Federal Court of Australia

Australian Rail, Tram and Bus Industry Union v Transit Systems West Services Pty Ltd [2021] FCA 1436

ORDERS

THE COURT DIRECTS THAT:

1.    The parties bring in draft orders by 4:00pm on 26 November 2021 to give effect to the reasons for judgment delivered today.

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

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

RARES J:

1    In about April 2018, Transit Systems West Pty Ltd, a member of the same corporate group as the respondent, Transit Systems West Services Pty Limited, as successful tenderer, acquired from the New South Wales State Government the right to operate bus region 6 that principally covered inner west and the southern suburbs of Sydney formerly operated by the State Transit Authority. Part 6-3A of the Fair Work Act 2009 (Cth) deals with situations such as the present where there is a transfer of a business by a State public sector employer to a private employer in circumstances to which the Act applies.

2    The Authority transferred its business for bus region 6 to the Transit Systems group with effect from 1 July 2018, within the meaning of s 768AD(1). The arrangements for the transfer of business included Transit Systems re-employing about 1100 of the Authority’s staff who were transferring employees within the meaning of s 768AE(1), being staff who worked in bus region 6 and were covered by the State Transit Authority Bus Operations Enterprise (State) Award 2018 made by the Industrial Relations Commission of New South Wales (the State Commission). Transit Systems still employs about 600 of the transferring employees. The applicant, Australian Rail Tram and Bus Industry Union was a party, and is covered in relation to the transferring employees by, the Award within the meaning of s 768AN(2).

3    In essence, when a State Governmental body transfers a business to a private company, the scheme of Pt 6-3A is to preserve any existing State industrial relations award or other employment instrument for its unexpired terms or relevantly, in the case of a State award, a maximum of five years, whichever is the shorter, until the new employer, its then-employees and relevant employee organisations negotiate an enterprise agreement or become covered by a modern award under the Act.

4    However, as may be expected, Pt 6-3A and the Fair Work (Transitional Provisions and Consequential Amendments) Act 2009 (Cth) (the Transitional Act) make certain provisions to ensure that, first, the Fair Work Act governs the basis on which the former State award or instrument will regulate the relationship between the transferring employees and any employer and, secondly, certain fundamental safeguards and mechanisms in the Fair Work Act will apply to that relationship until the Fair Work Commission makes a modern award or approves an enterprise agreement in respect of that relationship in the exercise of its powers under the Fair Work Act.

The dispute

5    The Union and Transit Systems are in dispute as to the effect of how the Commission’s annual wage review determinations in each of 2018, 2019, 2020 and 2021 operated, if at all, principally in light of cl 15.1-15.2 in the Award. The Award provided in cl 15 for wage increases for the Authority’s employees whom it covered, relevantly as follows:

15.1 Subject to this clause, wage rates at Part B – Table 1 Weekly Wage Rates (Table 1) – for classifications listed in Table 1, incorporate the following wage increases:

(i) 2.5% from the first full pay period commencing on or after 1 January 2018;

(ii) 2.5% from the first full pay period commencing on or after 1 January 2019; and

(iii) 2.5% from the first full pay period commencing on or after 1 January 2020.

15.2 The wage increases contained in this Award are in substitution of any State Wages decisions. Any arbitrated safety net adjustments may be offset against any equivalent amount in the rates of pay received by employees covered under this Award.

(emphasis added)

6    The Union contended that Transit Systems was bound by each of the Commission’s four determinations to pass on the increase in minimum wage rates to the employees covered by the Award, despite the wording of cl 15.2. On the flip side, Transit Systems argued that cl 15.2 operated to exclude any wage increases beyond those in cl 15. The Union also seeks penalties pursuant to s 768AG of the Fair Work Act for any contraventions of the terms of the Award as varied by an annual wage review determination if its argument is correct as to Transit Systems’ obligations to pass on the increases in the Commission’s determinations.

The statutory context

7    As with much Commonwealth legislation, the Fair Work and Transitional Acts descend into considerable complexity. Relevantly, Pt 6-3A, seeks to bring within the federal system, State awards and instruments when a transfer of business occurs. Thus, s 768AD(1) defines when a transfer of business occurs. Importantly, s 768AG provides:

768AG     Contravening a copied State instrument

A person must not contravene a term of a copied State instrument for a transferring employee that applies to the person.

Note 1: This section is a civil remedy provision (see Part 4-1).

Note 2: For when a copied State instrument for a transferring employee applies to a person, see section 768AM.

8    Part 6-3A deals with copied State instruments being defined in s 768AH as:

768AH         What is a copied State instrument?

A copied State instrument for a transferring employee is the following:

(a)      a copied State award for the employee;

(b)      a copied State employment agreement for the employee.

