21 October, 2015
Thursday, 3 September 2015, marked the end of a two and a half year long journey for Aurizon towards achieving workplace flexibility and enabling it to create a platform on which to build efficiency and productivity gains for its business.
Overview
On 22 April 2015, in a ground-breaking decision, a Full Bench of the Fair Work Commission (Commission) in Aurizon Operations Limited; Aurizon Network Pty Ltd; Australia Eastern Railroad Pty Ltd [2015] FWCFB 540 decided to grant Aurizon's application seeking orders that its 12 expired enterprise agreements should be terminated.
The Commission ordered that the termination of the expired enterprise agreements would take effect from 18 May 2015.
On 3 September 2015, the Full Court of the Federal Court of Australia Communication, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Aurizon Operations Ltd [2015] FCAFC 126 dismissed an application by various unions challenging the validity of the decision of the Commission.
That same day, Commissioner Spencer of the Commission approved the Aurizon Train Crew and Transport Operations Enterprise Agreement (Traincrew Agreement), which was the last of three enterprise agreements to be agreed to by Aurizon employees and approved by the Commission.
On approval of the Traincrew Agreement, Aurizon achieved its business objective – to have in place three modern, flexible enterprise agreements covering approximately 5,000 of its Queensland based employees.
This article examines how Aurizon came to commence the termination application, the significance of the decisions on its application and the impact of the success of that application in achieving its business objective.
Aurizon's business
Aurizon Holdings Limited is an ASX listed company that offers rail and road-based freight transport and infrastructure solutions throughout Queensland, New South Wales, South Australia, Victoria and Western Australia.
Aurizon is Australia's largest rail freight operator and is the world's largest rail transporter of coal from mine to port for export markets, transporting approximately 200 million tonnes of metallurgical and thermal coal products per annum.
On average, Aurizon moves more than 700,000 tonnes per day of coal, iron ore, and other minerals as well as agricultural and general freight across Australia.
Aurizon Network Pty Ltd is a subsidiary of Aurizon Operations Limited and operates the Central Queensland Coal Network (CQCN).
The CQCN is made up of approximately 2,670 kilometres of heavy haul rail infrastructure in Central Queensland.
At any particular time on the CQCN there are approximately 60 operational coal trains deployed. Each coal train has a replacement value of approximately $40 million.
Aurizon’s coal haulage customers include mining companies with operational mines in the Bowen Basin from which coal is exported to a variety of countries. The financial performance of the mines is influenced by prevailing market prices for coal which have declined significantly in the past three years.
Aurizon has invested significantly in the rail network and rolling stock infrastructure. Aurizon’s other customers include producers, suppliers and exporters of bulk agricultural and other commodities, bulk mineral commodities, intermodal commodities and services and iron ore.
Aurizon employs over 6,000 employees.
Corporate history
From around November 2010 to 1 December 2012, Aurizon Holdings Limited was known as QR National Limited. QR National Limited owned QR Limited.
QR Limited, from around 27 September 2007, was a Government Owned Corporation with its shares held by the Queensland Treasurer and the Queensland Transport Minister as shareholding Ministers on behalf of the State of Queensland.
QR Limited operated what had been known as Queensland Rail.
On 2 June 2009, the Premier, announced that QR Limited's coal and freight business would be sold by way of an initial public offering (IPO) and listed on the ASX.
To facilitate the IPO, QR Limited was separated into two distinct businesses:
- The Queensland Rail business, consisting of the core passenger business and asset and metropolitan rail networks;
- The QR National business, consisting of the commercial rail freight operations and the CQCN infrastructure.
The Queensland Rail business was then transferred to another entity, Queensland Rail Limited. The QR National business remained with QR Limited. In October 2010 the initial public share offer of shares in QR National was made by the State of Queensland.
On 22 November 2010, QR National Limited was listed on the ASX.
On 1 December 2012, QR National Limited change its name to Aurizon Holdings Limited and QR Limited changed its name to Aurizon Operations Limited. Aurizon Operations Limited continues to be wholly owned by Aurizon Holdings Limited.
The enterprise agreements
When, in May 2014, Aurizon filed its application to the Commission, it had 14 enterprise agreements. Those enterprise agreements passed their nominal expiry date on 31 December 2013.
The expired enterprise agreements contained a number of terms and conditions that were "legacy provisions" that had applied to QR Limited while it remained under State Government ownership.
Those terms and conditions were public sector terms and conditions of employment that were outdated, outmoded, unduly complex and imposed unwarranted and costly restrictions on the efficiency and productivity of Aurizon’s business.
