Workchoices and the Federal Court

Speech to the Industrial Relations Society of Tasmania

28 August 2006

Justice Shane Marshall

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There has been much commentary about the release of the Workplace Relations Amendment (Workchoices) Act 2005 (Cth) (“the WC Act”). Some of the media reporting has exaggerated the operation of some provisions. The changes do allow for greater management “flexibility” in the employment relationship. However, the legislation does not obliterate all the protection provided to employees under the old Act. Furthermore, the operation of many of the changes is yet to be conclusively determined.

Tonight I propose to address four issues. For convenience, I will refer to the Workplace Relations Act 1996 (Cth) as it existed prior to the WC Act amendments as “the old Act” and this legislation after the WC Act as “the new Act”.

The areas on which I will focus are also ones in which the Federal Court plays a central role in interpretation and enforcement. Other areas such as the amendments to the unfair dismissal jurisdiction, the establishment of the Australian Fair Pay Commission and the abolition of the “no disadvantage test” have been given extensive consideration elsewhere and are less applicable to the work of the Federal Court. As such, tonight I will discuss:

• duress in relation to Australian Workplace Agreements (“AWAs”);
• transmission of business;
• freedom of association; and
• unlawful termination.

The exact meaning of many of the changes is yet to be determined. Ultimately, some employers who seek to push the envelope in reliance on the amendments may discover the scope of some of the amendments has been exaggerated. The legislative changes to the provisions relating to transmission of business, duress in relation to AWAs, unlawful termination and freedom of association do not detract from the underlying principles behind the previous provisions. The WC Act has adjusted the way in which these principles apply without necessarily repudiating the underlying concepts.

Although the Federal Court has and will continue to play a central role in interpreting and enforcing the provisions relating to each of these areas, following the introduction of the WC Act, the Federal Magistrates Court now has concurrent jurisdiction in these areas. It is too early for there to be any solid data about the utilisation of the Federal Magistrates Court, but anecdotal evidence suggests that practitioners generally are continuing to favour the expertise in these areas offered by the Federal Court.

AWA duress

The requirement that “[a] person must not apply duress to an employer or employee in connection with an AWA…”, was found in the old Act at s 170WG(1) and is now found in substantially the same form in s 400(5) of the new Act. This provision has been the subject of a number of judgments of the Federal Court considering exactly what would amount to duress under the old Act.

The prohibition against applying duress in relation to an AWA is a civil remedy provision which attracts a maximum penalty of $6,600 per contravention (for an individual) and $33,000 per contravention (for a corporation) (see s 407(2)(zi) and s 4AA of the Crimes Act 1914 (Cth)). An action for penalty can be brought by the person entitled to recover the penalty in either the Federal Court or the Federal Magistrates Court.

The underlying policy behind the prohibition of duress was considered by a Full Court in Schanka v Employment National (Administration) Pty Ltd (2000) 97 FCR 186, which said “AWAs should be negotiated and concluded openly and freely at arm’s length without outside interference and without either party being deceived or misled”. It is now also well established that duress equates to the application of illegitimate pressure in relation to an AWA. It is also well established that requiring a person to enter into an AWA as a condition of employment will not, of itself, or necessarily, constitute duress (see the Full Court’s comments in Schanka). Rather, what will amount to “illegitimate pressure” is determined on the particular circumstances in each case.

In some circumstances, offering an AWA as a condition of employment has been found to amount to illegitimate pressure and duress. One example of this arose in the Schanka litigation. In Schanka v Employment National (Administration) Pty Limited (2001)

112 FCR 101, employees who had worked with a government employment agency (the CES) were offered employment with a Commonwealth authority in positions that involved performing the same or substantially the same work in the same positions and locations. This offer was conditional on the employees entering into AWAs. Moore J considered that these circumstances rendered the employees impotent in negotiating or bargaining about their terms and conditions.

In that case, the existence of an existing employment relationship was a significant element in the finding of duress. However, applying the policy basis for the prohibition on duress outlined by the Full Court, it seems possible that a requirement that a person enter an AWA as a condition of employment may still amount to duress, despite there being no pre-existing relationship. This may be so where the offer of employment which is conditional on the acceptance of an AWA amounts to illegitimate pressure due to the application of additional factors which may be designed to mislead or deceive.

