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Australia – Greenfields Agreements Under The Fair Work Act: A Genuine Risk Or Opportunity?

12 November, 2012

 

Legal News & Analysis – Asia Pacific – Australia – Labour & Employment

 

In brief

 

  • This alert examines key issues concerning greenfields agreements, including the benefits to an employer of making a greenfields agreement, the legal requirements for the making and approval of such an agreement, and the typical legal issues that arise if the approval of an agreement is contested.
  • This alert also sets out a number of recommendations for employers to enable them to maximise the opportunities presented by the greenfields agreement provisions, and avoid or minimise the associated risks.

 

Greenfields agreements – of critical importance in some industries

 

Of the three types of enterprise agreements that can be made under the Fair Work Act 2009 (Cth) (the Act) greenfields agreements currently represent 6.4% of all enterprise agreements that are made. Despite what seems a low take up rate, the making of a greenfields agreement containing terms and conditions of employment appropriate to the new enterprise can often be critical to the success of a business or project.

 

Greenfields agreements are used extensively in some industries – for example, of all greenfields agreements made in a two year period under the Act, 67% were made in the construction industry: See Towards more productive and equitable workplaces – An evaluation of the Fair Work legislation, p 170. Further, greenfields agreements cover some of the most significant major projects in Australia, such as the Thiess Degremont desalination plant in Wonthaggi, the Wiggins Island Coal Export Terminal in Gladstone and the Gorgon LNG Project at Barrow Island.

 

What are the benefits to an employer of making a greenfields agreement?

 

There are a number of potential benefits to an employer of making a greenfields agreement, including that such an agreement: 

 

  • can offer certainty about the terms and conditions that will apply to the prospective workforce and ensure that protected industrial action will not be available to employees when work starts;
  • will contain terms and conditions suited to the particular project or undertaking;
  • will provide certainty to the prospective workforce about their entitlements, which can be reflected in offer documentation;
  • must contain mandatory provisions required to be contained in all enterprise agreements concerning consultation, dispute resolution and flexibility;
  • may contain demarcation arrangements between unions (agreed before the project starts), which will ensure that the risk of disputation between unions is avoided or minimised; and
  • can be the difference between a successful and unsuccessful tender for a project where a condition of the tender is satisfying the vendor that the supplier has an agreement and other industrial relations arrangements in place that will enable the project to be built to completion in a timely way, and on budget.

 

Realising each of these benefits will, however, depend on an employer making a number of sound choices including:

 

  • carefully defining the scope of the new enterprise – for example, the business needs and client base it is intended to service;
  • choosing the best time to negotiate and make an agreement when the employer’s bargaining leverage is at its strongest;
  • negotiating terms and conditions which promote rather than hinder the objectives of the project and which will allow employees with the right skill-set to be recruited and retained;
  • choosing an appropriate and co-operative union or unions which are best placed to represent employees; and
  • successfully navigating the legal issues that arise when making and seeking to have a greenfields agreement approved, including resisting attempts by competing unions to convince Fair Work Australia not to approve the agreement.

 

When can a greenfields agreement be made?

 

A greenfields agreement is made between an employer and one or more unions in relation to a genuine new enterprise (such as a new business venture or project) before the employees who would be covered by the agreement are employed.

 

The conditions for the making of a greenfields agreement have varied with different iterations of the industrial legislation, with the result that the availability and attractiveness of making such agreements for employers has changed from time to time. For example, under the Industrial Relations Act 1988, a union greenfields agreement could be made in response to an industrial dispute about matters pertaining to the relationship between an employer and its employees. There were few restrictions on the making of a greenfields agreement so long as the process requirements for making such an agreement were met.

 

The Howard Government’s Work Choices legislation introduced the concept of employer greenfields agreements (a contradiction in terms given an agreement involves two parties) which permitted an employer to unilaterally conclude an agreement and set the terms and conditions of their workforce without notifying, or negotiating with, unions eligible to represent the industrial interests of employees who would perform work under the agreement. These agreements were subject to a nominal expiry date of a maximum of 12 months after the date of lodgement for approval, after which time protected industrial action was available to employees and a new agreement would often need to be made.

 

While the Act continues to facilitate the making of greenfields agreements, it contains a different set of conditions under which these agreements can be made. These conditions present a unique array of legal issues which continue to be debated before Fair Work Australia.

 

Present requirements for making a greenfields agreement and typical legal issues

 

Part 2-4 of Chapter 4 of the Act provides that a greenfields agreement can be made between an employer or two or more employers and one or more relevant unions if:


  • the agreement relates to a genuine new enterprise (a new business, activity, project or undertaking) that the employer or employers are establishing or proposing to establish;
  • the employer or employers have not employed any of the persons who will be necessary for the normal conduct of the enterprise and will be covered by the agreement;
  • the union or unions that will be covered by the agreement are (taken as a group) entitled to represent the industrial interests of a majority of the employees who will be covered by the agreement in relation to work to be performed under the agreement;
  • it is in the public interest to approve the agreement; and 
  • the agreement meets the general approval requirements in the Act, including that the terms of the agreement do not contravene the National Employment Standards; the agreement passes the better off overall test; the group of employees covered by the agreement is fairly chosen; the agreement does not contain unlawful terms; and the agreement contains a dispute resolution term and a nominal expiry date.