For example, the expired enterprise agreements contained clauses which:
- Prevented any forced redundancies;
- Either directly or indirectly imposed severe constraints and inefficiencies on the use and the allocation of train crew labour to train services;
- Limited the matters in relation to which individual flexibility arrangements could be reached to annual leave loading.
Aurizon’s business was being seriously impaired by these and other restrictions and inefficiencies that were enshrined in the enterprise agreements. Further, Aurizon’s capacity to respond to changes in its key markets and to secure new work opportunities, and retain existing work when it was put out to competitive tender, was also being seriously restricted.
Bargaining
In April 2013, Aurizon commenced bargaining with the relevant unions for enterprise agreements to replace those which would expire.
There were nine unions altogether (together Unions), with the key players being the:
- Australian Rail Tram and Bus Industry Union (RTBU);
- Australian Federated Union of Locomotive Employees (AFULE);
- Queensland Services, Industrial Union of Employees (QSU); and
- Australian Manufacturing Workers' Union (AMWU).
Aurizon sought, during bargaining, the agreement by the Unions to remove the significant restrictive provisions in the expired enterprise agreements. The Unions refused to agree to the removal of those provisions and maintained that they wanted substantially a "rollover" of the existing terms and conditions into any new enterprise agreements.
Despite seeking and receiving assistance from Deputy President Asbury of the Commission during bargaining, Aurizon and the Unions remained at odds.
Aurizon came to the view that, in the absence of any willingness on the part of the Unions to agree to remove the restrictive provisions in the expired enterprise agreements, then there was no reasonable prospect of reaching agreement with any of the Unions or their members on replacement enterprise agreements.
On 12 May 2014, Aurizon filed an application in the Commission under section 225 of the Fair Work Act 2009 (Cth) (Act) seeking the termination of all 14 of its expired enterprise agreements.
The statutory test
Section 226 of the Act provides that the Commission must terminate an enterprise agreement if:
- The Commission is satisfied that it is not contrary to the public interest to do so; and
- The Commission considers that it is appropriate to terminate the agreement taking into account all the circumstances.
In taking into account all the circumstances, the Commission is required to consider:
- The views of the employees, each employer, and each union (if any) covered by the enterprise agreement; and
- The circumstances of those employees, employers and unions including the likely effect that termination will have on them.
At the time Aurizon made its application, there was an existing line of authority, established through the decision of Vice President Lawler in Tahmoor Coal Pty Ltd [2010] FWA 6468 (Tahmoor Coal) and subsequent cases, to the effect that the emphasis on promoting productivity is primarily to be achieved through collective bargaining in good faith, rather than by other means, such as termination of an expired enterprise agreement. In order to succeed in its application, Aurizon needed to convince the Commission to overturn that existing line of authority.
Continuation of bargaining and the vote
After the termination application was made, Aurizon continued to bargain with the Unions in an effort to reach agreement on replacement enterprise agreements.
In July 2014, Aurizon released three proposed enterprise agreements to the Unions. The three proposed enterprise agreements were:
- The Aurizon Staff Enterprise Agreement 2014 (Staff Agreement);
- The transport operations agreement, called the Train Crew and Transport Operations Enterprise Agreement 2014 (Traincrew Agreement); and
- The construction and maintenance agreement, called the Aurizon Construction and Maintenance Enterprise Agreement 2014 (C&M Agreement).
The Unions continued to hold firm on their desire to have "rollover" enterprise agreements. Ultimately, in September 2014, Aurizon decided that it was going to put its three proposed enterprise agreements out to its employees for vote without support from the Unions.
The Staff Agreement was approved by a majority of employees entitled to vote. Voting on the other two agreements was an overwhelming "No".
Four of the Unions sought to challenge the validity of the vote on the Staff Agreement and to have its agreement by the relevant employees overturned in the Commission.
The Commission approved the Staff Agreement in January 2015. The Staff Agreement replaced in entirety two of the 14 enterprise agreements that had been the subject of Aurizon's termination application.
The hearing before the Full Bench
Aurizon's application was heard before Vice President Watson, Deputy President Gostencnik and Commissioner Spencer. The Full Bench of the Commission sat for six days over November 2014 and took evidence from 29 witnesses.
Aurizon's submissions
Aurizon argued at hearing that the preconditions in section 226 of the Act were met and that the Commission was required to terminate the expired enterprise agreements.
Aurizon also contended that a number of a number of "legacy provisions" (such as no forced redundancy) resulted in significant inefficiencies, restrained Aurizon's operations and negatively impacted on productivity within Aurizon such that the removal of those restrictive provisions would enhance Aurizon's ability to compete for contracts across its coal rail network, freight, intermodal business and maintenance services.