9    Relevantly, s 768AI defines a copied State award as one that was in operation under an industrial law of the State immediately before the time at which a terminated employee in the State system becomes employed by the new employer, and the State award covered, in whatever way the State legislation provided, the transferring employee and the old State employer (the transferring employer), whether or not it also covered other persons. In such a situation, a copied State award for a transferring employee is taken to come into operation immediately after the termination time, being defined in s 768AE(2) as the start of the day of the employment of the employee is terminated by the old State employer.

10    A State award is defined in s 768AJ as an instrument that regulates the terms and conditions of employment made under a State industrial law by a State industrial body and is referred to in that law as an “award”. Similar definitions apply to a copied State agreement and a State employment agreement. Under ss 768AM and 768AN, subject to limited exceptions, a copied State instrument applies to a transferring employee, and in relation to that employee, to an employer and an employee organisation, if, immediately before the termination time, the State instrument covered the State employer, the transferring employee and, if relevant, the employee organisation, and any of them could enforce it.

11    Pursuant to s 768AO, a copied State instrument for a transferring employee comes into operation immediately after the employee’s termination time. In other words, once the employee is terminated by the State employer (the old employer) and transfers to the new employer, the copied State instrument immediately applies to cover the employee, the new employer and any employee organisation for their future relationship in the performance of the transferring employee’s continued work in the same occupation or effective job within the new employer’s business. The copied State instrument will operate in the same way (under the Fair Work Act), with any variations prescribed in the Fair Work and Transitional Acts, as it had done under the State law pursuant to which the copied State instrument originally came into force.

12    Importantly, s 768AS(1) provides that if a copied State award, that is operational, covers a transferring employee or an employer, (whether the new employer or another national system employer) or another person in relation to the employee, a modern award under the Fair Work Act will not cover any of them in relation to the transferring employee.

13    Division 5 of Pt 6-3A is headed “Variations and termination of copied State instruments”. Relevantly, Subdiv B of Div 5 provides in s 768AW:

768AW     Variation in limited circumstances

A copied State instrument for a transferring employee cannot be varied except under:

    (a)    section 768AX; or

(b)     item 20 of Schedule 3A to the Transitional Act (which deals with variation of discriminatory instruments) as that item has effect because of section 768BY; or

(c)     item 20 of Schedule 9 to the Transitional Act (which deals with variation of instruments in annual wage reviews) as that item has effect because of section 768BY; or

(d)     Division 4 of Part 3 of Schedule 11 to the Transitional Act (which deals with transfer of business) as that Division has effect because of section 768BY.

(emphasis added)

14    The Fair Work Commission has power under s 768AX, where there is, or is likely to be, a transfer of a business under Pt 6-3A, to vary a copied State instrument for a transferring employee in certain circumstances on its own initiative, or on an application by a person who is, or is likely to be, covered by the copied State instrument or by an employee organisation that is entitled to represent the transferring employee’s industrial interests. Relevantly, s 768AX(1) empowers the Commission to vary a copied State instrument for a transferring employee:

(a)     to remove terms that the FWC is satisfied are not, or will not be, capable of meaningful operation or to vary those terms so that they are capable of meaningful operation; or

  (b)     to remove an ambiguity or uncertainty in the instrument;

15    In deciding whether to make any such variation, the Commission must take into account, among other factors, the views of the employees who would be affected by any variation and of the new employer, as well as whether one or other side is advantaged or disadvantaged (s 768AX(3)).

16    Division 8 of Pt 6-3A provides in s 768BY for modifications to the Transitional Act for copied State instruments. Relevantly, the Transitional Act includes a copied State instrument within a “Division 2B State award”. The table in s 768BY(2) modifies Pt 5 Sch 9 in the Transitional Act, relevantly, in item 14 in respect of base rates of pay for a transferring employee from the time of his or her re-employment and item 20 in Div 2 of Pt 5 of Sch 9 of the Transitional Act provides:

20    Variation of Division 2B State awards in annual wage reviews under the FW Act

(1)     In an annual wage review, the FWC may make a determination varying terms of a Division 2B State award relating to wages.

(2)     For that purpose, Division 3 of Part 2-6 of the FW Act (other than section 292) applies to terms of a Division 2B State award relating to wages in the same way as it applies to a modern award.

17    That takes one back to the function of the Commission in determining annual wage reviews under Div 3 of Pt 2-6 of the Fair Work Act. The minimum wage objective set out in s 284(1) of the Fair Work Act requires the Commission to establish and maintain a safety net of fair minimum wages, taking numerous criteria into account. Under s 284(3), modern award minimum wages are defined as the rates of minimum wages in modern awards. Relevantly, ss 285 and 286(1) provide:

285     Annual wage reviews to be conducted

(1)     The FWC must conduct and complete an annual wage review in each financial year.

Note 1: The FWC must be constituted by an Expert Panel to conduct annual wage reviews, and to make determinations and orders in those reviews (see section 617).

Note 2:    The President may give directions about the conduct of annual wage reviews (see section 582).

