The Case

The Loy Yang Power Enterprise Agreement 2012 (Agreement) covered employees who worked at the Loy Yang open cut coal mine and the Loy Yang A Power Station. The nominal expiry date of the Agreement was 31 December 2015.

Between July 2015 and July 2016, Loy Yang and the affected unions had been in negotiations for a new enterprise agreement. In July 2016, Loy Yang filed an application with the Fair Work Commission (FWC) to terminate the Agreement pursuant to section 225 of the Fair Work Act 2009 (Cth) (FW Act).

Loy Yang sought to terminate the Agreement because negotiations had become intractable and the continued operation of the Agreement was hampering negotiations. Loy Yang sought changes to the Agreement that it claimed restricted its ability to make operational decisions and improve productivity. These restrictions involved:

• fixed manning numbers;
• limitations on alterations to rostering;
• limits on using skilled staff, including relief staff, productively;
• limitations on hiring contractors;
• a prohibition on forced redundancy; and
• no cap on the amount of time off in lieu that employees could accrue.

The unions’ bargaining representatives resisted the proposed changes and sought alterations to the Agreement that would improve employee benefits and entitlements.

Throughout the prolonged bargaining process:

• various applications had been made to the FWC – for assistance with bargaining and protected action ballot orders;
• there had been 37 bargaining meetings;
• 14 conferences had been facilitated by the FWC; and
• two reform proposals had been voted on and rejected by employees, including one based on terms recommended by the FWC.

The Construction, Forestry, Mining and Energy Union (CFMEU) argued that termination of the Agreement was contrary to the public interest because it would:

• give Loy Yang a more powerful bargaining position;
• hinder cooperation;
• reduce industrial and safety net standards;
• result in future job losses; and
• encourage employees to take protected industrial action.

Verdict

The FWC decided to terminate the Agreement on the following grounds:

• there is ‘no general presumption’ that to achieve the objects in the FW Act the continuation of an agreement beyond its nominal expiry date is to be preferred;
• the FW Act does not require agreements to continue ‘in perpetuity’;
• termination of the Agreement was not contrary to the public interest, and that the estimates of future job losses was speculative and not a foreseeable consequence;
• any change in the bargaining positions of the parties should be viewed within the context of the FW Act, and protected industrial action was still available to employees, as well as FWC assistance;
• industrial standards were not at risk because the relevant modern Award and the National Employment Standards (NES) created a safety net for employees;
• Loy Yang gave an undertaking to retain certain conditions of the Agreement for 3 months;
• the changes sought to be made by Yoy Lang had a rational basis that would increase productivity;
• the FW Act did not limit the termination of enterprise agreements only to employers in financial distress; and
• the dispute had become intractable and a ‘change in the status quo’ was required to progress bargaining.

The CFMEU appealed the single member FWC decision to the Full Bench which upheld the FWC decision. While the Full Bench found one error – namely that Loy Yang’s commitment in clause 4 of the Agreement to maintain certain terms and conditions of employment until a new agreement was made could not have legal effect once the Agreement was terminated – it found that “the undertaking proffered by AGL Loy Yang in the appeal … effectively involves adherence to the clause 4 commitment for as long as could reasonably have been expected by anybody”. The Full Bench found the undertaking dealt with the error and upheld the decision to terminate the Agreement.

Lessons for You

Terminating an enterprise agreement that has passed its nominal expiry date is a powerful tool that can be used in appropriate circumstances to assist in bargaining for new enterprise agreements.

The decision at first instance and on appeal confirms that expired enterprise agreements may be terminated where:

• the enterprise agreement contains terms that significantly restrict the employer’s productivity;
• the existence of the current enterprise agreement is inhibiting negotiations for a new enterprise agreement;
• the parties have exhausted alternative avenues to reach agreement;
• there are sufficient protections in place for employees, such as access to protected industrial action, award conditions and the NES; and
• the employer’s proposal has a rational basis.

Employers should avoid including terms in enterprise agreements that require them to maintain certain conditions following an application to terminate an enterprise agreement.

Please note: Case law is reported as correct and current at time of publishing. Be aware that cases in lower courts may be appealed and decisions subsequently overturned.