Home When does insourcing trigger an obligation to consult?

UpdatesAug 13, 2020

When does insourcing trigger an obligation to consult?

Enterprise agreements made under the Fair Work Act 2009 must include a term requiring the employer and the employees, to which the agreement applies, to consult the employees about a major workplace change that is likely to have a significant effect on the employees.

4 mins read

Enterprise agreements made under the Fair Work Act 2009 must include a term requiring the employer and the employees, to which the agreement applies, to consult the employees about a major workplace change that is likely to have a significant effect on the employees.

The Act provides for a model consultation clause that is automatically included if the agreement parties do not agree on a consultation term. The model consultation clause requires employers to consult with employees when:

  1. the employer has made a definite decision to introduce a major change to production, program, organisation, structure or technology in relation to its enterprise; and
  2. that change is likely to have a significant effect on employees.

The Fair Work Commission (FWC) has recently determined that the decision of an employer to cease the engagement of a company contracted to provide services and replace it with the employer’s subsidiary company was not an action that triggered the obligation to consult with employees under the model consultation clause of the relevant enterprise agreement.

In CFMMEU v BHP Coal Pty Ltd (2020) the union objected to an employer’s decision to insource a function from a contractor to a subsidiary of the employer, arguing that the subsidiary was indistinguishable from the employer except it provided inferior terms and conditions to its employees. The union asserted that this was a ‘major change’ to the organisation or structure of its enterprise because it significantly changed the composition and operation of the workforce at the enterprise, which was likely to have a significant effect on employees. The union contended the employer had been required to consult with employees covered by its enterprise agreement.

In considering these arguments, the FWC gave an expansive interpretation to the first limb of the model consultation clause, saying that an enterprise encompasses “all mechanisms and structures” used by an employer to conduct its business. The first limb does not require a workplace change to operate directly on the terms and conditions of employment or to personally affect employees, but instead concerns matters such as the employer’s organisational structures, labour, plant and equipment. In this instance, the FWC held the first limb was satisfied because changing labour hire companies involved significant numbers of employees and changed the structure of the employment arrangements at the workplace. This was enough to say that there was a major change to the organisation and structure of the enterprise.

The FWC noted the second limb is narrower than the first limb and requires the major workplace change to be likely to have a significant effect on agreement-covered employees directly. There are a range of matters captured by the model consultation clause that are relevant to assessing whether there has been a “significant impact” on employees. Some of these matters include termination of employment, a major change to the composition, operation or size of the workforce or skills required of employees, and the diminution of job opportunities.

The main issue in dispute between the union and employer was whether or not there had been “a major change to the composition, operation or size of the workforce or skills required of employees”. The FWC determined that the term ‘workforce’ was not to be interpreted narrowly, and includes not only employees, but any person who undertakes work at the enterprise. This meant it was necessary to consider the change in number and composition of contractors at the workplace in order to determine whether or not there was “likely to be a significant effect” on employees.

Ultimately, the FWC held that although replacing the former contractor with the subsidiary had resulted in a change to the identity of the contractors performing the work for the employer, there was no change to the overall number of contractors or employees, to the work being performed or to the skills required by employees to perform their roles. Because there was no major change to the composition, operation or size of the workforce, the change was therefore not “likely to have a significant effect” on employees, and the union’s bid to stop the employer from implementing this change failed.

Copied