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Thursday, 2 December 2004
Page: 36

Senator MURRAY (11:44 AM) —The Workplace Relations Amendment (Agreement Validation) Bill 2004 attempts to deal with the uncertainty and possible legal consequences concerning the validity of certified agreements under the Workplace Relations Act 1996. That uncertainty and possible legal consequences arose directly from a decision of the High Court in Electrolux Home Products Pty Ltd v. the Australian Workers Union and others, HCA40, on 2 September this year. As I understand it, the High Court's decision in Electrolux determined three main issues: firstly, that industrial action is not protected action if taken in support of claims where one or more of those claims does not pertain to the employment relationship; secondly, a claim for a bargaining fee to be paid to a union does not pertain to the employment relationship; and, thirdly, an agreement cannot be certified if it contains a provision that does not pertain to the employment relationship unless it is machinery in nature or is ancillary or incidental to a matter which pertains to the relationship.

While the High Court's decision is welcome in that it has reinforced the original intent of the law with respect to section 170LI of the Workplace Relations Act 1996 that certified agreements must pertain to matters pertaining to the employment relationship of employers and employees, it has also led to considerable uncertainty. While not directly determined by the court, the High Court's decision with respect to certification of provisions not pertaining to the employment relationship has led to the belief that certified agreements and AWAs, Australian workplace agreements, which include a matter which does not pertain to the employment relationship could now be void as a whole. One school of legal thought is that the court's invalidation of even a peripheral or minor part of a certified agreement makes the whole agreement void. The effect of this uncertainty is that employees and employers do not know for sure whether their currently operating certified agreements are enforceable or if their agreements are valid in whole or in part.

While some unions have begun to approach employers to renegotiate agreements, and some in the electrical contracting industry have already negotiated new agreements, many employers are reluctant to undertake another negotiating process earlier than an agreement's current expiry date due to the costs involved and concern that early protected action could be initiated with the declaration of a bargaining period. This is a sensible approach given that the life of a certified agreement is relatively short, at only three years. Why deliberately agree to cut that maximum period of three years short?

The purpose of this government's bill is to provide legal validity to certified agreements and Australian workplace agreements certified, approved or varied on or before 2 September 2004. Rather than validate the whole agreement, the statutory validation is only with respect to matters that are permitted matters—that is, matters pertaining to the employment relationship or which are machinery matters or incidental matters or ancillary to matters which pertain to the employment relationship. Matters that are not pertaining to the employment relationship will be rendered void.

The Democrats accept the High Court decision as clarifying and confirming what the existing law means. We accept that it is reasonable that existing contracts should not be invalidated as a whole just because a minority of some contract clauses in some agreements are now rendered invalid by the High Court's decision. We also accept that legislation to ensure that does not happen can reasonably be classified as urgent to address the uncertainty that employers and employees are currently facing. We have, however, questioned the mechanism chosen by the government and, after the Senate hearing and on reflection, believe that it would have been easier to validate the whole of the agreements warts and all until the agreements expire, a maximum period of three years but undoubtedly much less for the vast majority of certified agreements. This is not uncommon in commercial practice and in other legislation. A transitional period in those circumstances is usually allowed before the new regime applies.

Of course the government argue that it is not a new regime. Those clauses in the certified agreements, they say, should never have been certified in the first place. But that is not the fault of the parties to the agreements. It is the responsibility of the certifying authority, the Australian Industrial Relations Commission, to ensure that a certified agreement conforms to the law. The evidence to the hearing last week was that the Industrial Relations Commission may not have been as rigorous in this regard previously as they apparently have now become. The commission also has the problem of defining those employment matters that may be considered marginal or at the periphery. The evidence—again, at the Senate hearing last week—was that we can expect a test case to be run as soon as practicable to clear up as many areas of doubt as possible, and that would be welcome.

Several concerns have been raised by industrial relations practitioners and unions. The first issue is with respect to those clauses which have been in operation but will not be validated and will therefore be unenforceable. The employer is not obliged to honour them. Employees could therefore, in theory, lose aspects of the agreement that they had negotiated. I say `in theory' because the real world practice will be that such an occurrence looks highly unlikely. Evidence received at the Senate inquiry into this bill confirmed that agreements through common law—for example, deeds, contracts or memorandums of understanding—can be made outside of the certification process, and in fact already do occur. We heard evidence from Mr Anderson, who is very experienced in this field, from the Australian Chamber of Commerce and Industry at the Senate inquiry into this bill. He said:

The overwhelming position of employers and Australian industry following Electrolux was to indicate to the unions with which they deal and have had agreements that they will continue to honour the terms of those agreements, notwithstanding questions about validity.