Aurizon contended that a central part of the reasoning in the decision in Tahmoor Coal was incorrect in that there was no statutory requirement that the promotion of productivity in an enterprise is to be primarily achieved through collective bargaining in good faith rather than by other means, such as by the termination of an expired agreement or any other lawful means.
Further, Aurizon submitted that where significant endeavours have been made to negotiate replacement agreements, and there is little prospect of reaching an agreement, it would not be contrary to the public interest to terminate an expired enterprise agreement.
In the event that the expired enterprise agreements were terminated by the Commission, Aurizon offered written undertakings that would maintain certain terms and conditions of employment for employees for a period of six months following termination of the expired enterprise agreements.
Unions' submissions
The Unions' contended that the "legacy provisions" contained in the expired enterprise agreements were explainable and were reasonable conditions of employment having regard to the nature of Aurizon's business, the locations at which work is carried out and the conditions under which work is performed by employees of Aurizon.
The Unions also submitted that to terminate the enterprise agreements would be counter to the object of a fair framework for collective bargaining in good faith, would undermine bargaining generally, and would deliver a tremendous advantage to Aurizon in their negotiations for replacement enterprise agreements.
Protected industrial action and the reopening of the RTBU's case
The day before the commencement of the hearing of its termination application in November 2014, the RTBU lodged an application for a protected action ballot. Prior to that time, none of the Unions had sought to take any steps towards the taking of protected industrial action.
On Christmas Day 2014, the RTBU notified Aurizon that its members intended to take protected industrial action. Members of the RTBU then took different forms of protected industrial action (overtime bans and work stoppages) in early January 2015.
The RTBU then sought, and was granted, permission by the Commission to reopen its case in the termination application because it said that there had been a change in circumstances, including because industrial action had occurred.
Aurizon submitted in response that there was no real new evidence and that otherwise, the RTBU was simply seeking to re-agitate matters that had already been dealt with and/or which did not have any material bearing on the matters to be determined by the Commission.
The Commission's decision
The Commission handed down its decision on 22 April 2015.
The Tahmoor Coal decision and the statutory test
The Full Bench stated that section 226 must be construed in a manner that is consistent with the language and purpose of the provisions by reference to the language of the Act as a whole. In addition, the Full Bench said, the context, general purpose and policy of the provision are an important means by which the meaning and effect of a provision is to be ascertained.
The Full Bench noted that the approach taken in Tahmoor Coal to the construction of section 226 had been followed in subsequent decisions but went on to say that this was the first opportunity that a Full Bench of the Commission has had the opportunity to consider the operation of section 226 of the Act.
The central reasoning in Tahmoor Coal was expressly overruled, with the Full Bench holding that there is no statutory imperative that the promotion and delivery of productivity benefits at an enterprise level, is to be primarily or exclusively achieved through enterprise bargaining in good faith rather than by other means.
The Full Bench also held that the statute mandates that on application by the person covered, an agreement that has passed its nominal expiry date must be terminated if the circumstances identified in section 226 exist and that productivity benefits might also be delivered by terminating an agreement that has passed its nominal expiry date.
Further, the Full Bench held that to approach the construction of section 226 in the manner suggested in Tahmoor Coal results in a predisposition against the termination of an enterprise agreement which has passed its nominal expiry date and there is no indication in the statute or otherwise that this should be the case.
Was termination contrary to the public interest?
The Full Bench also found that terminating the Aurizon expired enterprise agreements would not be contrary to the public interest. There is nothing inherently inconsistent with the termination of an enterprise agreement that has passed its nominal expiry date and the continuing of collective bargaining in good faith for an enterprise agreement, said the Full Bench.
The Unions' submissions that the termination of the enterprise agreements would be counter to the object of a fair framework for collective bargaining, were rejected.
A factor which influenced the Full Bench's finding in this regard were the particular circumstances in which the agreements were made (being that the Queensland Government required Aurizon to provide employee guarantees and to formalise those guarantees in their enterprise agreements as part of that privatisation process).
The Full Bench noted that the provisions that Aurizon had sought to be removed or varied are not common provisions in enterprise agreement generally and are provisions that restrict Aurizon's capacity to effectively manage its labour resource needs.
Was it appropriate to terminate?
With respect to whether it was appropriate to terminate the expired enterprise agreements, the Full Bench accepted that both the Unions and employees covered by the expired enterprise agreements opposed the termination of those agreements. However, the Full Bench found that the undertakings given by Aurizon would alleviate the concerns that employees may have regarding their entitlements.
Further, the Full Bench expressed a view that it cannot be expected that terms and conditions contained in an enterprise agreement will continue unaltered in perpetuity (particularly after an enterprise agreement has passed its nominal expiry date).
The Full Bench was also not persuaded that the workplace changes sought by Aurizon were undesirable or unnecessary, oppressive on employees or inappropriate. The Full Bench noted that it was entirely appropriate for Aurizon to improve its efficiency and productivity.
