Enterprise Agreement Carve Out Clarity: Are You In Or Are You Out?



The Federal Court has handed down a decision in John Holland Pty Ltd v Construction, Forestry, Mining and Energy Union [2014] FCA 286 (27 March 2014)  which clarifies the approval process the Fair Work Commission (FWC) is charged with when considering the 'fairly chosen' requirements under the Fair Work Act 2009 (Cth) (Act).

The Federal Court found that the Full Bench of the FWC fell into jurisdictional error when it quashed Deputy President McCarthy's approval of John Holland Pty Ltd's (Company) Western Region Agreement Western Australia 2012-2016 (Agreement).

Ultimately, the Federal Court found that it is not the task of the FWC to prospectively consider who may be covered by an enterprise agreement when considering the fairly chosen requirements of the Act.

In reaching this decision, the Federal Court has introduced flexibility into the agreement making process by allowing employers to make enterprise agreements for bulk areas of its operations, while still having the ability to make more specific project agreements at a later date.

The Facts

The Company was awarded the head construction contract to build the new children's hospital in Perth, Western Australia. To undertake this project, the Company planned to perform the vast majority of work through subcontractors and to directly employ only a relatively small number of employees to carry out the contract.

It was expected that total number of direct employees would be 25. This figure would include labourers, form workers, tow crane operators, riggers and doggers.

On 12 January 2012, the Company met with three employees at a site office to make the Agreement pursuant to the Act. The agreement making process was explained at the meeting and the three employees appointed themselves as bargaining representatives for the proposed Agreement.

On 13 February 2012, the three employees voted in favour of the proposed Agreement.

At the time the Agreement was made, the Company was also tendering as head contractor for other government projects in Western Australia. It also employed a broad range of employees in work classifications nationally, from clerical to construction work.

Relevantly, the Agreement contained the following scope and carve out clause.

1.1 This agreement is made under the Fair Work Act 2009 (Cth) and subject to clause 1.2 those bound by this agreement are:

(a) John Holland Pty Ltd ABN 11 004 282 268 (the Company); and 

(b) All employees of John Holland Pty Ltd performing building or civil construction work in Western Australia in accordance with a classification specified in this Agreement (Employees).

1.2 Any project or site specific agreement entered into by the Company or by any joint venture or similar business arrangement of which the Company is part, will cover and apply to the Company and any employees at that particular project or site to the exclusion of this Agreement.

Importantly, the three employees who voted in favour of the Agreement were the only employees covered by the Agreement who were employed by the Company at the time that it was made.

The job classifications contained in the Agreement included job classifications in addition to those in which each of the three employees were covered. Therefore it was likely that employees not presently covered by the Agreement would be covered at some point in the future. Further, at the time of making the Agreement, there were no agreements of the kind referred to in clause 1.2.

First Instance Decision

The Company applied for the Agreement to be approved by the FWC on 13 February 2012. On 22 March 2012, Deputy President McCarthy heard the approval application and an objection to approval which was lodged by the Construction, Forestry, Mining and Energy Union (CFMEU).

The Deputy President approved the Agreement despite the objection. In considering the fairly chosen requirements, it was held that the employees selected to vote were, at the time the Agreement was made, operationally and geographically distinct. Therefore, at the time the Agreement was made, there were no additional employees within the Company who should have had an opportunity to vote on the Agreement.

This decision was appealed by the CFMEU to the Full Bench of the FWC.

The Full Bench's Decision

On appeal, the Full Bench quashed the approval decision of the Deputy President. The key concern for the Full Bench was that the nature of clause 1.2 of the Agreement created "significant doubt [as to whether] it would be possible to make any definitive finding as to the group of employees covered by the agreement for the purposes of [the fairly chosen requirements of the Act]."

The Full Bench further stated that such an assessment could only occur by analysing

"…how many building and civil construction employees are now covered or may in the future be covered by site-specific agreements. As it is not possible to identify with any certainty the group of employees to be covered by the agreement, it is not possible to be satisfied that the group of [three] employees was fairly chosen as required by [the Act]."

Essentially, the Full Bench was concerned that it was not in a position to know how many employees may be covered by the Agreement in the future thereby undermining those potential future employees collective bargaining rights under the Act.

Decision on Appeal

Justice Siopis of the Federal Court quashed the Full Bench decision and found that it fell into error when considering what future employees 'may' be covered by the Agreement.
In reaching his decision, Justice Siopis stated:

  • The Act calls on the FWC to be satisfied that the group of employees covered by the Agreement 'was' fairly chosen. It is of significance that the past tense 'was' is used. This directs the FWC to have regard to the conduct of those persons who made the Agreement and the content of the Agreement.

  • There is nothing in the language of the Act that conditions the FWC's exercise of power to approve enterprise agreements or that makes it necessary to satisfy the FWC as to the number of employees who will, or may, during the term of the Agreement, be covered by the Agreement. To ask such a question is a misapprehension of the statutory approval task entrusted to the FWC.

  • Therefore, the inclusion of a clause which contemplates a potential change in circumstances did not affect the fairness of the criteria chosen to identify the group of three employees who were, in the absence of such circumstances, to be covered by the Agreement.

Significance for Employers

The decision provides clarity on the ability of an employer to make an enterprise agreement which contemplates certain exclusions of its workforce due to possibility of making further project specific agreements in the future.

This is important as it introduces flexibility on the part of an employer to make geographically large enterprise agreements which will be the 'default' agreement for employees to roll onto at the conclusion of certain project agreements, while still having the flexibility to make project specific agreements and ensure that appropriate staffing of those projects can occur.

Previously, such agreement making was fraught with danger as it was possible to inadvertently tie up aspects of an employer's workforce under an enterprise agreement and not be able to mobilise them to a project without contravening the one enterprise agreement shall apply to an employee at any given time rule under the Act.

Topics:  Australia, Contract Formation, Fair Work Commission

Published In: General Business Updates, Construction Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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