 (2)     In an annual wage review, the FWC:

(a)    must review:

(i)     modern award minimum wages; and

(ii)     the national minimum wage order; and

(b)     may make one or more determinations varying modern awards to set, vary or revoke modern award minimum wages; and

(c) must make a national minimum wage order.

Note: For provisions about national minimum wage orders, see Division 4.

(3)     In exercising its power in an annual wage review to make determinations referred to in paragraph (2)(b), the FWC must take into account the rate of the national minimum wage that it proposes to set in the review.

286     When annual wage review determinations varying modern awards come into operation

Determinations generally come into operation on 1 July

(1)     A determination (a variation determination) varying one or more modern awards to set, vary or revoke modern award minimum wages that is made in an annual wage review comes into operation on 1 July in the next financial year.

18    In relation to each annual wage review, the Commission must ensure that all persons and bodies have a reasonable opportunity to make written submissions to it for consideration in the review (s 289). When it has made its determination, s 292 provides:

292     Varied wage rates must be published

(1)     If the FWC makes one or more determinations varying modern award minimum wages in an annual wage review, the FWC must publish the rates of those wages as so varied:

(a)     for wages in a modern award (other than a modern enterprise award or a State reference public sector modern award)—before 1 July in the next financial year; and

(b)     for wages in a modern enterprise award or a State reference public sector modern award—as soon as practicable.

Note: The FWC must also publish the modern award as varied (see section 168).

(2)     The publication may be on the FWC’s website or by any other means that the FWC considers appropriate.

    (emphasis added)

19    However, unlike its obligation to publish a determination that it makes to vary any modern award, item 20 in Pt 5 of Sch 9 of the Transitional Act excepts the Commission from the requirement in s 292(1) to publish any determination that varies a copied State instrument.

20    It is also necessary to refer here to ss 48-52 of the Industrial Relations Act 1996 (NSW). The State Commission made the Award by consent under that Act. Relevantly, ss 48-52 deal with how the Award could be varied by the State Commission in response to an annual wage review decision by the Commission, which s 48 defines as a “National decision”. A “State decision” is defined in s 49 as a decision of the Full Bench of the State Commission that generally affects, or is likely to affect, the conditions of employment of employees in New South Wales who are subject to its jurisdiction. The State Commission must give consideration to the annual wage review decisions and, by force of s 50(1), it must adopt the provisions of the National decision, unless there are good reasons not to do so. Next, ss 51 and 52 provide:

51     Making of State decisions

(1)      A Full Bench of the Commission may, if satisfied that it is consistent with the objects of this Act and that there are good reasons for doing so, make a State decision setting principles or provisions for the purposes of awards and other matters under this Act.

(2)      A Full Bench of the Commission may make a State decision only on the application of a State peak council or on its own initiative.

(3)      A State decision may apply generally to all awards or other matters under this Act or only to particular awards or other matters under this Act.

(4)      The principles or provisions of a State decision may be varied by a Full Bench of the Commission.

52     Variation of awards and other orders on adoption of National decisions or making of State decisions

(1)     A Full Bench of the Commission may, when adopting the principles or provisions of a National decision or making a State decision, make or vary awards, or make other orders, to the extent necessary to give effect to its decision.

…

Note—

The adoption of a National decision or the making of a State decision enables the variation of an award to give effect to the decision without the concurrence of the parties to the award (see section 17).

The Commission’s past annual wage review decisions

21    As s 285 of the Fair Work Act requires, the Commission has made a variation determination decision under s 286(1) either in late May or early June of each financial year. After it makes an annual wage review decision, the Commission subsequently publishes individual decisions that apply its variation in each modern award as required by s 292. An example in evidence is the Commission’s determination made on 20 June 2018 in respect of the Manufacturing and Associated Industries and Occupations Award 2010, which sets out the new minimum wage rates applicable under that Award for the financial year commencing on 1 July 2018.

22    However, as its reasons for its decision on each annual wage review make clear, the Commission does not publish any separate determination in respect of any copied State instruments, pursuant to the discretion it has under item 20 of Pt 5 of Sch 9 of the Transitional Act.

23    The Commission published its Annual Wage Review 2012-13 [2013] FWCFB 4000 on 3 June 2013. At [560], the Commission said:

We have decided that for copied State awards currently in operation, in order to limit the impact of any “double-dipping” as a result of this decision and minimum wage increases previously awarded by state Industrial Relations Commissions, a tiered increase will be applied to these instruments in the following terms:

•    an increase of 2.6 per cent applies to wage rates in copied State awards that were not the subject of a state minimum wage decision that commenced after 1 July 2012 and before 1 July 2013;

•    an increase of 1.3 per cent applies to wage rates in copied State awards that were the subject of a state minimum wage decision that commenced after 1 July 2012 and before 1 January 2013; and

•    no increase applies to wage rates in copied State awards that were the subject of a state minimum wage decision that commenced on or after 1 January 2013 and before 1 July 2013.

