 194(a) of the FW Act).

44    In deference to the applicant’s argument I shall explore the issue in a little more detail but, in reality, the position is (as the respondent argued) as straightforward as that.

45    First, I see no real assistance in the authorities which have considered the operation of s 346 of the FW Act which involves consideration of the reverse onus in s 361 (e.g. Board of Bendigo Regional Institute of Technical and Further Education v Barclay (2012) 248 CLR 500; Construction, Forestry, Mining and Energy Union v BHP Coal Pty Ltd (2014) 314 ALR 1). Those cases dealt with the assessment of evidence about the reasons of a decision-maker for taking action against employees who are also union members or officers. The present case concerns the proper meaning and effect of a term of an enterprise agreement. That meaning and effect is to be discerned primarily from the text of the provision, not neglecting the illumination available from context and history.

46    Next, the origins of the provision in question give no support to the applicant’s argument. Clause 30.8 was most recently adopted from the Black Coal Mining Industry Award 2010 (Cth) (first made on 19 December 2008 [PR985111]), but a clause to similar effect has been included in awards in the black coal mining industry in New South Wales since 28 January 1983 by reason of the insertion of a new cl 26 – Severance and Retrenchment Pay – in the Coal Mining Industry (Miners) Award 1982 (NSW) (CR print No 3129) by the Coal Industry Tribunal.

47    At about this time, the Conciliation and Arbitration Commission adopted a new standard for severance and retrenchment pay in federal awards. The new provisions were said to be:

… justifiable as compensation for non-transferable credits and the inconvenience and hardship imposed on employees

arising in the case of retrenchment on account of redundancy (Termination, Change & Redundancy Case (1984) 8 IR 34 (“TCR Case”) at 73).

48    An important limitation was to be:

… where termination is within the context of an employee’s retirement, an employee should not be entitled to more than he/she would have earned if he/she had proceeded to normal retirement.

(TCR Case at 75).

49    In 2002, the Australian Industrial Relations Commission (“the AIRC”) was asked to make changes to the standard clause (Redundancy Case (2004) 129 IR 155). One change sought was to amend the stated limitation referable to retirement age. The AIRC recorded:

Retirement Date Limitation

159    The ACTU application seeks to remove the provision in the TCR standard clause which limits severance payments to the maximum amount a retrenched employee would have earned had their employment proceeded to their retirement date. The provision reads:

Provided that the severance payments shall not exceed the amount which the employee would have earned if employment with the employer had proceeded to the employee’s normal retirement date.

160    The ACTU contended that this provision is no longer needed because the concept of a “normal retirement date” is ceasing to have relevance “because of an ageing workforce and the passage of age discrimination legislation”.

(Citation omitted.)

50    The claim was rejected, as was a competing claim by the Australian Industry Group (“AiG”). The AIRC said:

163        We have decided to reject the ACTU’s claim to delete the retirement date limitation. In our view the current provision should be retained. The original purpose of the provision — to ensure that employees who are retrenched in reasonable proximity to their projected retirement date should not receive more than they would have earned had they remained employed until retirement — is still apposite. The principle underpinning the existing provision is sound. The amount of money paid to a retrenched employee by way of severance pay should not cause that individual to be better off than if they had never been retrenched.

164        The ACTU did not seek to challenge the original rationale for including this restriction in the TCR standard clause. Rather, as we have noted, it argued that the provision ought to be removed because the concept of a normal retirement date will cease to have relevance. We do not find these arguments persuasive. It seems to us that despite the passage of age discrimination legislation, the concept of a normal retirement date will continue to be relevant where a particular occupation or industry continues to have a fixed retirement date.

165        Where employees and employers agree in advance to a retirement date the principle underlying the current provision will also continue to be relevant. It is not uncommon for employees and employers to discuss and plan retirement dates in advance. Where they do so, the principle underlying the existing retirement age provision remains relevant — if the employee is retrenched before the agreed retirement date, severance pay should be capped so that the employee does not receive more than if the employee had worked through to the retirement date.

166        Nor are we persuaded to amend the current retirement date limitation in the manner proposed by AiG. While the proposal has the virtue of clarity it seems to us that it erroneously assumes that 65 years of age is the common retirement age across federal awards. Further the proposed amendment does not seem to take into account the prospect that an employer and employee may agree on an earlier retirement date.

(Emphasis added.)

51    Those passages make it clear that, as a matter of industrial standard at least, references in federal awards limiting redundancy (or similar payments) to normal retiring age were intended to operate as a way of avoiding windfall gains by employees who would not have stayed in employment, but would have retired, even if not retrenched. However, the limitation was one intended to operate satisfactorily by reference to individual circumstances – e.g. a fixed retiring age or a known retirement date for a particular employee. There has never been a generally accepted industrial principle that employees approaching or passing some “average” general age of retirement thereby became disentitled to payment for the generally accepted hardship of compulsory retrenchment.

52    So far as employees of the applicant are concerned, from the time they were permitted to continue working after 60 years of age a provision which subjected them to disadvantage by reference to attaining that age was directly discriminatory against them on the ground of their age within the meaning of s 195 of the FW Act.

53    I reject the application for a declaration in the terms of Order 3 of the application.

The alternative claim

54    On the other hand, I can see no reason why cll 30.6 or 30.7 are thereby affected. I do not accept the applicant’s submissions that:

68.    … clause 30.8 cannot be read in isolation from cll.30.6 and 30.7. These three clauses read together give rise to the single entitlement to “retrenchment pay” …

55    The effect of accepting the applicant’s submissions would be to strip all other employees (in addition to those at present disadvantaged) of any entitlement to retrenchment pay in any circumstances. The appropriate course to take is to remove the unlawful discriminatory term, not take the axe to an entitlement which should not have been subject to a discriminatory limitation in the first place.

56    I will not make the declaration sought by the applicant as Order 4. It would not be in conformity, in my view, with s 253 of the FW Act; it would be contrary to it.

Conclusion

57    As Order 1 is not pressed, and as Orders 2 to 4 have been rejected, the application will be dismissed.

58    It is accepted that no order should be made as to costs.

Associate:

Dated:    27 February 2015