Mr Anderson went on to give a recent example where this had occurred:

A very good example is one of the first agreements that came before the commission in the weeks following the Electrolux decision—the Franklins-SDA agreement before SDP Hamberger. It was identified in the proceedings that there was a provision in the agreement which was arguably not pertaining and the union and the company agreed to remove that from the agreement, to continue to apply that as a matter of obligation between themselves and to reach a private common-law agreement in those same terms to do that. The agreement was, therefore, resubmitted to the commission in terms which would unquestionably allow for its certification, and it was certified.

Mr Anderson was, of course, unable to give an undertaking that all their members would behave in this manner, nor do I expect he would or should. Nevertheless, despite this real-world solution to what is at best a medium-term problem, uncertainty will still remain, particularly for employees and unions, as to what will happen with the offending clauses. There will also be a cost involved to all parties who wish to negotiate and establish an alternative agreement.

The other issue relates to protected industrial action. It has been argued that, by not validating the whole bill, previous protected industrial action could be challenged as unlawful because it was in pursuit of clauses now deemed as invalid. The government, the Australian Industry Group and the Australian Chamber of Commerce and Industry have said that, while it is theoretically possible, it is not only undesirable but highly unlikely. I also believe that it would be highly unlikely, undesirable and foolish if an employer chose to pursue such a course of action. Linda Rubenstein from the ACTU, in giving evidence to the Senate inquiry, disagreed. She said:

... there would be no barrier that I can see to an employer seeking to sue a union for damages in relation to unprotected action taken on an earlier occasion relying on Electrolux. I do not know whether they would succeed or not but the CFMEU recognises, as I am sure all of us do, that to ordinary people and ordinary workers the threat of that kind of legal action is very frightening indeed. It would be a very strong bargaining chip.

The ACTU is probably directly reacting to the High Court's view that industrial action is not protected action if taken in support of claims where one or more of those claims do not pertain to the employment relationship.

In my view, experience shows that that should be taken as a warning for the future rather than a harbinger of punitive action for past deeds or misdeeds. I asked at the hearing if there was a record of any individual or organisation ever being punished—note I use the word `punished' in the sense of being jailed or fined—for taking protected industrial action later found to be unprotected, and the evidence was that that had never occurred. The eventualities that the unions envisage in this regard therefore look extremely unlikely. But just because they are extremely unlikely does not mean they should be dismissed, and there are certainly rumours reaching my ears that some employers are trying to muscle some unions in this respect. I believe that the threat of protected action taken in the past being successfully challenged at law is so unlikely that this point is minor, but it is one which will have to be attended to in this debate.

Turning to validation of the whole agreement, including the clauses not pertaining to the employment relationship, the ACCI and the government have argued that parliament would then be extending for the first time the content of industrial instruments to include non-pertaining matters—something quite at odds with the intention of the parliament for many years and quite at odds with the whole tenor of the High Court decision. Once again, this argument does not address the scale of clauses affected. The High Court directly identified but one non-pertaining matter—a claim for a bargaining fee to be paid to a union does not pertain to the employment relationship. Everything else was left as a general commentary.

Certainly the High Court clearly signalled—to the commission more than to any other, I suspect—that non-pertaining matters must not be certified. The court said that an agreement cannot be certified if it contains a provision that does not pertain to the employment relationship, unless it is machinery in nature or is ancillary or incidental to a matter which pertains to the relationship. I admit that, by validating whole agreements, one identified non-pertaining matter would be given `temporary' legal validity—and perhaps a few others not so far identified. This would only be for those agreements that contain a matter that was previously thought to pertain to the employment relationship. At the very least that specific clause was uncertain and has only recently been ruled as not pertaining to the employment relationship.

We must always remember that any matters in question were previously considered by employees, employers and the commission, who certified the agreements, as `matters pertaining to the employment relationship' and therefore wholly within the law. It struck me during the Senate inquiry that no-one had identified any negative consequences of validating agreements in full that were presently operating, so I asked representatives from the department what would be the negative consequences if the bill simply stated that, where the Industrial Relations Commission had previously formed the view that the clauses did pertain to the employment relationship and a court had subsequently overturned them, agreements which were previously certified could simply stand until they ran out—and that is a maximum of three years, as we know. Rather than read out the whole interchange between me and the department, I will refer to the concluding remarks. I said to Mr Smythe:

Let me conclude in this way: you are not so much saying that there were obvious negative consequences; you have drawn up the bill in this way because you do not want to breach a principle as to the way in which these matters should be resolved.