In a recent decision considering the provisions of the old Act, Madgick J in Bishop v Ropolo Services Pty Ltd [2006] FCA 592, concluded that making a promotion conditional on the acceptance of an AWA did not, in the circumstances, amount to duress. Central to this determination was the finding that the applicant had not acquired a right or legitimate expectation that the promotion in question would be his [58]. Presumably, had the applicant acquired a right or a legitimate expectation to the promotion, his Honour would have found the requirement to enter into an AWA to amount to duress.

In an apparent attempt to clarify the circumstances which will or will not amount to duress, the WC Act introduced s 400(6) which states that “[t]o avoid doubt, a person does not apply duress for the purposes of [making an AWA] merely because the person requires another person to make an AWA as a condition of engagement”. Unfortunately, this new provision may create more doubt than it avoids. On its face, it seems to be consistent with the Full Court authority previously referred to, that requiring a person enter into an AWA as a condition of employment will not, of itself, or necessarily, constitute duress. The legislation states that duress does not arise merely because an AWA is a condition of engagement. Therefore, an offer of employment, conditional on signing an AWA, would not amount to duress unless the surrounding circumstances, considered in their entirety, amount to “illegitimate pressure”. These surrounding circumstances may be that the applicant had a legitimate expectation to the position, or perhaps other circumstances where the prospective employee or employer is misled or deceived in a manner amounting to outside interference.

However, the Explanatory Memorandum seems to suggest a more expansive reading of s 400(6), stating “[t]his means that an employer may make an AWA a condition of the person becoming an employee”. If the Explanatory Memorandum is suggesting that an offer of employment, conditional on making an AWA cannot amount to duress, such a reading may arguably strip the prohibition against duress of any real meaning. Ultimately, whether this has occurred will require judicial determination.

Transmission of business

The transmission of business provisions exist in the Workplace Relations Act to enable the “transfer of employer obligations under certain instruments when the whole, or a part, of a person’s business is transmitted to another person”. These provisions aim to ensure that employee conditions are protected when a business, or part of a business, is sold. This also aims to prevent employers avoiding industrial instruments by “outsourcing” work to contractors.

Under both the new and old Act, the transmission of business provisions apply to a successor, transmittee or assignee of the whole, or part of, a business (s 580). The High Court of Australia in PP Consultants v Finance Sector Union of Australia( 2001) 201 CLR 648, determined that the relevant test of whether a person is a successor, transmittee or assignee is the “characterisation of business test”. The application of this test shifted the focus from the activities of the employee to the activities of the employer. Whereas the previous “substantial identity test” compared the activities undertaken by the employee, the test in PP Consultants requires the identification of the character of the business of the previous employer, the identification of the transferred business activities in the hands of the new employer and then a comparison of the two. If, in substance, they bear the same character, then the new employer will be taken to have succeeded to the business or part of the business of the previous employer.

An example of the application of the characterisation of business test arose in CFMEU vGeelong Grammar School PR925746 (16 December 2002), where this test was applied by a Full Bench of the Australian Industrial Relations Commission (“AIRC”). That case concerned the “in-sourcing” of maintenance and gardening services from a contractor back to a school. Whilst the activities of the employees remained relatively unchanged and some employees were transferred, the Full Bench identified the character of the business of the first employer as a commercial maintenance and gardening enterprise which operated for profit. This was contrasted with the character of the business of Geelong Grammar, being that of running a school. As such, there was held to be no transmission of business.

PP Consultants was followed in 2005 by the judgment in Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd (2005) 214 ALR 24, in which the High Court again read down the meaning of “successor, transmittee or assignee”. There, the High Court held that to be a “successor” to a business, or part of a business, there must be some legal nexus between the two businesses. In that case, the application related to a licence to perform certain work withdrawn from one company and issued to another, without there being any direct legal nexus between the two companies. This therefore failed to amount to a succession sufficient to enliven the transmission of business provisions.

The new Act does not seek to make any amendments to the operation of the characterisation of business test or the requirement that there be some legal nexus in order to be a successor to a business. However, the WC Act has devoted an entire part of the new Act to transmission of business. The concept of a “transferring employee” (ss 581 and 582) has been introduced so that only these employees are entitled to maintain their previous conditions with the new employer, and then only for the “transmission period” of 12 months (s.580(4)). This amendment prevents the “contamination” of businesses which acquire other businesses or parts of other businesses with industrial instruments inherited from the acquired businesses. Thus, whilst the amendments do not prevent the transmission of industrial instruments to successors, transmittees or assignees, the new Act now appears to severely limit the extent and duration of the application of these instruments to the new employer.

