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Focus: Workplace Relations

13 September 2012

In this issue: we look at the issue of persistent 'surface' bargaining; when it is reasonable to check the veracity of a workers' compensation claim; consultation as a component of a genuine redundancy; the importance of honesty in an employment relationship; and enforcing a lengthy restraint.

• Surface bargaining is out, but what's the remedy?
• Workers' compensation fraud investigation not unlawful
• Genuine redundancy: Consultation relevant, selection process not
• Honesty is the best medicine
• Court upholds a two-year restraint

Surface bargaining is out, but what's the remedy?

In brief: The Federal Court has confirmed that persistent surface bargaining (ie sitting mute during negotiations and failing to make proposals) can breach the Fair Work Act's good faith bargaining requirements, but has limited Fair Work Australia's scope to make orders addressing those bargaining tactics. Senior Associate Andrew Stirling and Lawyer Emily Harvey report.

The facts

The Association of Professional Engineers, Scientists and Managers, Australia (APESMA) had held various bargaining meetings with Endeavour Coal in an attempt to negotiate an enterprise agreement. During early meetings, Endeavour Coal made no proposals of its own, but gave the appearance of giving genuine consideration to APESMA's proposals. However, after bargaining in that way for eight months, Endeavour Coal indicated that no term of APESMA's draft agreement was suitable and that it did not want an enterprise agreement at all.

Fair Work Australia proceedings

Earlier this year, Fair Work Australia (FWA) found that Endeavour Coal had failed to comply with the good faith bargaining requirements imposed on it by s228 of the Fair Work Act.¹

In summary, FWA ordered Endeavour Coal to:

• submit to APESMA a list of subject matter it would be prepared to include in an enterprise agreement, propose changes to an existing draft agreement and propose terms that it would be prepared to enter into;
• not unilaterally alter standard terms in staff contracts outside of the bargaining process;
• be represented in future bargaining meetings by someone who has the capacity to make decisions; and
• meet with APESMA within 21 days of taking the steps ordered above.

The Full Bench of FWA upheld that decision.² Endeavour Coal appealed to the Federal Court on the basis that the Full Bench misconstrued s228 and that the orders made by the Full Bench were beyond FWA's power.

Construction of s228

The Federal Court upheld FWA's finding that Endeavour Coal's bargaining strategy fell short of the good faith bargaining requirements.³ It confirmed that the good faith bargaining requirements are breached if, after bargaining has progressed for a reasonable period, a party sits mute and does not make proposals during the bargaining process. The good faith bargaining requirements require parties to genuinely participate in the bargaining process (ie in a genuine process of give and take). An enterprise agreement may not ultimately be reached. However, the parties' representatives must approach the negotiations in good faith with a view to achieving agreement if possible.

However, the Federal Court also found that three of the four bargaining orders that FWA made in this case were beyond its power.

The orders

The Federal Court ruled that the first order was beyond FWA's power. Although this order did not require Endeavour Coal to reach agreement, it did require Endeavour Coal to make a concession during bargaining about the terms it was prepared to include in an agreement. The good faith bargaining requirements expressly provide that parties are not required to make concessions, so FWA cannot make an order requiring a party to make a concession. (Interestingly, the court noted that it may be within FWA's power to order a party to list the subject matter of an agreement that it 'may' be prepared to include in an agreement. This was contrasted with FWA's order that Endeavour Coal list the subject matter that it 'would' be prepared to agree to).

The third order, dealing with Endeavour Coal's bargaining representation, was set aside because FWA had no power to make orders about who represented a party. Who represented Endeavour Coal was a matter for it to decide.

The final order, which required the parties to meet, was set aside because it was linked to orders that had also been set aside.

Interestingly, FWA's order prohibiting Endeavour Coal from unilaterally altering the standard terms of staff contracts outside of the bargaining process was found to have been properly made. The Federal Court found that this order was incidental to, and preserved the integrity of, the bargaining process.

Workers' compensation fraud investigation not unlawful

In brief: Employers will not breach the general protections provisions of the Fair Work Act if they investigate the veracity of a workers' compensation claim, provided the investigation was taken for reasonable reasons and conducted in a proper way. Senior Associate Andrew Stirling reports on a recent Federal Magistrates Court case.

Background

Mr Hayward was employed by Leighton Contractors as an operator in the pit of the Moorvale coal mine. Mr Hayward suffered a severe whiplash injury after the truck he was driving was jolted while it was being loaded. He lodged a workers' compensation claim and this was accepted.

