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Focus: Workplace Relations

17 May 2013

In this issue: we report on union eligibility rules; what constitutes an offer of acceptable alternative employment; the consequences of an employee's refusal of a settlement offer; an ATO ruling on ordinary hours of work; and whether a complaint about employment made to an employer can constitute a 'workplace right'.

Union eligibility rules = coverage = right of entry, bargaining rights

In brief: The Fair Work Commission recently found that excavator operators on a Curtis Island LNG project can be classified as waterside workers and are entitled to join, and be represented by, the Maritime Union of Australia. This case shows that union eligibility rules may result in employers needing to engage with more unions when negotiating agreements and allowing rights of entry. Special Counsel Eleanor Jewell reports.

How does it affect you?

  • Owners, operators and contractors on major projects should carefully consider which unions have right of entry and are eligible to be bargaining representatives when:
    • considering the appropriate industrial relations policy; and
    • determining the union or unions with whom greenfields agreements should be made.
  • Eligible unions in the construction phase may include the Maritime Union of Australia.

The decision

The Fair Work Commission (the FWC) found that excavator operators on the LNG project on Curtis Island, occupied by Bechtel Construction (Australia) Pty Ltd, can be classified as waterside workers.1 On this basis, they are entitled to be members of, and represented by, the Maritime Union of Australia (the MUA).

The relevant eligibility rule of the MUA provides that membership is open to 'any person who intends to follow the occupation of waterside worker'. The parties agreed that determining this was an objective test rather than a substantive one. That is, it will be determined on the basis of the facts of the situation, reviewed objectively, rather than the individual intention of employees.

There was consideration in the case as to whether the relevant test was a principal purpose test or a substantive employment test. The parties proposed various formulations of these tests.

The FWC did not reach a conclusion as to which test applied, holding that, in relation to the excavator drivers, the result was the same. The critical consideration for the FWC appeared to be what the excavator operators did for the majority of their time, and that this task was performed 'in the marine environment'.

The excavator operators in question spend approximately 60 per cent of their working time on barges unloading cargo. The work the excavator operators do is the same work as they would ordinarily perform on any construction site. The FWC found that because the unloading was from a barge docked at a wharf, it was a stevedoring operation. As they did this for the majority of the time, the operators were found to be 'following the occupation of a waterside worker'.

Implications

This finding means that, as well has having rights of entry, the MUA could be entitled to participate in negotiations for an enterprise agreement as the bargaining representative for workers who choose to be members. This is despite those same workers also being eligible to be members of another union.

One of the implications of this is that there is increased potential for employers of having to engage in good faith bargaining with representatives from a number of unions when negotiating for an enterprise agreement. For example, on a major LNG project like the one on Curtis Island, the bargaining representatives for a construction-related enterprise agreement could now include the Construction, Forestry, Mining and Energy Union (the CFMEU), the Australian Workers Union (the AWU), the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (the AMWU), the Communications, Electrical Plumbing Union (the CEPU) and, now, the MUA.

This finding could also increase complexity in making a greenfields agreement. It could lead to an increase in rival unions disputing which is the more relevant employee organisation for the purposes of making such an agreement. An example is the application being made by the AWU in relation to an agreement entered into with the CFMEU regarding the Gorgon Project on Barrow Island.2 The AWU has also challenged the validity of agreements entered into with the CFMEU, CEPU and AMWU in relation to the Bowen Basin.3

Employers should be particularly careful to consider whether the union (or unions) they are proposing to make a greenfields agreement (or agreements) with have the most appropriate coverage. This will be determined on the basis of whether that union is entitled to represent a majority of the employees performing work under the agreement (as required by the Fair Work Act 2009 (Cth) in order for the agreement to be approved by the FWC).

Given the MUA's emphasis on recruitment activities, and their militancy when involved in negotiations, this decision should be taken into account by owners, operators and contractors (particularly EPCM (Engineering, Procurement, and Construction Management) contractors) on major projects on or adjacent to the waterfront when considering an effective industrial relations strategy. This case has particular implications for owners, operators and EPCM contractors on LNG projects.

Bar raised on acceptable alternative employment

In brief: A recent decision of the New South Wales District Court raises the bar in relation to what is an offer of acceptable alternative employment to a retrenched employee. Lawyer Emily Harvey and Law Graduate Michela Agnoletti report.

How does it affect you?