Freedom of association

Part 16 of the Act relating to freedom of association, formerly Part XA, includes two new objects:

• to provide effective relief to those prevented from exercising their rights to freedom of association; and
• to provide effective remedies to penalise and deter breaches of these provisions.

Whilst these objects were not expressly stated in the old Act, they were undoubtedly implicit in the structure of Part XA. Indeed, much of the old Part XA has been re-enacted or, rather, renumbered. The Explanatory Memorandum describes the new provisions as “replicate[ing] and build[ing] on pre-reform freedom of association provisions and add[ing] specific measures to improve freedom of association protection”.

The protection against dismissal etc. of members of industrial associations for a prohibited reason, previously in s 298K has been re-enacted in s 792.

Similarly, the list of prohibited reasons, previously in s 298L has been largely replicated in new s 793. Section 298V of the old Act, a reverse onus of proof provision, has also been replicated in s 809. However, the provisions relating to the prohibition against action for a prohibited reason and the reverse onus of proof have been amended, building in additions and exemptions to their operation.

Despite these additions and exemptions, the heart of the freedom of association provisions remains. For example, it is still unlawful for an employer to dismiss an employee for a reason which includes the reason that the employee is a delegate of an industrial association. If such a proceeding is brought under the new Act, it will still fall to the employer to prove in a final hearing that the prohibited reason, such as delegate status, was not a reason for the termination in the sense of not being an operative factor in the reasons for the dismissal. The remedies available to a person who has been treated unlawfully under the freedom of association provisions include a pecuniary penalty against the defendant, financial compensation for damage suffered as a result of the contraventions and any other order the Court considers appropriate, including injunctions and other orders considered necessary to stop the conduct or remedy its effects (see s 807). The provisions relating to penalties have been substantially re-written and it would be premature to comment on their application without having the benefit of proper submissions, however, on its face, “any other orders that the Court considers necessary to stop the [unlawful] conduct or remedy its effects” does not appear to exclude reinstatement (see Bowling v General Motors-Holden Pty Ltd (1980) 50 FLR 79 at 98) or compensation for non-economic loss (see CEPU v ACI Operations Pty Ltd [2006] FCA 122).

Of the WC Act amendments that build on pre-reform measures adding measures to “improve freedom of association provisions”, I will briefly mention three here.

First, s 792 prohibiting the “ dismissal etc. of members of industrial associations etc” now also extends to cover independent contractors. As such, it is now unlawful to terminate the contracts of independent contractors, injure them in the terms and conditions of their engagement, alter their position to their prejudice, refuse to hire another person or otherwise discriminate against them for a prohibited reason. Whilst this does give welcome protection to independent contractors, it also adds an additional restriction on union attempts to influence the choice of independent contractors by employers.

Second, the effect of s 792(4) is that an employer does not contravene s 792(1) prohibiting dismissal etc, unless the employee’s entitlement to the benefit of an industrial instrument or similar is the “sole or dominant reason” for the employer engaging in conduct falling within s 792(1). The application of the “sole or dominant reason” test, rather than the “substantial and operative factor” test places a greater evidentiary burden on the applicant alleging breach of their right to freedom of association. This amendment will have particular application to circumstances where an employer engages in conduct motivated to introduce business efficiencies or cost savings by allowing employers to discriminate against a person for reasons which include their entitlements to the benefit of an industrial instrument, so long as that is not the sole or dominant reason for their actions.

Thirdly, the reverse onus provision in s 809 “does not apply in relation to the granting of an interim injunction” pursuant to s 809(2). Whether this limitation applies to all injunctions, be they interim injunctions or interlocutory injunctions, is less clear. A distinction between an interim or interlocutory injunction is suggested by s 838 which specifies that, “[i]f, under a provision of this Act, a court may grant an injunction, the court may, if in its opinion it is desirable to do so, grant an interim injunction pending its decision on the granting of an injunction”. This would suggest that the reverse onus may still apply to an interlocutory injunction. The Explanatory Memorandum compounds the confusion, describing the purpose of the new provision as addressing “the problems that can arise from the interaction of the reverse onus with the ‘balance of convenience’ test that applies to interim injunctions”. The balance of convenience test applies to both interlocutory injunctions and interim injunction. So, whether the reverse onus for freedom of association will continue to apply in applications for interlocutory injunctions will undoubtedly be the subject of judicial determination.