24    On 4 January 2018, the Commission published, as a decision, a “correction” to its Annual Wage Review 2016-17 [2018] FWCFB 2 in which it expressed a provisional view that it might adopt a new approach to dealing with copied State instruments.

25    On 1 June 2018, the Commission decided the Annual Wage Review 2017-18 [2018] FWCFB 3500 (the 2018 decision). There, the Commission said in Ch 5 at [443]-[447] and [452]-[453]:

[443] Also within this category of transitional instruments are copied State awards. These apply in relation to employees of non-national system State public sector employers who transfer their employment to a national system employer as part of a transfer of business. The Panel is required to review and, if appropriate, make a determination varying minimum wages in copied State awards.

[444] The method for adjusting wages in copied State awards was the subject of a decision by the Panel issued on 4 January 2018. In that decision, the Panel expressed the following provisional view:

‘It is our provisional view that AWR adjustments should generally apply to copied State awards, subject to a different outcome being determined in respect of particular copied State awards. In other words, rather than seeking to apply a tiered approach as a decision rule to mitigate ‘double dipping’ we propose to address any ‘double dipping’ on a case by case basis. We invite submissions on our provisional view in the context of the 2017–18 Review proceedings.’

[445] Parties were invited to comment on our provisional views in the context of these proceedings.

[446] The ACTU submitted that ‘the Commission’s provisional view is consistent with the function of distinct Reviews in each year and is a more orderly approach, notwithstanding that it does rely on parties to come forward should they contend for a different outcome.’

[447] However, the ACTU also submitted that:

‘The difficulty from our perspective is the lack of certainty regarding how a future Panel might deal with an application that a different increase, or no increase, apply to employees to whom a particular copied state award applies. If the Panel were inclined to confirm its provisional view, it would in our view be usefully supplemented by an expression of support for the merits of the approach adopted in the 2012–13 decision - and re-applied to the 2016–17 decision by the correction order issued this year – when dealing with requests for an exemption.’

    …

[452] We confirm the provisional view expressed in our decision of 4 January 2018. The adjustment to the rates in modern awards that we have determined in this Review will be applied to copied State awards.

[453] There is no requirement to publish the variations.

(footnotes omitted)

26    The Commission noted at [451] that no party had taken a contrary view to the submission of the Australian Council of Trade Unions (ACTU). The Commission set out its conclusions in chapter 6 as to variations of, among others, copied State instruments in [495] as follows:

In relation to transitional instruments, from the first full pay period on or after 1 July 2018, wages in those instruments will be varied by 3.5 per cent per week, with commensurate increases in hourly rates based on a 38-hour week. Copied State awards will be varied on the basis discussed in Chapter 5 of this decision.

(emphasis added)

27    The Commission applied a similar methodology and reasoning in arriving at its decisions in its next three annual wage reviews, namely to vary copied State instruments to increase the minimum wage rates by:

    3% for the 2019-20 financial year (Annual Wage Review 2018-19 [2019] FWCFB 3500 at [460]);

    1.75% for the 2020-21 financial year (Annual Wage Review 2019-20 [2020] FWCFB 3500 at [471]); and

    2.5% for the 2021-22 financial year (Annual Wage Review 2020-21 [2021] FWFCB 3500 at [306]-[308] (2021 decision)).

Background

28    Over the period since 1 July 2018, when Transit Systems became the employer of transferring employees in bus region 6, it paid those transferring employees only on the basis of the provisions of cl 15 of the Award. It did not apply any adjustments to take account of the annual wage review decisions of the Commission. After the Commission’s 2021 decision came into effect on 1 July 2021, for reasons which are not clear, Transit Systems decided not to pay its employees any increase at all. Perhaps it did so because cl 15 of the Award did not refer to an increase for any period after the increase on 1 January 2020. However, Transit Systems now accepts that that approach was in error and has taken steps to pay all employees an increase of 2.5% backdated to 1 July 2021 based on the Commission’s increase in the minimum wage rates for the current financial year.

The issues

29    The three issues that arise for determination at this point are questions of construction of the Fair Work and Transitional Acts and the Award in light of annual wage review determination decisions and the Fair Work Act’s regime for copied State awards, namely:

    whether the 3.5% increase that the Commission determined in its 2018 decision applied to the Award (the 2018 decision issue).

    whether cl 15.2 exempted Transit Systems from paying any wage increases beyond those in cl 15.1 of the Award (the cl 15 issue).

    when the 2.5% increase under cl 15.1 of the Award should begin to be offset against any increase under the annual wage review decision that comes into force in the same calendar year (the timing issue).

The parties’ submissions

30    As to the 2018 decision issue. The Union argued that the 2018 decision applied to the Award as a copied State instrument from the moment it came into operation on 1 July 2018. It contended that, although that instrument did not exist as a construct of the operation of the transfer of business provisions in Pt 6-3A of the Fair Work Act until 30 June 2018, the general expressions in the Commission’s reasons relating to increases in copied State instruments had the consequence that minimum wages would be increased by 3.5% from 1 July 2018 in any such instrument that came into operation at any time during the financial year ending on 30 June 2018.