  • In addition to factors such as similar pay, working hours and location, when offering alternative employment an employer should consider whether the alternative employment:
    • places the employee in a similar, if not equal, position of seniority; and
    • is sufficiently connected to the employee's demonstrated skills and experience.

Background

Mr Smith commenced work with Commonwealth Steel Company Pty Ltd as a labourer. Through training and experience, he became a furnace operator. He was employed on the terms of an award that provided for redundancy benefits if an employee was dismissed by reason of redundancy. However, redundancy benefits would not be available in a case of redundancy if the employer offered 'acceptable alternative employment' to the employee.

In 2010, Mr Smith was informed that, due to a lack of work in his division, he would be transferred to the 'railway finishing line', which was a separate division. He would continue to work at the same plant, and his salary and work hours would remain the same.

Mr Smith considered the transfer to be a demotion because he was moved from a longstanding position where he had gained specific experience and skills, to a section of the business where he required new training. He felt the position was beneath the status he had attained in the company.

He resigned and commenced proceedings against his employer, claiming redundancy pay and alleging that the employer's actions amounted to termination of his employment.

The employer conceded that Mr Smith's position as a furnace operator had been made redundant. However, it argued that he was not entitled to redundancy pay because he resigned voluntarily and, in any event, had been offered acceptable alternative employment.

The decision

The New South Wales District Court held that the transfer of Mr Smith to the railway finishing line amounted to termination of his employment.4 Whether he had voluntarily resigned or acted unreasonably in the circumstances was irrelevant.

On the question of whether Mr Smith was offered acceptable alternative employment, the court confirmed that this is an objective test taking into account considerations such as pay levels, hours of work, seniority, fringe benefits, workload and speed, job security and travelling time.

The court observed that whether an employee considers the job to be acceptable is not relevant. Nevertheless, it found that Mr Smith's reaction of feeling humiliation and stress was evidence of the significant change in seniority between the two jobs. This change in seniority was a key factor in this case, notwithstanding that Mr Smith's salary, hours of work and place of work remained the same.

The court also found that, although the level of skill required for the finishing line position was roughly equal to Mr Smith's furnace position, it having no real connection with his demonstrated skill and experience was significant, as this meant he would have to start his training and experience afresh.

Taking these factors into account, the court found that the employer had not offered Mr Smith acceptable alternative employment and, therefore, that he was entitled to a redundancy payment.

Lessons for employers

This case is problematic for employers, given that, in many cases, alternative employment options are limited and may involve different roles requiring some measure of retraining. This case shows that when considering alternative employment for retrenched employees, potential roles need to be assessed critically to ensure they meet the 'acceptable employment' threshold, in light of the roles these employees previously performed.

Employee's refusal of settlement offer results in costs order

In brief: Where a reasonable settlement offer has been made to settle litigation with an employee according to relevant court rules, an employee's refusal of this offer may result in a costs order being made against them. A recent Federal Court decision illustrates this will be the case, even when the employee's claim is upheld.5 Senior Associate John Naughton and Law Graduate Timothy Leschke report.

How does it affect you?

  • If an employer makes an early offer to settle that is refused, but is on more favourable terms than the judgment ultimately received (even if the employee's claim is upheld), the employer is likely to be entitled to be awarded costs.
  • When considering the reasonableness of an offer, the court will distinguish between the adequacy of an amount addressing a claim for damages and the overall financial outcome after the solicitors' bills have been paid.
  • While public vindication may be a legitimate basis on which an employee may refuse to compromise a claim, this must be made clear in the terms of their offer (or refusal of an employer's offer).
  • An employer can refuse to accept unreasonable proposals to settle claims and have some protection from the courts.

Background

On 20 February 2013, Oracle was ordered to pay Ms Richardson $18,000 as compensation for breaching the Sex Discrimination Act 1984 (Cth). (In our April 2013 Focus, we discussed Oracle's liability arising from it failing to take all reasonable steps to prevent its employee from sexually harassing Ms Richardson).

On 6 March 2013, both parties filed an application for a special order for costs. Oracle sought orders to the effect that its obligations to pay costs to Ms Richardson be limited to costs up to 4 or 5 September 2010, and that she pay its costs following this date on an indemnity basis.

