• Australia: Australian Fair Work Commission Signals New Willingness to Terminate Restrictive Enterprise Agreements that have Passed Their Nominal Expiry Dates
  • May 26, 2015 | Author: Adam Salter
  • Law Firm: Jones Day - Sydney, New South Wales Office
  • A Full Bench of the Fair Work Commission (the "FWC") in Aurizon Operations Limited: Aurizon Network Pty Ltd [2015] FWCFB 540 has ordered the termination of 12 enterprise agreements that had passed their nominal expiry dates.

    Aurizon was privatized by the Queensland government in 2010. During the course of privatization, the government oversaw the inclusion of generous terms and conditions for employees, and the imposition of inflexible restrictions on the employer, in Aurizon's enterprise agreements. This included a prohibition on forced redundancies and restrictions in relation to rostering and the tasks employees could be asked to perform, which produced a significant loss of productivity. The nominal expiry date for the agreements was December 31, 2013, and in May 2014, Aurizon applied to have the agreements terminated.

    Once an enterprise agreement reaches its nominal expiry date, it operates indefinitely until it is replaced by another agreement or is terminated by the FWC. Under section 226 of the FWA, the FWC must terminate an enterprise agreement after its nominal expiry date has passed if the FWC is satisfied that:

    • "It is not contrary to the public interest to do so"; and
    • "It is appropriate to terminate the agreement taking into account all the circumstances," including the views of the parties covered by the agreement and the "likely effect that the termination will have on each of them."

    The FWC had previously shown a reluctance to terminate enterprise agreements under section 226 when bargaining was ongoing, which often left employers with inflexible and restrictive agreements that were effectively indefinite in operation. However, in the Aurizon decision, the Full Bench decided to terminate the enterprise agreements, effective from May 18, 2015, as both aspects of the statutory test in section 226 were satisfied.

    The Full Bench stated that there is no inherent inconsistency between "the termination of an enterprise agreement that has passed its nominal expiry date and the continuation of collective bargaining in good faith for an agreement." Further, it was recognized that termination of an unproductive agreement might actually further the objects of the FWA by incentivizing the negotiation of a replacement agreement.

    Relevant factors included that: (i) bargaining had reached a stalemate, (ii) Aurizon undertook that the employees' wages and allowances under the agreements would continue for six months, (iii) the changes sought by Aurizon were "rationally based" on a desire to change "clearly inefficient" work practices, and (iv) many provisions in the agreements were "not common" and were imposed on Aurizon as a result of the company's "peculiar history" of privatization. For those reasons, termination was both appropriate and consistent with the public interest.

    This decision signals a new willingness to terminate expired enterprise agreements that are particularly restrictive, even if bargaining is ongoing. It paves the way for employers who are subject to restrictive expired enterprise agreements to seek termination of those agreements, where negotiations for a replacement agreement have failed and they can show that termination is appropriate and not contrary to the public interest. While the circumstances in the Aurizon decision were fairly unusual, the Full Bench's pragmatic recognition that enterprise agreements are not intended to "continue unaltered in perpetuity" leaves open the possibility for employers to apply to have such agreements terminated in the future.