Mr Smythe replied:

What the government is doing with this bill is confirming what the original legislative intent was. As Mr O'Sullivan has just said—and I think Mr Anderson from the ACCI also said it—to go further would be to make lawful what was not intended to be lawful in the first place.

I responded by saying:

So it is an issue of principle?

Mr Smythe responded with a yes. I have come to the view that validating all clauses until the agreement has expired would have alleviated uncertainty and would have been a cleaner way to do things. It would have prevented unnecessary costs in constructing a common-law agreement for the invalidated clauses to run parallel with the certified agreement—which is, I assume, what many employers and employees will now do. Giving effect to the full agreements which were voluntarily agreed to by both parties is a reasonable public policy position that is practical, cost effective and, as I established in the inquiry, has no negative economic consequences.

The government has chosen another route that achieves the same end, and the government is determined on its view. Given that the Democrats strongly support the government's intent to achieve certainty, we are certainly not going to insist on what we would have thought would have been the better approach and we will be prepared to support the government's approach. With the exception of union bargaining fees, the High Court's decision left unresolved what matters on the margin or periphery do not pertain to the employment relationship—and that is why a test case with the commission will be necessary. Of course we should remember there is a wealth of jurisprudence which says what does pertain to the employment relationship, and I think that point was made very clearly in the government's evidence, both in the written form and by Mr Smythe.

This bill does not attempt to address this issue, and there was no support from unions or industry groups to have the government dictate through legislation an exhaustive or even a non-exhaustive list of matters that do not pertain to the employment relationship. I think the government, quite properly, has taken the view that it remains the function of the commission and courts to determine what does or does not pertain to the employment relationship. All the government has effectively said, which we agree with and, I gather, Labor agrees with, is that matters which are found not to pertain to the employment relationship just simply cannot be in those agreements, and I think that is right. Mr Smythe, from the department, told the committee:

My view is that 100-odd years of litigation have settled a pretty reasonable core, so that most parties operating in the industrial arena—unions, employers and lawyers working in that area—know for the most part the things that pertain. The Electrolux decision has excited a little bit of interest about a few matters at the periphery. But, for the most part, 100 years of litigation have given the parties a pretty good idea of what pertains and what does not.

It was generally the view from the unions and industry groups that parties would prefer to use the commission in the first instance and the courts to continue to determine non-pertaining matters. However, there was a view that it would be better for all parties if this were done sooner rather than drawn out over a number of years. As I alluded at the Senate inquiry, and as I have said before in these remarks I am making now, I would encourage the government to make recommendations to the Australian Industrial Relations Commission to conduct a test case on this matter. In the end the Democrats support the element of certainty and the intent of the bill. In the committee stage we will, of course, be dealing with Labor's amendments and I will have an amendment which will circulate shortly.

Before I conclude my remarks I want to say that I was a little puzzled at quite a lot of media attention in this area, because it is a relatively confined, limited matter that we are determining here. It is the question of making sure that contracts which are already in play continue to have force, and there is nothing unusual about the Senate considering that. But I think that maybe—and maybe I am giving them too much credit—they sniffed that at the heart of this were some serious issues that were being explored. One is the continuing determination of all parties—unions, employer groups, government and other political parties—to stay away from defining matters which form valid employment matters and to continue to leave it to the commission and the courts. That flexible and pragmatic approach, as I have said previously, is very important.

But the other issue emerged in the evidence from the ACTU, who essentially were arguing that there should be no limit to what can be agreed between parties—employers and employees—and, of course, there are no limits, because you can agree to what you like at common law. But if you want to have the protection which is provided by the Workplace Relations Act, which allows you to take protected industrial action, including the protections from being hauled in front of the courts for what would otherwise be activity that could be frowned on, and if you also want to rely on the Trade Practices Act, which gives you relief from some of the competition principles which would otherwise apply, then under the Workplace Relations Act, in my view, the quid pro quo is that you will be limited as to the kinds of contracts, arrangements and agreements that you can arrive at. You cannot have it both ways. You cannot have the protections of the Workplace Relations Act and the Trade Practices Act given to you as collective bargainers and, at the same time, have the freedom which you would have under common law. There has to be some limitation and some restraint. I thought that was a very interesting topic that emerged at the inquiry.