Unlawful termination

Given the reduction of the AIRC’s unfair dismissal jurisdiction, it has been anticipated that the provisions prohibiting termination for an unlawful reason may adopt greater significance.

Under the new Act as under the old Act, an employer must not terminate an employee’s employment for one or more of the following reasons, or for reasons including any one or more of the following reasons:

• temporary absence from work because of illness or injury;
• trade union membership or participation in trade union activities;
• non-membership of a trade union;
• seeking office as, or acting or having acted in the capacity of, a representative of employees;
• the filing of a complaint, or the participation in proceedings, against an employer;
• refusing to negotiate, make, sign, extend, vary or terminate an AWA;
• absence from work during maternity leave or other parental leave; or
• temporary absence from work because of the carrying out of a voluntary emergency management activity.

The same is true if a person is terminated for a reason including race, colour, sex, sexual preference, age, physical or mental disability, marital status, family responsibilities, pregnancy, religion, political opinion, national extraction or social origin, however the “inherent requirements” defence may be employed if termination occurs for one of these reasons.

A person can apply under s 663 to the Federal Court, or now the Federal Magistrates Court, for an order for reinstatement, compensation and a penalty against the employer of up to $10,000 (s 665). However, again, as required by the old Act, a potential applicant must first obtain a certificate from the AIRC that all reasonable attempts to settle the matter by conciliation are, or are unlikely to be, unsuccessful.

Many of the elements of this part under the old Act remain intact. However, one significant amendment to the unlawful termination scheme has been the limitation placed upon the discretion of the Courts to make orders where a person is found to have contravened the provision.

The old Act provided the Federal Court with discretion to make any other order it thinks necessary to remedy the effect of an unlawful termination. In exercising this discretion, a Full Court in Burazin v Blacktown City Guardian Pty Ltd (1996) 142 ALR 144, held that the shock, humiliation and distress suffered by the applicant caused by the circumstances of her unlawful termination were matters relevant to the quantum of compensation. Following amendments introduced by the WC Act, compensation for “shock, distress or humiliation, or other analogous hurt, caused to the employee by the manner of terminating the employee’s employment” is no longer available (s 665(2)).

In order to assist those who believe that they may have been terminated unlawfully, the Commonwealth has introduced an “Unlawful Termination Assistance Scheme” or “UTAS” providing up to $4,000 of independent legal advice on the merits of a potential claim. The UTAS has been structured in such a way that the practitioner providing the legal advice under the scheme cannot represent the applicant in subsequent legal proceedings. The advantage to applicants is obvious, yet the scheme may also provide a benefit to employers. Experience in the Federal Court has shown that unlawful dismissal claims are being brought in increasing numbers by litigants in person. Initial legal advice to these applicants may, in some cases, facilitate mediation. In other cases, procedural advice on how to bring an application may help minimise delays and additional expenses incurred in defending this type of claim.

Conclusion

In summary, whilst the WC Act does make some very significant changes to the industrial relations landscape, it has not entirely swept away established principles. In particular:

• it is still unlawful to apply duress in relation to an AWA;
• when acquiring a business as the successor, transmittee or assignee, the employer must continue to afford employees of that business the protection of the same industrial instruments that he or she enjoyed prior to the transmission;
• freedom of association provisions still prevent an employer from dismissing or otherwise harming an employee because of his or her membership of an industrial association; and
• it remains unlawful to terminate an employee for any of the prescribed reasons.

Each of these provisions contains enforcement or penalty provisions which operate in a similar way under the new Act as they did in the old Act. Perhaps the most significant amendment introduced by the WC Act in relation to the jurisdiction of the Federal Court is that this jurisdiction is now shared with the Federal Magistrates Court. Between the two Courts there will also be a significant amount of work required to clarify the precise meaning of some provisions of the new Act. Until this has been achieved, employers, employees and unions would be well advised to consider the terms of the legislation prior to changing industrial practices in response to the perceived changes to the Workplace Relations Act.