Oracle's position was adopted on the basis that it had made a course of settlement offers that would have provided Ms Richardson with a more favourable outcome than the outcome obtained from the primary judgment. In particular, Oracle made an offer on 3 September 2010 to pay $55,000 plus interest and Ms Richardson's costs. This offer was refused by Ms Richardson, who made a subsequent counter-offer of $106,500 plus interest and costs (which Oracle refused). The court noted, crucially, that the medium of exchange was monetary. A number of other offers were made by Mr Tucker (Oracle's employee) and Oracle, which were all ultimately rejected by Ms Richardson.

The decision

Under the Federal Court Rules 2011 (Cth), if an employee obtains judgment that is less favourable than the terms of a previously refused offer, the employee is not entitled to any costs after 11am on the second business day after that offer was served, and the employer is entitled to indemnity costs from this time.

From a monetary perspective, the $18,000 award of damages was clearly less favourable than the $55,000 offer on 3 September 2010. However, Ms Richardson argued that public vindication of her position was important to her, and that her rejection of the offers should not be assessed by reference only to the money involved.

The Federal Court accepted that public vindication did provide some solace to Ms Richardson, but emphasised that this was not a feature of her refusal of any of the offers of compromise. Rather, the position was that she considered the offer 'inadequate in monetary terms'. The court considered that Ms Richardson's assessment of adequacy was significantly affected by her 'disturbing' legal costs (said to be $224,475.80 at 21 December 2011), distinguishing between the adequacy of an offer addressed to a claim for damages, and the different question of the overall financial outcome following payment of legal fees.

Regarding Ms Richardson's refusal of the offer on 3 September 2010, the court considered that Oracle's offer was 'genuine' and that she was 'imprudent and unreasonable' not to accept the offer. This was particularly so in light of the findings in the primary judgment that Ms Richardson's case for economic loss was 'largely misconceived'. Accordingly, the court ordered that she pay Oracle's costs incurred after 11am on 4 September 2010 on an indemnity basis, notwithstanding that her claims to have been sexually harassed were upheld, and the outcome on costs would be 'devastating' for her.

General comments

The case of Dye v Commonwealth Securities Limited, which we reported on in our April 2012 Focus, illustrated that courts will find against employees who make unfounded allegations of discrimination, and may be subject to serious costs sanctions.6 The award of indemnity costs against Ms Richardson illustrates that courts will also not tolerate excessive claims for damages, even if the legal claim is upheld.

ATO ruling on ordinary hours of work for SG purposes

In brief: The Australian Taxation Office has issued a private binding ruling that could have implications for many employers who do not differentiate in pay rates between ordinary hours and additional hours. Special Counsel Eleanor Jewell and Senior Associate Larissa Macpherson report on this important ruling and the potential implications for other employers.

Background

Under the Superannuation Guarantee (Administration) Act 1992 (Cth) (the SG Act), all employers are required to calculate their SG liabilities against their employees' 'ordinary time earnings' (OTE). OTE is defined as earnings for ordinary hours of work (other than certain prescribed lump sum payments made on termination of employment) and earnings consisting of over-award payments, shift-loading or commission.

The Commissioner's views on OTE generally, including the concept of ordinary hours of work, are contained in a Superannuation Guarantee Ruling7 , which provides that an employee's ordinary hours of work are the ordinary hours specified under the relevant contract or industrial instrument (or combination thereof). Any hours worked in excess of, or outside the span of, those specified ordinary hours are not ordinary hours of work for SG purposes. However, there is an assumption that the contract or industrial instrument:

draw[s] a genuine distinction...between ordinary hours and other hours. In particular, it would be expected that the other hours are remunerated at a higher rate (typically described as overtime) than the ordinary hours, or otherwise identifiable as a separate component of the total pay in respect of non-ordinary hours.

Ruling

The private binding ruling8 relates to the Superannuation Guarantee (SG) contributions for approximately 350 remote shiftworkers. They work 12-hour shifts, two weeks on/two weeks off, and are paid a flat rate for all hours worked.

The Commissioner ruled that the SG contributions should have been calculated on the employees' 42 rostered hours per week and not the 38 ordinary hours per week specified in their employment contracts.

A key factor in the Commissioner's decision was the fact that the contracts characterised the hours in excess of 38 hours per week as 'regular hours' rather than as overtime hours. Further, the hours worked in excess of 'ordinary hours' did not attract penalty rates or other additional remuneration, nor were they identifiable as a separate component of the specified all-inclusive pay rate. Accordingly, the contracts did not draw a genuine distinction between ordinary and other hours of work.

