By Charles Power

It is not uncommon for union bargaining representatives to seek the inclusion of ‘job security’ clauses in enterprise bargaining agreements (EBAs).

These clauses prevent the employer from using third party contractors in a way that might undermine job security and conditions for the employees covered by the EBA.

The Federal Court decision in ETU v Walz Group Pty Ltd (2018) is an important reminder that penalties can be imposed for breaches of job security provisions in an EBA.

In this case, the employer and the union had entered into an EBA relating to the construction of a copper processing plant.

The employer was required to consult with potentially affected employees and the union before using contractors that might perform work that was to be performed by the employees under the EBA.

It also required employees engaged by any contractor to perform the work to be offered the same terms and conditions (or no less favourable terms) as the employees under the EBA.

Walz Group had subsequently engaged a contractor company to fulfil work that had been awarded to the employer in association with the construction of the copper processing plant. The employer failed to consult with the union prior to entering into the agreement with the contractor company.

The contractor company employees were engaged to perform work, similar to the work that was to be performed by employees under the EBA. Also, they were not offered the same terms and conditions (or no less favourable terms) as the employees under the EBA.

The union sought the imposition of a pecuniary penalty against the employer for breach of the EBA.

In its defence, the employer submitted that the scope of the work to be performed by the contractor company and its employees was outside the EBA’s coverage.  They also argued that the consultation clause was not enlivened because it only applied in circumstances where there was an existing employee performing the specific work that was being assigned to the contractor company.

The employer further argued that to the extent the clause sought to apply to future employees, this fell outside the scope of matters permitted to be included in enterprise agreements under the Fair Work Act.

However, the court did not accept the employer’s reasons for failure to comply with its consultation obligations or the job security clause.

They ruled the purpose of the clause was to prevent an employer terminating the employment of existing employees and then contracting the work out at a lesser and cheaper rate. As a result, the job security of employees under the EBA was enhanced because of this requirement.

The court noted the importance of consultation and job security clauses in enterprise agreements lawfully approved under the Fair Work Act and that it was in the public interest to impose penalties in the circumstances.

They also stated that the obligation to consult was one that falls squarely within a ‘permitted matter’, as described under the Fair Work Act, being ‘matters pertaining to the relationship between the employer and employers, and the employee organisation or employees’ organisations, that will be covered by the EBA’ (emphasis added).

The employer was ordered to pay penalty of $20,000 for the its failure to consult with the Union about the proposed engagement of contractor company and a further penalty of $20,000 because the contractor’s employees were not engaged on terms and conditions which were the same or no less favourable than those contained in the EBA.

Lessons for employers

Employers may be exposed to orders and penalties for failure to comply with the terms of enterprise agreements, or other applicable industrial instruments.

In this case, the union was only able to seek orders of declaration and pecuniary penalty. In some circumstances, a party to the agreement (whether the union or an employee) may apply to the court for an injunction to prevent any action that is inconsistent with the terms of the enterprise agreement.