31    As to the cl 15 issue. Transit Systems argued that cl 15.2 of the Award had to be understood in the context of the industrial landscape within the State system prior to it becoming a copied State award, and, thus a copied State instrument. It contended that cl 15.2 reflected a bargain struck between the Authority (as the old employer) and the Union, under which both parties had agreed that the employees covered, who became the transferring employees, would be paid only an increase of 2.5% on 1 January of each of the three years 2018, 2019 and 2020 in substitution for any increases that might be awarded later in any decision by the State Commission pursuant to ss 48 – 52 of the Industrial Relations Act. The maximum increase in wages that the State Government, as a matter of policy, had allowed its authorities to provide employees for each of these calendar years was 2.5%. Transit Systems submitted that cl 15.1 and 15.2 should be read as a whole, and that their effect was a compromise, as stated in the first sentence of cl 15.2, namely that the parties agreed prospectively to incorporate the wage increases of 2.5% per annum in the Award as a trade-off for not receiving any flow-ons from National decisions.

32    Transit Systems contended that, while a variation under an annual wage review by the Commission could be incorporated into a copied State award or instrument as a general change applicable to all copied State instruments, the first sentence of cl 15.2 should be read as a specific provision that the State Commission had inserted as a justification for not passing on the benefit of National decisions. It submitted that cl 15.1 was intended to be an agreed substitute for the uncertainty as to whether, in the future, the State Commission might decide to pass on any increase granted in a National decision. It argued that this was done so as to give the transferring employees certainty that they would receive the agreed 2.5% in each of the three calendar years, 2018, 2019 and 2020.

33    Transit Systems argued that the expression “any State wages decisions” in cl 15.2 should be read as referring to any annual wage reviews or federal decisions affecting minimum or any other wages, in light of the definition of National decision in s 49 of the Industrial Relations Act and the Award becoming a copied State instrument under the Fair Work Act.

34    On the other hand, the Union argued that the expression “any State wage decisions” in cl 15.2 is incapable of being read intelligibly, and that, had it wished to do so, Transit Systems could have applied to the Commission under s 768AX for a variation of the copied State instrument to make it coherent. It contended that once the Award became a copied State instrument it could not be affected by “and State wages decisions” so that this expression of devoid of meaning.

35    As to the timing issue. Both Transit Systems and the Union accepted that the 2.5% increases that Transit Systems had paid to the transferring employees, in accordance with cl 15.1, should be offset against any liability that Transit Systems may have to pay any sums pursuant to the Commission’s annual wage review variation determinations. However, they are in dispute as to whether the starting time for applying such an offset is, as Transit Systems argued, the January preceding the coming into operation on 1 July of the year of a variation determination, or, as the Union contended, that the offset of 2.5% should be applied from 1 January in the subsequent financial year. That difference will affect the calculation of what might be due.

The 2018 decision issue – consideration

36    When the Commission made its annual wage review determination in the 2018 decision on 1 June 2018, the Award was not a copied State instrument or Division 2B State award under the Fair Work Act. As such, although it was likely to come into existence if and when the transfer of business occurred as anticipated on 30 June 2018, it was not subject to the operation of the Fair Work Act or item 20 at the time that the Commission made the 2018 decision. That raises the question whether the 2018 decision required Transit Systems to pay the transferring employees a 3.5% increase in the financial year commencing on 1 July 2018.

37    The source of the Commission’s power in item 20 to vary a Division 2B State award relating to wages is found in s 768AW(c). The power under s 768AW(c) is limited to what item 20 provides, namely, to vary terms of a Division 2B State award relating to wages. The Commission has a separate power to vary the terms of a State award prospectively, but only in the limited ways that ss 768AW(a) and 768AX allow. That is a specific power to vary an existing or prospective copied State instrument “if there is or is likely to be a transfer of business”. However, ss 768AW(a) and 768AX(1) do not confer any power to vary a Division 2B State award relating to wages as provided in item 20, because such a power is separately conferred by s 768AW(c) of the Fair Work Act.

38    The significance of the separate power to vary minimum wages can also be seen in the fact that s 289 of the Fair Work Act requires the Commission, in relation to each annual wage review, to ensure that all persons and bodies have a reasonable opportunity to make written submissions to it for consideration in the review. A person who was not a party to an existing copied State instrument, even if it was likely that there would be a transfer of business at a future time, could not at that stage have a right to make a submission, although the Commission may entertain it. In addition, it is difficult to know how the Commission could be thought to have power to vary a Division 2B State award relating to wages, as a copied State instrument, where no such copied State instrument existed at the time of its exercise of power under ss 285, 286 and item 20 to make a variation determination.

