• Enterprise Update - Full Bench Rules Contracting Out Restrictions, Union Entry and Union Recognition Clauses Lawful In Enterprise Agreements
  • October 20, 2011
  • Law Firm: Norton Rose Canada LLP - Montreal Office
  • In The Australian Industry Group v ADJ Contracting Pty Ltd [2011] FWAFB 6684, a Full Bench of Fair Work Australia determined that the following three clauses, commonly advocated by unions, are not “unlawful terms” and can be included in enterprise agreements:

    • contracting out clause - requiring the employer to only engage contractors who apply wages and conditions that are no less favourable than that provided for in the Enterprise Agreement,
    • entry clause - permitting union entry into the workplace to represent an employee for dispute resolution purposes, and
    • union recognition clause - encouraging union members to participate in union meetings and requiring the employer to promote union membership.

    The contracting out clause

    The “contracting out” clause required that, if the employer wished to engage contractors to do work that would be covered by the Enterprise Agreement, the employer could only hire contractors that applied wages and conditions that were no less favourable than those in the Enterprise Agreement.

    The Australian Industry Group (AIG) and the Australian Mines and Metals Association Inc. (AMMA) argued that FWA should not have approved the Enterprise Agreement because this clause:

    • required the employer to breach the “adverse action” provisions of the Fair Work Act 2009 (Cth) (FW Act), by discriminating against contractors on the basis of the contractor’s “workplace rights”, and
    • breached section 45E and 45EA of the Competition and Consumer Act 2010 (Cth) (CC Act) because it was an arrangement or understanding between ADJ Contracting and a union that ADJ Contracting would not engage contractors unless they satisfied certain conditions.

    The Full Bench unanimously held that the clause did not require or permit a breach of the “adverse action” provisions, because the clause did not deal with specific enterprise agreement terms, just with the terms a contractor must apply. It also held that the contracting out clause did not breach section 45E or 45EA, because the Enterprise Agreement wasn’t an “arrangement or understanding” with a union for the purposes of the CC Act.

    The entry clause

    The “entry” clause permitted a union official to enter ADJ Contracting’s workplace to assist with representing an employee under the Enterprise Agreement’s dispute resolution procedure.

    AIG and AMMA argued that FWA should not have approved the Enterprise Agreement because it provided for right of entry, other than in accordance with Part 3-4 of the Fair Work Act 2009 (Cth) (FW Act), and in that way was an unlawful term under section 194 of the FW Act.

    The majority (2 to 1) of the Full Bench held that because the clause related to entry for the purpose of dispute resolution only, it was a term that dealt with different rights to the right of entry provided by the FW Act and was therefore lawful.

    The union recognition clause

    Clauses 16(b) and (d) of the Enterprise Agreement provided:

    “(b) Union membership shall be promoted by the Employer to all prospective and current employees.
    (d) The employees who are members of the ETU shall be encouraged to participate in Union meetings and exercise their democratic rights”.

    AIG and AMMA argued that the Enterprise Agreement should not have been approved because the clause “induced” union membership, in contravention of section 350 of the FW Act.

    The Full Bench unanimously held that while the clauses promoted union membership, they did not require the employer to “induce” union membership. However, the Full Bench noted that it was hypothetically possible that an employer applying the clause could breach the prohibition on inducing union membership under the FW Act, but there was no evidence that had occurred here.

    Key points for employers

    The ADJ Contracting case means that enterprise agreements may contain clauses:

    • that prevent the employer from hiring contractors that pay their workers less than the terms and conditions in the enterprise agreement
    • that permit union entry for the purpose of representing an employee in dispute resolution procedures, and
    • that require employers to “promote” union membership, or that otherwise encourage union membership.

    However, employers should be particularly aware of what the ADJ Contracting case does not extend to.  For example, the case does not state that clauses can be included that:

    • prevent the employer from hiring contractors unless the contractors have an enterprise agreement binding a particular union,
    • allow union entry for any purpose, or
    • requires the employer to pressure their employees into becoming union members.