About a month later, Mr Hayward's co-workers told his managers that he had previously fabricated workers' compensation claims. This, and a later medical report that suggested that his injury was not serious, caused the managers to suspect Mr Hayward was being dishonest about his alleged injuries. Mr Hayward's claim had become the subject of rumour on the shop floor.

Leighton engaged a private investigator to follow Mr Hayward. The investigator took surveillance footage showing Mr Hayward with full and free neck movement. This was reported to WorkCover and Mr Hayward was stood down while Leighton conducted an investigation into his claim.

Mr Hayward's claim

Mr Hayward contended that Leighton had breached the general protections provisions of the Fair Work Act 2009 (Cth) by taking adverse action against him because he had a workplace right, namely:

• the right to make a workers' compensation claim; and
• the right not to have his workers' compensation documents used for purposes other than those permitted under the relevant legislation.

Mr Hayward claimed that Leighton had taken adverse action against him by:

• undertaking surveillance;
• using certain workers' compensation documents in an unlawful way;
• calling meetings and corresponding with him to make allegations of dishonesty;
• threatening disciplinary action against him; and
• suspending him.

The decision

The Federal Magistrates Court ruled that Leighton had not breached the general protections provisions.⁴ It did so despite finding that Mr Hayward had a workplace right as he claimed, and that Leighton had taken adverse action against him (although the commencement of the investigation was found not to have been adverse action). The onus was then on Leighton to prove that its reasons for taking the adverse action did not include that Mr Hayward had a workplace right.

The court found that Leighton's actions were motivated solely by a concern, brought to its attention by one of its staff members, that Mr Hayward was fraudulently claiming workers' compensation benefits. Leighton had statutory obligations and also legitimate industrial motivations for conducting the investigation into Mr Hayward's claim. The court accepted that the workers' compensation claim was the background to, but was not the reason for, the investigation.

The court said that investigations into whether a person is entitled to a workers' compensation benefit, and therefore has a workplace right, cannot be described as being undertaken because of the employee's entitlement unless the employer has no reasonable basis to refute the entitlement.

Genuine redundancy: Consultation relevant, selection process not

In brief: Fair Work Australia has held that a dismissal of a storeman was not a genuine redundancy because of the employer's failure to consult with the employee before termination. Senior Associate John Naughton and Lawyer Kelly Lloyd report.

Background

UES (Int'l) Pty Ltd appealed against a decision of FWA, that held the dismissal of one of its storemen (Mr Harvey) was not a case of genuine redundancy under the Fair Work Act 2009 (Cth).⁵

In October 2011, UES was suffering from a significant decline in business, which necessitated a reduction in labour costs in the warehouse where Mr Harvey was employed with two other storepersons and a warehouse supervisor. A meeting was convened with these employees, while Mr Harvey was absent on annual leave, to advise them that redundancies were being looked at due to a downturn in sales. UES subsequently made a decision that one storeperson position had to be made redundant. Mr Harvey was selected, allegedly on the basis that he was the least efficient worker, and was advised on his return from leave that his position was redundant. No prior consultation took place with Mr Harvey, notwithstanding it being a requirement under the applicable modern award.

Mr Harvey made an unfair dismissal application to FWA. The Commissioner ruled in favour of Mr Harvey, finding that UES had no sound rationale for selecting him out of a group of three storemen. UES was ordered to pay Mr Harvey $7198 as compensation in lieu of reinstatement. (Mr Harvey had already been paid eight weeks' redundancy pay and three weeks pay in lieu of notice, which was taken into account, along with other factors).

UES appealed the Commissioner's decision and remedy, submitting that the Commissioner erred in finding that there was no valid reason for the dismissal of Mr Harvey.

The decision

A split decision was delivered by the Full Bench of FWA.⁶ The majority ruling was that Mr Harvey had been unfairly dismissed. This decision was reached on the basis that Mr Harvey was not consulted before termination; the decision was not based on the way he was selected for redundancy.

The majority of the Bench concluded that the process for selecting individual employees for redundancy is not relevant to whether a dismissal was a case of genuine redundancy. Senior Deputy President Kaufman dissented on this point, stating that the reason for selection for redundancy could be considered 'in appropriate circumstances', and it was appropriate in this case as only one of the three storemen positions was made redundant.

Despite this divergence, the Full Bench unanimously agreed that the dismissal was not a case of genuine redundancy because UES did not consult with Mr Harvey about the redundancy in accordance with its obligations under the modern award.

