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Client update: Workplace Relations – 16 September 2005

'To be agreed' provisions may invalidate certified agreements

In brief: Certified agreements that leave matters open for agreement may be invalid according to a recent Federal Court decision.1 Senior Associate Andrew Cardell-Ree considers the potentially devastating implications for existing certified agreements.

Background

In May 2002, the Commonwealth Bank of Australia (CBA) and its wholly owned subsidiary, Commonwealth Securities Limited (CommSec), decided to restructure the way work was organised in the Premium Financial Services (PFS) business unit. The Finance Sector Union (FSU) challenged the changes, arguing that they breached the Freedom of Association provisions of the Workplace Relations Act 1996 (Cth) (the WRA).2 As part of its claim, the FSU alleged that CommSec's certified agreement (the CommSec agreement) was invalid and should never have been certified.

The Australian Industrial Relations Commission (AIRC) certified the CommSec agreement on 31 July 2002. It allowed CommSec to enter into individual contracts of employment (Clause 12 agreements ) that, during the life of the CommSec agreement, would prevail over inconsistent terms of the CommSec agreement. In effect, this arrangement allowed CommSec and an employee to opt out of the existing system of industrial regulation by entering into a Clause 12 agreement, and without the need for review or approval by the AIRC.

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When does the AIRC have the power to act?

Before it certifies a proposed certified agreement, the AIRC must:

  • be satisfied that the agreement contains all of the terms3; and
  • consider whether the agreement passes the 'no disadvantage' test.4

The AIRC does not have the power to certify an agreement if, at the time of the AIRC's review, some of its terms are not in existence and so have not been approved by a valid majority of affected employees.5 In such circumstances, it must refuse to certify the agreement.6  Justice Merkel stressed that this is not merely a technical nicety that should be observed. Instead, it is a fundamental requirement that gives the AIRC its power to certify an agreement. If the requirement is not met, the AIRC is not empowered to act.7

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The CommSec agreement

The CommSec agreement gave a Clause 12 agreement effect under the CommSec agreement. The FSU pointed out that such an agreement had not been written at the time of certification, and so the AIRC could not possibly have considered the complete CommSec agreement before certifying it. Justice Merkel agreed, saying that it:

would be antithetical to [the statutory scheme for certification] for the AIRC to be empowered to validly certify an agreement when it had no knowledge of the terms of [agreement] that will ultimately be binding on the employer and the employees as if it were [a certified agreement].8

Justice Merkel found that the CommSec agreement was invalid and that a Clause 12 agreement was a variation of the CommSec agreement, and could not take effect unless the AIRC approved the variation.9 Since no approval had been sought or given, the Clause 12 agreements were invalid.

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Facilitative provisions

Justice Merkel distinguished between:

  • an agreement that contains facilitative provisions (that allow the parties to agree about how a substantive clause is to be applied at the workplace during the life of the agreement); and
  • an agreement that leaves matters of substance to be agreed.

Facilitative provisions do not strip the AIRC of the power to certify an agreement. The substantive terms of the agreement are complete and the parties are free to work out for themselves the detail of how a particular feature of workplace regulation is to be put into effect. By contrast, an agreement that leaves a matter of substance open for agreement during the life of the agreement may fail to meet a fundamental requirement for certification and so be invalid.

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Implications

This decision casts a long shadow of doubt over any existing certified agreement that leaves any matter to be agreed during the life of the agreement. Such an agreement may be invalid in its entirety. If an agreement is invalid, the underlying awards may still be in place, exposing the employer to a range of claims if any of the terms of the agreement offers lesser benefits than does an applicable award. This is often the case if an agreement includes greater flexibility than the parent award.

An invalid agreement may also expose an employer to fresh claims and protected industrial action in support of those claims, as the enterprise bargaining environment can be reinstituted. The implications may be far-reaching.

In the aftermath of this decision, the distinction between facilitative and substantive provisions is critical to the validity of existing workplace arrangements. Any employer would be well advised to review its agreements to make sure they are not affected.

Footnotes
  1. Finance Sector Union of Australia v Commonwealth Bank of Australia [2005] FCA 796 per Merkel J (FSU v CBA).
  2. The decision will be the focus of an article in the next edition of Focus: Workplace Relations.
  3. Sections 170LE, 170LI, 170LK, 170LT, 170LU, 170MD and 170XA of the WRA; FSU v CBA at [73] and [76].
  4. Sections 170LT(2) and 170XA of the WRA; FSU v CBA at [73] and [79].
  5. FSU v CBA at [74] and [76].
  6. Sections 170LT and 170LU of the WRA.
  7. FSU v CBA at [81] to [92].
  8. FSU v CBA at [76].
  9. FSU v CBA at [75]. 

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