39    I am of opinion that, in their ordinary and natural meanings ss 285(2)(b) and 286(1) apply to the variation of existing modern awards, whereas item 20 applies to “the terms of a Division 2B State award relating to wages” that exists as a copied State instrument, within the meaning of s 768AH, at the time of the Commission’s exercise of its powers to make a determination to vary minimum wages for the forthcoming financial year.

40    The Fair Work Act does not provide that the Commission can vary a modern award or a copied State instrument not yet in existence when setting, varying or revoking modern award minimum wages in an annual review. The Commission’s specific powers under s 768AX(1) to vary a copied Sate instrument which is likely to come into existence if there is a transfer of business are limited to making adjustments to the wording of the provisions so that if and when it becomes a copied State instrument, it will integrate more harmoniously into the employment environment under the Fair Work Act, in contrast to its role under the State system. Those powers of the Commission, unlike its specific power to vary wages under s 768AW(c) of the Fair Work Act and item 20, are intended to better align a proposed copied State instrument with the rights and obligations provided under the Fair Work Act, while preserving its binding effects that the State system previously conferred.

41    Moreover, parties may negotiate a modern award or enterprise agreement that deals with wages that the Commission makes or approves in a financial year at a time after it has made an annual wage review variation determination for the next financial year. If the Union’s construction of the power in item 20 is correct, the corresponding power in ss 285 and 286 would be equally wide. This would make it difficult to know whether the parties or the Commission intended that the wages fixed in such a modern award or enterprise agreement, made after the annual wage review decision but in the same financial year, would reflect a level of remuneration that would be increased immediately thereafter in the forthcoming new financial year.

42    In my opinion, the Union’s construction is not consonant with the ordinary and natural meaning of the Commission’s powers in ss 285, 286 and item 20 to vary an existing copied State instrument. Accordingly, I reject the Union’s argument that Transit Systems contravened s 768AG. That is because it was not bound to apply the 2018 annual wage review decision to wages payable under the Award.

The cl 15 issue - consideration

43    I reject Transit Systems’ argument that cl 15.2 should be read as in some way affecting the operation of a variation determination made in the exercise of the Commission’s discretionary power under s 768AW(c) and item 20. The power to make such a variation to a copied State instrument is expressly conferred on the Commission by force of s 768AW(c) and item 20. That power exists, and can be exercised, despite the Fair Work Act leaving other aspects of a copied State award intact.

44    In Australian Securities and Investments Commission v DB Management Pty Ltd (2000) 199 CLR 321 at 338 [34], Gleeson CJ, Gaudron, Gummow, Hayne and Callinan JJ held:

In Project Blue Sky Inc v Australian Broadcasting Authority ((1998) 194 CLR 355 at 384, per McHugh, Gummow, Kirby and Hayne JJ), after pointing out that the duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have, the majority said:

“Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning.”

(emphasis added and footnotes omitted)

45    The principles for construing industrial agreements are well settled. In Treasury Wine Estates Vintners Limited v Pearson in (2019) 268 FCR 12 at 29, [73], Rares, Perry and Charlesworth JJ said:

The Employment Court’s construction of the agreement was erroneous. That is because it failed to read the agreement as a whole and construe it in accordance with established principle. In Energy Australia Yallourn Pty Ltd v Automotive, Food, Metal, Engineering, Printing and Kindred Industries Union (2018) 264 FCR 342 at [56]-[58], Rares and Barker JJ said (and see also at [133] per Flick J and Qube Ports Pty Ltd v Maritime Union of Australia [2018] FCAFC 72 at [65] per White J, with whom Mortimer and Bromwich JJ agreed):

It is important to have regard to the industrial purpose of the Yallourn agreement and the commercial and legislative context in which it applies whe construing it, including cl 28 itself as a whole: Amcor Ltd v Construction, Forestry, Mining and Energy Union (2005) 222 CLR 241 at 249 [13] per Gleeson CJ and McHugh J, 270-271 [96] per Kirby J, 282-283 [129]-[131] per Callinan J, and see too at 253 [30] per Gummow, Hayne and Heydon JJ. Both Kirby J and Callinan J expressly approved (at [96], [129]-[130]) and Gleeson CJ and McHugh J applied (at [13]), what Madgwick J had said in Kucks v CSR Ltd (1996) 66 IR 182 at 184, namely:

It is trite that narrow or pedantic approaches to the interpretation of an award are misplaced. The search is for the meaning intended by the framer(s) of the document, bearing in mind that such framer(s) were likely of a practical bent of mind: they may well have been more concerned with expressing an intention in ways likely to have been understood in the context of the relevant industry and industrial relations environment than with legal niceties or jargon. Thus, for example, it is justifiable to read the award to give effect to its evident purposes, having regard to such context, despite mere inconsistencies or infelicities of expression which might tend to some other reading. And meanings which avoid inconvenience or injustice may reasonably be strained for. For reasons such as these, expressions which have been held in the case of other instruments to have been used to mean particular things may sensibly and properly be held to mean something else in the document at hand.