In light of the above, the Full Bench found that it was appropriate for the 12 enterprises agreements to be terminated.
The appeal and implications for bargaining
While the decision on the termination application was a win for Aurizon, there were still no replacement enterprise agreements in place.
The QSU, AFULE, RTBU and AMWU lodged an application for review of the decision of the Commission shortly after it was handed down, on 28 April 2015. Aurizon voluntarily decided not to act to implement the decision of the Commission until the hearing of that application.
The appeal was referred to the Full Court of the Federal Court and the hearing was expedited, taking place on 21 May 2015.
But what about bargaining?
After the decision on the termination application was handed down, Aurizon continued to negotiate with the Unions, still seeking to achieve replacement enterprise agreements.
The approach of the Unions to bargaining was markedly different however. No longer did the Unions continue to insist on "rollover" agreements. Instead, within only two weeks, Aurizon had reached in principle agreement with the rail unions on the terms of the Traincrew Agreement. On the C&M Agreement, bargaining also progressed and Aurizon and the unions moved closer to an agreed position than they had ever previously been.
While there was also some protected industrial action taken after the decision, it was more limited in scope than previously, both in terms of the type of industrial action taken and the persons who took it.
Aurizon put both the Traincrew Agreement and its preferred version of the C&M Agreement out to employees for a vote and both were resoundingly agreed by employees. The C&M Agreement was then approved by the Commission on 21 August 2015.
The Federal Court appeal
On 3 September 2015, the Full Court handed down its decision and dismissed the application of the unions for judicial review of the decision of the Full Bench.
In relation to the interpretation of section 226 of the Act, the Full Court of the Federal Court found that the Full Bench of the Commission had not erred in its interpretation of section 226 of the Act.
The Full Court said that, while the objects sections of the Act were relevant, in so far as the Full Bench was required to exercise its discretion in a way that was not antagonistic to those objects, it is ultimately the sections of the Act themselves that better indicate what it is that the legislature intended to achieve by virtue of those sections.
Further, while the importance of enterprise agreements in the regulation of terms and conditions of employment under the Act cannot be refuted, there is no indication in the Act that the existence of a previously negotiated enterprise agreement necessarily encourages collective bargaining.
The unions also sought review of the Commission's decision on the basis that the Commission had failed to consider "a significant relevant consideration" when forming its views about the public interest for the purposes of s 226(a) of the Act by not having regard to the effect of termination of the enterprise agreements on a draft access undertaking given by Aurizon under State competition legislation.
In rejecting that ground, the Full Court said that there is no foundation in the terms of the Act for an implication that the Commission was bound to have regard to such an "undetermined effect" and that it was difficult to accept that the Commission would have regarded the matter as one which could materially have affected its decision.
Approval of the Traincrew Agreement
Also on 3 September 2015, the Traincrew Agreement was approved by the Commission, to take effect from 10 September 2015.
The significance of the decisions
The decisions of both the Full Bench of the Commission and then the Full Court of the Federal Court are significant in that those decisions represent the first time that there has been consideration by both a Full Bench and the Full Court of the application of section 226 of the Act.
The decisions also set out clearly and unambiguously the correct principles which are to apply when the Commission is considering an application to terminate an expired enterprise agreement.
Importantly, a robust approach has been taken and Tahmoor Coal, and the line of authority which followed it, has now been expressly overruled.
The decisions are of particular relevance for employers who were previously publically owned and who have been privatised.
The decision are also important for employers generally who may be engaged in protracted enterprise agreement negotiations but who had previously dismissed the potential of successfully applying to terminate an expired enterprise agreement in light of the previous line of authority.
Conclusion
Perhaps the best place to conclude is simply to quote a central paragraph from the Full Bench decision – one which reflects the position that Aurizon had been espousing all along during its efforts to reach agreement with the Unions:
Many of the provisions sought to be removed or varied are not common in most enterprise agreements. They restrict Aurizon in making business changes that it wishes to make in response to a competitive market situation. The restrictive provisions restrain Aurizon’s capacity to effectively manage its labour resource needs. Aurizon has endeavoured to negotiate changes to those provisions but the lengthy and comprehensive negotiations have not led to an agreement. Many of the changes sought by Aurizon in the negotiations seem to us to be rationally based. We readily understand its desire that its now private sector business no longer be restrained by provisions that were effectively imposed through the privatisation process. We do not think the changes proposed, objectively viewed, involve exploitation or unfairness in the terms and conditions of employment of Aurizon employees.
For further information, please contact:
Adrian Morris, Partner, Ashurst
adrian.morris@ashurst.com