As the genuine redundancy exclusion did not apply, the Full Bench went on to consider whether the dismissal was harsh, unjust or unreasonable. Contrary the Commissioner's decision, it was held that there were 'sound, defensible and well-founded reasons' for Mr Harvey's dismissal, given that:

• UES no longer required his job to be performed by anyone because of changes in the operational requirements of its enterprise; and
• it was not reasonable in all the circumstances to deploy Mr Harvey to an alternative role.

Notwithstanding finding a valid reason for dismissal, the failure to consult led the Full Bench to conclude that Mr Harvey's dismissal was unfair. However, the majority reduced the compensation awarded to Mr Harvey to $1365 plus 9 per cent superannuation, on the basis that he would only have remained working for a further two weeks while UES met its award obligation to consult.

Honesty is the best medicine

In brief: The Federal Court and Fair Work Australia have sent reminders to employees that honesty is key to an ongoing employment relationship. Senior Associate John Naughton and Law Graduate Byron Frost report.

Hill v Compass Ten Pty Ltd (No. 2)

Mr Paul Hill was employed as manager of Compass Ten's Sunshine Lodge for a period of two-and-a-half months before he was dismissed for serious misconduct.

The manager's position required a first aid qualification, which Mr Hill did not hold. To overcome this he attached to his job application a copy of his son's first aid certificate, whose name was Simon Peter Christopher Hill. On the personal details form, Mr Hill entered his name as 'Paul (Peter Simon Christopher) Hill', despite other identification not referring to him as 'Peter'.

Mr Hill said he had attached his son's certificate by mistake, or that he could not find his own certificate, or he had attended the training with his son and therefore was entitled to claim the certificate.⁷

Mr Christopher Gunning v Cetnaj Queensland Pty Ltd

A scheme was established to issue customers with fake invoices in the name of 'LED Pacific'. Cetnaj customers were directed to pay the invoice amount to a Westpac Bank account held jointly by Mr Christopher Gunning and Mr Dylan Adams, who were Cetnaj employees and also flatmates.

Cetnaj became aware of this scheme after a product sold under a fake invoice (for $1890) was returned and there was no record of the sale. The customer said they were served by Mr Dylan Adams. He had ceased employment at Cetnaj three days before this matter came to light.

At this time, Westpac became suspicious of the activity on the joint account, as cheques were paid into it not in Mr Gunning's and Mr Adams' names, but in favour of LED Pacific.

Cetnaj conducted an internal investigation and interviewed Mr Gunning, who denied knowing the LED Pacific 'brand'. He told Cetnaj the joint Westpac Bank Account had been established by the flatmates to manage their living expenses and rent payments. He denied any knowledge of fraudulent activities and suggested that Mr Adams had the necessary access to pull off the fraud on his own.

Westpac Branch Manager Ms Carolyn Hogan said that she had overheard in the branch the two flatmates discussing the establishment of a business account to facilitate an LED lighting business.

Mr Gunning's employment was terminated by Cetnaj for theft and misconduct.⁸

The reasoning

The Federal Court in Hill v Compass Ten stated that, while Mr Hill's deception was not the only conduct that contributed to his termination, (he had also failed to perform other duties to the required standard), he had demonstrated 'a persistent unwillingness to follow instructions of the Director and an unwillingness to follow the various procedures established by Compass Ten'.

The court also noted that where employment is terminated for misconduct and new grounds come to light after termination, an employer may raise these later-discovered grounds to support a decision to terminate employment (following Shepherd v Felt and Textiles of Australia Ltd⁹).

In Gunning v Cetnaj, FWA could not find enough evidence to hold that Mr Gunning was fraudulent. However, it held that 'an employee owes a duty to his employer to be honest in his dealings with it. To do otherwise is to compromise the necessary trust and confidence that is an integral part of the employment relationship ... an employee must respond honestly to any genuine enquiry made of the employee that is relevant to the conduct or other issues in question or under investigation'.

The decisions

In Hill v Compass Ten, the court found that Mr Hill did not hold a first aid qualification, and his conduct was more than an innocent mistake. He had deliberately attached his son's first aid certificate and changed the name on the details form in order to mislead Compass Ten. This was especially serious as a licence condition under the Youth and Community Services Act 1973 (NSW) required at least one member of staff on duty to hold qualifications in the administration of first aid.

The court held Compass Ten was justified and entitled under Mr Hill's contract to dismiss him without further notification to him.