(emphasis added)

Although that decision concerned an award, Madgwick J’s observations have equal application to the construction of enterprise agreements made under the Fair Work Act.

An enterprise agreement must be construed in its industrial and legislative context as an agreement made between parties engaged in an employment relationship in which employee organisations, such as the five unions, can, and often will, have a workplace right under ss 341(1) and or 183(1) of the Fair Work Act to play a part, including as a party to it. Those persons may not have been assisted by lawyers in the precise framing and expression of its terms.

46    In approaching the construction of a copied State instrument for the purposes of the Fair Work Act, the Court obviously will be faced with terminology or concepts that are taken from the State’s system and legislation whence the instrument came. The Fair Work Act requires the instrument to be read in the context of its history and then be construed and adapted to apply to the employment relationship between the transferring employees, the new employer and any employee organisation in the new context of it now being part of the Commonwealth’s legislative scheme governing those relationships. The Parliament intended that a copied State instrument will work, be effective immediately and ordinarily without the need to apply to the Commission under s 768AX to vary its terms so as to ensure that the transferred employment relationships continue to operate harmoniously and in an intelligible way. The duty of the Court is to construe legislation, industrial instruments and contracts in a way that seeks to give effect to, rather than destroy, the intention of the legislature or parties. Thus, in Residual Assco Group Limited v Spalvins (2000) 202 CLR 629 at 644 [28], Gleeson CJ, Gaudron, McHugh, Gummow, Hayne and Callinan JJ said:

… legislation ''must not be read in a spirit of mutilating narrowness" (United States v Hutcheson (1941) 312 US 219 at 235, per Frankfurter J). If the choice is between reading a statutory provision in a way that will invalidate it and reading it in a way that will not, a court must always choose the latter course when it is reasonably open. Courts in a federation should approach issues of statutory construction on the basis that it is a fundamental rule of construction that the legislatures of the federation intend to enact legislation that is valid and not legislation that is invalid (Davies and Jones v Western Australia (1904) 2 CLR 29 at 43; Federal Commissioner of' Taxation v Munro; British Imperial Oil Co Ltd; v Federal Commissioner of Taxation (1926) 38 CLR 153 at 180; Attorney-General (Vict) v The Commonwealth (the Pharmaceutical Benefits Case) (1945) 71 CLR 237 at 267; Chu Kheng Lim v Minister for Immigration, Local Government and Ethnic Affairs (1992) 176 CLR I at 14). Here there are two competing constructions – one spells invalidity, one does not. That being so, we should adopt the construction that saves the section and reject the construction upon which the defendants rely.

(emphasis added)

47    Similarly, a contract must be construed as a whole, objectively and from the perspective of what a reasonable person in the position of the parties would have understood its terms to mean. The reasonable person’s understanding is arrived at by reference to the text of the document, the surrounding circumstances known to all the parties and the purpose and object of the transaction. Although the Award, as a copied State instrument under the Fair Work Act, is not a commercial contract, its construction should be approached in accordance with the principle that Lord Wilberforce expressed in Reardon-Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 995–996 which Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ approved in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45 at 52–53 [10], namely:

In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating.

48    Obviously, the genesis of the Award becoming a copied State instrument and being removed from its previous legislative setting under the Industrial Relations Act is fundamental to understanding how, in its new legislative setting under the Fair Work Act, the Parliament intended that it would continue to regulate the employment relationships of Transit Systems, the transferring employees and the Union. Courts have long applied the principle that contracts should be construed with a view to harmonising and reconciling, if possible, apparent inconsistencies or even absurdities in expression. This means that if words or expressions are used in a contract that are repugnant or have been transposed or omitted, the Court can construe it to give effect to the meaning that, objectively, the parties must have intended: Fitzgerald v Masters (1956) 95 CLR 420 at 436–438 per McTiernan, Webb and Taylor JJ; see too at 426 –427 per Dixon CJ and Fullagar J. In Wilson v Wilson (1854) 5 HL Cas 40 at 69–70 [10 ER 811 at 823], Lord St Leonards (in agreement with Lord Cranworth LC at 52–53 [816–817] and Lord Brougham at 59 [819]) construed the terms of an indemnity expressed as being in favour of John in a separation deed between a husband and wife as meaning that he would indemnify his wife, Mary, because the literal construction would be “irrational and absurd and we know it not to have been the contract”. Although his Lordship used the word “rectify” in the following part of his speech, he meant “construe” (as the case was not a rectification case in which different principles apply: cf: Pukallus v Cameron (1982) 180 CLR 447). He said:

Then has the Court a power to rectify the error without doing any violence to the words because I entirely reject any intention of putting violence upon words. We are bound as a Court of Justice to put a rational construction upon words, and to give to every word its proper sense. I do not think that I am breaking in upon any rule in advising your Lordships to consider “John” as erroneously inserted, as it clearly appears by the context to have been, instead of “Mary,” and by so considering it to make that part compatible with the rest, and thus give effect to what was the clear intention of the parties.