Implications

Although the private ruling relates to the specific circumstances of the employer concerned, it could have implications for other employers who do not differentiate in pay rates between ordinary and additional hours of work. That is, employers who pay a 'flat rate' for all hours worked, irrespective of whether they are ordinary hours or hours in excess of ordinary hours.

In particular, this ruling may be relevant for employers of FIFO (fly-in, fly-out) employees who work extended hours during their swings on site and are paid a flat rate for all of those hours, with some of those hours being defined in the contract of employment or enterprise agreement as 'ordinary hours' and other hours being defined (for example) as 'regular rostered hours'.

General protections and workplace rights

In brief: A recent decision of the Federal Circuit Court considered whether a complaint about a person's employment made directly to an employer can constitute a 'workplace right', and therefore be covered by the general protections in the Fair Work Act 2009 (Cth). Special Counsel Luke Gattuso and Law Graduate Michela Agnoletti report.

How does it affect you?

  • The general protections in the Fair Work Act 2009 (Cth) include that an employer must not take adverse action against an employee because they have exercised a 'workplace right'.
  • An employee's 'complaint or inquiry' to their employer about their employment can constitute a workplace right.

Background

Ms Devonshire brought a general protections application against her former employer, Magellan Powertronics Pty Ltd, and its sole director/company secretary and general manager. Her allegations included that the termination of her employment had been in contravention of the general protections under the Fair Work Act 2009 (Cth) (the Act). In particular, Ms Devonshire had made a number of inquiries during the course of her employment (including on the day that her employment was terminated) about issues concerning the payment of her remuneration. She argued that her employment was terminated because of these inquiries.

The respondents brought an application seeking orders for separate determination of certain threshold questions.9 These included whether Ms Devonshire had a 'workplace right' within the meaning of section 341 of the Act.

Was there a workplace right?

The Federal Circuit Court found that Ms Devonshire did have a workplace right under s341(1)(a) of the Act, because she was entitled to a benefit of a workplace law (namely, s323(1)(a) of the Act, relating to amounts payable for the performance of work).

The court also considered whether Ms Devonshire had a workplace right under s341(1)(c)(ii) of the Act, which requires an employee to be able to make a 'complaint or inquiry' in relation to their employment.

Having regard to previous decisions and the Explanatory Memorandum to the Fair Work Bill 2008 (Cth), the court found that a 'complaint or inquiry' made to an employer by an employee in relation to their employment can constitute a workplace right for the purposes of s341 of the Act. Therefore, Ms Devonshire was found to have a workplace right within the meaning of s341, and the respondent's objections were dismissed.

Lessons for employers

The case demonstrates that the threshold of a person being able to make a 'complaint or inquiry' – and therefore having a workplace right – is a low one. The court confirmed that the expressions 'complaint' and 'inquiry' are to take their ordinary meanings, with the effect that the 'complaint or inquiry' need only be directed to the employer, regardless of whether it might be as appropriate (or more appropriate) for it to be directed to the relevant regulator.

Footnotes
  1. The Maritime Union of Australia v Bechtel Construction (Australia) Pty Ltd [2013] FWC 2039 (9 April 2013).
  2. The Australian Workers' Union v Killarnee Civil & Concrete Contractors Pty Ltd, ITF The Thompson Family Trust; Construction, Forestry, Mining and Energy Union [2011] FWAFB 4349 (4 August 2011).
  3. The Australian Workers' Union v Leighton Contractors Pty Limited and Ors [2012] FWAFB 207 (10 January 2012).
  4. Smith v Onesteel Limited & Anor [2013] NSWDC 18 (15 March 2013).
  5. Richardson v Oracle Corporation Australia Limited (No 2) [2013] FCA 359 (19 April 2013).
  6. Dye v Commonwealth Securities Limited [2012] FCA 242 (16 March 2012). The decision on costs was Dye v Commonwealth Securities Limited (No. 2) [2012] FCA 407 (20 April 2012).
  7. Superannuation guarantee: meaning of the terms 'ordinary time earnings' and 'salary or wages' (SGR 2009/2).
  8. Authorisation No 1012333714608.
  9. Devonshire v Magellan Powertronics Pty Ltd & Ors [2013] FMCA 207 (11 April 2013).

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