In Gunning v Cetnaj, FWA found that on the balance of probabilities Mr Gunning was not honest about his knowledge of the alleged fraud during his interview with Cetnaj. FWA held Mr Gunning had sought to direct his employer in a way that would not fully disclose the nature of his involvement with the Westpac business account. Mr Gunning's failure to be strictly honest in relation to the enquiries by his employer about fraudulent activities was fatal to the employment relationship. This was serious and substantiated misconduct, and as a result his dismissal was not harsh, unjust or unreasonable.

Court upholds a two-year restraint

In brief: In our March 2012 edition, we reported on the Federal Court's finding that a two-year restraint against a senior executive was reasonable. The Full Bench of the Federal Court has recently dismissed an appeal by the executive and upheld the two-year restraint. Senior Associate Veronica Siow reports.

The crux of Mr Pearson's appeal

We set out in our March 2012 edition the background to this matter, in our report on the primary judge's decision to allow the injunction to enforce the restraint.¹⁰ In appealing that decision, the executive, Mr Pearson, argued that the two-year non-competition restraint was not reasonably necessary to protect any legitimate interest of HRX (his former employer) since HRX was already sufficiently protected by the separate confidentiality and non-solicitation provisions in his employment contract.

The decision

On appeal, the court took the view that the confidentiality and non-solicitation provisions offered inadequate protection to HRX's interests because:

• Mr Pearson's principal function was the development and retention of its customer base and the pursuit of new business on behalf of HRX;
• given the degree of personal contact that Mr Pearson had with its customers, it was reasonable for HRX to bargain with him to protect against the risk that the personal contacts that Mr Pearson made during his employment would follow him 'unbidden' to a new employer;
• that interest went beyond HRX's interest in confidential information; and
• the non-solicitation provision still left HRX vulnerable, because it could be difficult to prove a breach.¹¹

The court found that HRX had a legitimate interest in both its existing goodwill (that is, the current customer connections that Mr Pearson had helped to build during his employment with HRX) and in the expansion of its business into countries where its clients had started operations. In determining that HRX's interest in expanding its business was real and required protection, the court took into consideration the fact that HRX had provided:

• an incentive to Mr Pearson (by way of a shareholding arrangement) to ensure that Mr Pearson diligently pursued all potential customers; and
• a disincentive (in the form of the restraint) to prevent him from setting up business in competition with HRX.

This case demonstrates an increased willingness by the court to enforce lengthy restraints where the employee in question significantly controls the customer connection (ie by being the 'human face' of the organisation), particularly in circumstances where the restraint was subject to negotiation, and specific consideration was provided for the restraint.

Footnotes

1. Association of Professional Engineers, Scientists and Managers, Australia, The Collieries' Staff Division v Endeavour Coal Pty Limited [2012] FWA 13 (4 January 2012).
2. Endeavour Coal Pty Ltd v Association of Professional Engineers, Scientists and Managers, Australia (Collieries' Staff Division) [2012] FWAFB 1891 (22 March 2012).
3. Endeavour Coal Pty Limited v Association of Professional Engineers, Scientists and Managers, Australia [2012] FCA 764 (19 July 2012).
4. CFMEU v Leighton Contractors Pty Ltd [2012] FMCA 487 (25 July 2012).
5. Leevan Harvey v UES (Int'l) Pty Ltd [2012] FWA 2811 (2 April 2012).
6. UES (Int'l) Pty Ltd v Leevan Harvey [2012] FWAFB 5241 (14 August 2012).
7. Hill v Compass Ten Pty Ltd (No. 2) [2012] FCA 815 (3 August 2012).
8. Mr Christopher Gunning v Cetnaj Queensland Pty Ltd [2012] FWA 6627 (3 August 2012).
9. (1931) 45 CLR 359 (4 June 1931).
10. HRX Holdings Pty Ltd v Pearson [2012] FCA 161 (1 March 2012).
11. Pearson v HRX Holdings Pty Ltd [2012] FCAFC 111 (17 August 2012).

For further information, please contact:

• Tim FrostPartner, Sydney
  Ph: +61 2 9230 4930
  Tim.Frost@allens.com.au
• Peter ArthurPartner, Sydney
  Ph: +61 2 9230 4728
  Peter.Arthur@allens.com.au
• Jamie WellsPartner, Brisbane
  Ph: +61 7 3334 3268
  Jamie.Wells@allens.com.au
• Simon DewberryPartner, Melbourne
  Ph: +61 3 9613 8110
  Simon.Dewberry@allens.com.au