(emphasis added)

49    Here, cl 15.2 has to be construed in a common-sense way as a provision in a copied State instrument for the purposes of the Fair Work Act, bearing in mind, as the Union put, that the Parliament contemplated that parties could apply to the Commission to vary it under s 768AX where any possible construction was unworkable. The reference in cl 15.2 to “any State wages decisions”, clearly enough, in the context of the Industrial Relations Act, would have applied to a State decision the subject of ss 50–52 that gave the State Commission power to apply, wholly or in part, a decision of the Fair Work Commission in an annual wage review. In addition, the Industrial Relations Act and cl 15.2 contemplated that there would be situations in which the parties could arbitrate safety net adjustments that would vary wages payable under cl 15.1.

50    In my opinion, cl 15.2 can be read sensibly, and as the Parliament intended that a copied State instrument would be read, without rendering the expression “any State wages decisions” as unintelligible. Once the Award is read as a copied State instrument, that expression can be understood to refer to an annual wage review (being a National decision as defined in s 49 of the Industrial Relations Act). The Fair Work Act used the legislative device of a copied State instrument as a practical means of giving the persons covered by it sufficient time to work together to create a modern award or enterprise agreement to replace that instrument over a period while there remained in place a legally binding employment relationship with which they were already familiar (being the copied State instrument), subject to any express overrides in the Fair Work Act and the related legislation.

51    Accordingly, cl 15.2 can sensibly be understood as seeking to provide that the parties to the Award intended that wage increases contained in cl 15.1 were to be in substitution for any variation of minimum wages that otherwise would be payable under a National decision, being an annual wage review variation decision that the State Commission might decide to adopt under ss 50 and 52 of the Industrial Relations Act, much like it could make a State decision under s 51 that set principles or provisions for the purposes of State awards or other matters under that Act. Nonetheless, that intention could not have the effect of overriding a variation determination by the Commission that varies the Award as a copied State instrument, pursuant to its powers under item 20 and s 768AW(c), which has the force of law.

52    Here, the Commission’s annual wage reviews for 2019–20, 2020–21 and 2021–22 varied every copied State instrument in exercise of its discretionary power to do so under item 20 and s 768AW(c) of the Fair Work Act. The Commission left it to any party that may have been affected to apply to it to vary the impact of any of those determinations, as it explained (at [443]–[452]) when it introduced by the general process of variation to all copied State instruments in its 2018 decision at [443]–[452] (see [25] above).

53    Accordingly, the Commission’s 2019–20 and 2020–21 annual wage review variation determinations applied to the Award and, thus, increased the wages payable to the transferring employees in those years by 3% and 1.75% respectively.

The timing issue – consideration

54    Both parties accepted, correctly in my opinion, that the payments that Transit Systems made in accordance with the Award variations under cl 15.1 should be taken into account, albeit at different times, as offsetting any failure of Transit Systems to pay any larger sum as determined in the Commission’s annual wage review for the relevant financial year. The consequence is that it will be necessary to allow an offset of some of the 2.5% increases, which Transit Systems paid under cl 15.1.

55    The consequence of the Commission’s abandonment of its tiered system in the 2018 decision was to treat all copied State instruments on the basis that, whenever they provided for any increases in wages in the previous financial year and those increases had commenced to be paid, the new wage would be the rate of pay used as the reference point for calculating the increased wages that would be paid in the next financial year with the determined uplift.

56    I am of opinion that the wages to which a variation determination under item 20 must be those being paid on and from 1 July in the new financial year immediately following the Commission’s annual wage review required under ss 285 and 286(1) of the Fair Work Act. Here, cl 15.1 of the Award required Transit Systems to pay an additional 2.5% to employees from the previous 1 January. In the present case, Transit Systems was an employer bound by a copied State instrument at the relevant times (1 July 2019, 2020 and 2021) when the Commission made its variation decisions for the relevant financial years.

57    Transit Systems could have applied, but did not apply, to the Commission in any of those three years to exercise its discretionary power under item 20 to vary the impact of either the impact of its annual wage review determination on the Award or to take account of the relevant increase under cl 15.1 in another way. Perhaps Transit Systems did not apply for such relief because it never occurred to either it or the Union earlier than when the dispute blossomed this year that its obligations had changed because of the application and construction of the legislation at which I have arrived. However, that is a matter which, I think, will be able to be dealt with in assessing what, if any, penalties might be applicable in respect of any contraventions of s 768AG.

Conclusion

58    The parties will need to draft declarations and orders to give effect to these reasons and prepare a timetable to deal with resolving the calculation of any underpayments, and, if necessary, whether I should impose any penalties for any contraventions under s 768AG of the Fair Work Act.

Associate:

Dated:    19 November 2021