 

A greenfields agreement is made when it has been signed by each employer and each relevant employee organisation that the agreement is expressed to cover.

 

The requirements in the Act concerning sending a notice of representational rights, bargaining in good faith or following certain agreement pre-approval steps such as providing employees with a copy of the agreement during the access period do not apply to greenfields agreements.

 

Each of the conditions for making a greenfields agreement has been scrutinised by Fair Work Australia, usually in the context of a competing union not privy to an agreement raising an alleged non-compliance with one or more of the conditions referred to above when the agreement is before Fair Work Australia for approval. The following sets out a number of the issues over which litigation has occurred.

 

Genuine new enterprise

 

A contest to whether an agreement covers a genuine new enterprise typically concerns two separate arguments – whether the project or undertaking is sufficiently established or proposed to be established, and whether the enterprise is “new” or simply an extension of an existing enterprise already carried on by the employer.

 

Whether a project or undertaking is sufficiently established or proposed to be established is a question of fact. The Tribunal will consider evidence about the preparations that have taken place in relation to the enterprise (e.g. whether premises have been leased, administrative staff have been engaged or project plans prepared).

 

Demonstrating that a new enterprise is established, or a proposal for a new enterprise is sufficiently advanced, is a low legal hurdle. For example, where a greenfields agreement is made in the context of a bid for tender, it is not necessary for a prospective supplier to be awarded the tender to satisfy this condition, even if the enterprise will not commence operation if the supplier does not win the tender: See Thiess Pty Ltd; Balfour Beatty Pty Ltd; John Holland Pty Ltd [2011] FWA 6904 at [14].

 

The more difficult issue is whether the enterprise is new. For example, if an employer in the construction industry makes a greenfields agreement in relation to a new construction project, is the new project an extension of the employer’s existing enterprise or a new enterprise? Where a franchise establishes a new store, is the store an extension of the existing enterprise or a new enterprise?

 

The Explanatory Memorandum to the Fair Work Bill indicates that Parliament intended the expression “genuine new enterprise” to be given a broad meaning, such that distinct projects or undertakings are to be considered a new enterprise even where the employer operates other similar projects or undertakings. The Explanatory Memorandum provides:

 

693. The nature of the genuine new enterprise may nonetheless be the same or similar to the employer’s existing enterprise, particularly in the case of a new project. For example, an existing employer in the construction industry could make a greenfields agreement in relation to a genuine new construction project. However, an existing employer, such as a major retailer, could not make a greenfields agreement in relation to a new store that it is proposing to establish if that store is part of the employer’s existing enterprise. (Our emphasis).

 

Fair Work Australia has, on a number of occasions, approved greenfields agreements in relation to enterprises which are the same or similar to the employer’s existing enterprise, including franchises which are, by their nature, identical or very similar to already established franchises.

 

The employer has not employed employees necessary for the normal conduct of the enterprise

 

This condition will be established even where the employer has employed persons on other projects who may end up performing work covered by the greenfields agreement, so long as they are not yet employed to perform work for the new enterprise that has been established. For example, in McConnell Dowell Constructors Pty Ltd [2010] FWAA 9486, a decision approving a greenfields agreement in the construction industry where the employer had other existing projects (and therefore other existing employees), Deputy President McCarthy held at [6]:

 

[I] accept that there are no employees currently employed by the Employer who are covered by the Agreement. There may be employees employed by the Employer on other projects and it may be possible that some of those employees do become employees of the Employer on the project that this Agreement is concerned with, but that does not give standing to those persons, or provide a ground, for the Agreement to not be approved.

 

This condition will also be satisfied where workers engaged through a labour hire company on a project or undertaking are employed to work on the same project or undertaking after a greenfields agreement is made: HP Distribution Proprietary Limited Greenfields Agreement 2011 [2012] FWAFB 6302.

 

The unions covered by the agreement are entitled to represent the industrial interests of a majority of employees performing work under the agreement

 

This condition is often the main line of attack where a union wishes to persuade Fair Work Australia that an agreement made between an employer and another union or unions should not be approved.

 

Whether a union is (or a group of unions are) entitled to represent the industrial interests of a majority of employees is also a question of fact, which will turn on the nature of the work performed and the scope of the relevant union rules. An employer should have prepared evidence addressing these issues if it is anticipated that there will be a challenge to whether this condition is satisfied. An employer is not obliged to inform a union not proposed to be covered by the greenfields agreement of its intention to make a greenfields agreement, to provide such a union with a copy of the agreement, or to inform the union of the notice of listing for the application to approve the agreement. In one case where the employer made an agreement with the Shop, Distributive and Allied Employees’ Association without informing the National Union of Workers New South Wales branch (which had members on the greenfields site) the Tribunal noted that the employer “… crept very softly and legally past the sleeping tiger of the NUWN which, on this occasion, did not wake up”. The Tribunal dismissed the NUWN’s appeal against the approval of the greenfields agreement.

 

It is in the public interest to approve the agreement

 

Whether the approval of an agreement is in the public interest involves a discretionary assessment by Fair Work Australia at the time of the application for approval. The Supplementary Explanatory Memorandum to the Fair Work Bill indicates that this assessment is to be made by reference to the objects of the Act and the interests of the prospective workforce. The Supplementary Explanatory Memorandum provides:

 

118. In assessing the public interest, it would be expected that FWA would take into account the objects of the Act, and the need to ensure that the interests of employees who are to be employed under the Agreement are appropriately represented.

 

Matters which have been found to support the conclusion that approval of the agreement is in the public interest include that the agreement minimises the potential for industrial disputation; provides certainty of employment terms and conditions; is consistent with greenfields agreements made for other parts of the construction; provides terms and conditions equal to or better than the relevant modern award; and would assist with completion of the project on time and within financial targets: Abigroup Contractors Pty Ltd [2012] FWA 3745 at [67].

 

Proposals for reform

 

The report of the three member Fair Work Act Review Panel (the Panel) into the operation of the Act has acknowledged that some bargaining practices and outcomes associated with greenfields agreements are undesirable. In response to submissions made to the Fair Work Act Review, the Panel has made a number of recommendations to address the current deficiencies with greenfields agreements, including:

 

  1. Extending the good faith bargaining obligations set out in section 228 of the Act to the negotiation of greenfields agreements.
  2. Introducing a requirement for employers to take reasonable steps to notify all unions that are entitled to represent employees who would be covered by a proposed greenfields agreement of an intention to negotiate.
  3. Providing a limited power for Fair Work Australia to conduct arbitration, on its own motion or on application by a party, where negotiations have reached an impasse after a specified period of time has elapsed.

 

While it is clear the current greenfields agreement provisions are problematic, acceptance of these recommendations is likely to create more problems than solutions. Recommendations 1 and 3 above are unlikely to facilitate the speedy negotiation and making of agreements. The Panel’s expectation is that the availability of a limited right to final offer arbitration by Fair Work Australia will encourage parties to adopt a pragmatic approach to negotiations. However, this recommendation ignores the potential for increased strategic disputation at a stage in negotiations where unions have maximum bargaining leverage due to the impending commencement of a project. It is also an expectation not borne out by other recent disputes which have gone to arbitration because the disputing parties could not agree on appropriate terms and conditions even after very lengthy negotiations.

 

Recommendation 2 would in many cases only invite demarcation disputes between competing unions, and will likely make bargaining more complex simply because of the increased number of potentially competing views on the content of a proposed greenfields agreement.

 

Recommendations for employers

 

In light of the above, an employer can maximise the opportunities presented by the greenfields agreement provisions, and avoid or minimise the risks identified above by taking the following steps:

 

  • Consider whether making a greenfields agreement will lead to one or more of the benefits set out above and is the best commercial option taking into account the possible alternative labour arrangements.
  • Consider precisely the nature of the work to be done under the agreement, which will then have a flow on consequence in relation to which union(s) can represent a majority of employees who will work under the agreement and who the employer can make a greenfields agreement with. Also consider which union(s) it would be preferable to make an agreement with.
  • Ensure that sufficient preparatory steps have been taken to establish a genuine new enterprise or to show that a genuine new enterprise is proposed to be established.
  • To ensure negotiations operate as smoothly as possible, employers should prepare thoroughly prior to inviting negotiations by considering:  the terms and conditions to be included in the agreement – those which are “make or break”, and those which are “nice to have but not essential”;  likely union claims for terms and conditions (which can often be ascertained by examining agreements for similar projects, or seeking information about claims made by unions in other recent negotiations); and how the timing of negotiations will play out in the broader commercial environment, such as a request for tender or construction timeline. It is common for some unions to maximise their bargaining leverage by employing tactics such as stalling agreement until after a tender has been won by an employer, or a project is due to commence. For an employer, the commercial imperative to reach agreement will increase as the project nears commencement. 
  • Prepare approval documentation (a statutory declaration will be required). An application to approve a greenfields agreement must be made within 14 days of the agreement being made (Fair Work Australia does not have discretion to extend this time limit). It may also be necessary to provide evidence in support of an application for approval, which addresses each of the conditions for approval referred to above.
  • Seek legal advice as necessary to ensure that any application for approval meets the requirements of the legislation and will withstand any challenge from a union or unions not covered by the greenfields agreement.

 

Ashurst Australia acted for Thiess Pty Ltd and Balfour Beatty Pty Ltd in Thiess Pty Ltd; Balfour Beatty Pty Ltd; John Holland Pty Ltd [2011] FWA 6904.

 

 

For further information, please contact:

 
Michael Tamvakologos, Partner, Ashurst

 

 

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