Allens Arthur Robinson

• Introduction
• All recent publications
• Workplace Relations publications
• Workplace Relations services

Focus: Workplace Relations

6 November 2009

In this issue: we look at the meaning of 'reasonable additional hours'; the Productivity Commission's draft report on executive remuneration; what amounts to a sham arrangement; the incorporation of company policies into employment contracts; and lessons so far on bargaining under the Fair Work reforms.

• Working hours: is an increase from a 40 to 44-hour week reasonable?
• Productivity Commission on executive remuneration
• Sham arrangements: employers beware
• Company policies and employment contracts
• What have we learned about bargaining under Fair Work reforms?

Working hours: is an increase from a 40 to 44-hour week reasonable?

In brief: In the first case to rule on 'reasonable additional hours', the Federal Magistrates Court found that it was reasonable to increase a shift worker's average hours from 40 to 44 hours per week. Senior Associate Nick Fletcher and Lawyer Ruth Greenwood report.

Background

Coal & Allied Mining Services Pty Ltd operated a coal mine. Before November 2008, the mine operated on a Monday-to-Friday roster, with an average of 40 hours per week for its maintenance crew, which involved regular night shifts. In November 2008, the mine changed to a Monday-to-Friday roster with an average of 44 hours per week, across three 12-hour day shifts and two eight-hour day shifts each week (the 44-hour roster).

Mr Macpherson claimed that the 44-hour roster breached section 226 of the Workplace Relations Act 1996 (Cth) by requiring the employee to work more than 38 hours per week plus reasonable additional hours. This requirement has been carried over in s62 of the Fair Work Act 2009 (Cth), largely unchanged.

The court's findings

The Federal Magistrates Court rejected the claim¹ and found that the 44-hour roster was reasonable because:

• the extra hours were supported by a pay increase;
• the 44-hour roster would result in extra time off for Mr Macpherson;
• all work was day work, with no night or weekend shifts;
• Mr Macpherson was consulted and given two months' notice of the 44-hour roster;
• a 44-hour working week was consistent with industry practice; and
• the 44-hour roster would lower exposure to safety risks and increase the viability of the permanent workforce.

The decision is important, as there has been speculation for some time about whether standard working hours, often substantially in excess of a 38-hour week, are reasonable. In many industries, employees regularly work extended hours based on the tacit acceptance that employees reap the rewards that go with the longer hours. Although reasonableness has to be considered in the context of the affected employee, the case gives employers some comfort that the test will not be applied rigidly and without regard to commercial realities.

Productivity Commission on executive remuneration

In brief: The Productivity Commission released for public consultation its draft report on executive remuneration on 30 September 2009. Overseas Practitioner Fiona Robertson reports.

Background

The Productivity Commission was tasked with reviewing the current framework for regulating executive remuneration in Australia's publicly listed companies. It concluded that, while there has been rapid growth in executive pay in the past decade, this 'does not indicate widespread failure in remuneration setting across Australia's 200 listed companies, nor significant adverse impacts on the performance of the corporate sector as a whole.'

The Commission noted, however, that:

• loss of community confidence in remuneration setting within the corporate sector could have adverse consequences for the sector and the wider economy; and
• poorly designed remuneration arrangements that lead to inappropriate risk taking or short-term behaviour could also have wider economic impacts.

Key recommendations

The Commission concluded that prescriptive pay constraints (such as caps) are not called for, since these 'would be impractical, weaken the role of boards and could have perverse economic consequences, without necessarily achieving any real pay restraint.' The Commission's preference is to strengthen corporate governance and improve how boards set remuneration and engage with shareholders. Accordingly, it recommends certain reforms to the Corporations Act 2001 (Cth), the ASX Listing Rules and corporate governance principles, including:

• a new ASX listing rule should specify that all ASX 300 companies have a remuneration committee of at least three members, all of whom are non-executive directors, with the chair and a majority of members being independent;
• key management personnel and all directors (and their associates) should be prohibited from voting their shares, or undirected proxies, on remuneration reports and any other remuneration-related resolutions;
• company executives should be prohibited from hedging unvested equity remuneration that is subject to holding locks;
• the Corporations Act should be amended to specify that remuneration reports should additionally include a summary of the company's remuneration policy, actual levels of remuneration received by executives and total company shareholding of the individual;
• individual remuneration disclosures should be confined to key management personnel;
• companies should be required to disclose the expert advisers they have used in relation to remuneration matters, who appointed them, who they report to and the nature of other work undertaken for the company by those advisers;
• institutional investors should disclose, at least on an annual basis, how they have voted on remuneration reports and any other remuneration-related issues;
• the 'cessation of employment' tax trigger for equity-based payments should be removed and the taxing point for equity, or rights that qualify for deferral, should be at the earlier of when the ownership of share or rights is transferred to the employee, or seven years after the employee acquires the shares;
• if a company's remuneration report receives a 'no' vote of 25 per cent or higher, the board should be required to report back to shareholders in the subsequent remuneration report, explaining how shareholders' concerns were addressed and, if they have not been addressed, the reasons why; and
• if the company's subsequent remuneration report receives a 'no' vote above a prescribed threshold, all elected board members should be required to submit for re-election at either an extraordinary general meeting or the next annual general meeting.

Consultation period

The period for making written submissions on the draft report ended on 6 November 2009. The Commission is due to issue its final recommendations on 19 December 2009.

Sham arrangements: employers beware

In brief: Mistaking an employment relationship for an independent contractor relationship will not necessarily lead to prosecution for using sham arrangements. Senior Associate Meriel Smith and Law Graduate Rachel Chua report.²

Background

In April 2008, Mr Noy offered contracts to two prospective workers on behalf of Nubrick Pty Ltd. Mr Noy made representations that the contracts were contracts for services, not contracts of employment. When the two individuals began work, they had fixed hours and used company tools and safety gear, suggesting they had contracts of employment. The CFMEU argued that the individuals were employees and should be paid employee entitlements, and that the contracts they had signed were sham arrangements.

The decision

The court held that the contracts were not independent contractor arrangements but were contracts of employment.³

The key question for the court in determining whether the company had entered into sham contracts in breach of section 901 of the Workplace Relations Act 1996 (Cth) (the WRA) was whether, at the time the offers were made, Mr Noy knew (or was reckless as to whether) the contracts were contracts of employment.

The court held that, at the time the offers were made, Mr Noy was not aware of the risk that the workers could be employees, and that his conduct in making the representations was not reckless. In effect, a lack of appreciation of the technical difference between employment contracts and independent contractor contracts worked in the employer's favour.

The Fair Work Act

Although this case was brought under the WRA, s901 of the WRA is essentially reproduced in s357 of the Fair Work Act 2009 (Cth) (the FWA). However, the FWA also introduces new offences. An employer is now prohibited from:

• dismissing or threatening to dismiss an employee in order to re-engage them as an independent contractor under a contract for services to perform the same or substantially the same work;⁴ and
• making misrepresentations so as to persuade or influence a current or previous employee to enter into a contract for services, instead of a contract of employment, to perform the same or substantially the same work.⁵

The effect of these new provisions is yet to be tested.

Company policies and employment contracts

In brief: Employers cannot ordinarily alter employment contracts simply by changing a company policy. Lawyer Carl Xu reports.⁶

Background

On 26 February 2007, Geller & Associates employed Mr Akmeemana as a recruitment consultant under an employment contract that provided that Mr Akmeemana:

• would be paid commission on successful recruitment deals; and
• was required to comply with the employer's lawful directions, policies and guidelines.

At the time of the contract, the company did not have any policies or guidelines.

In June 2007, the company published a Policies and Procedures Manual (the manual), which provided that departing employees would not be paid commission 'on invoices not settled prior to [the employee's] last day'. In the same month, the company sent Mr Akmeemana an email (the email) responding to his queries about the payment of commission, stating that 'Commission is only payable on candidate deals that are finalised prior to start date'.

When Mr Akmeemana left the company in November 2007, he was not paid commission on some of his recruitment deals. The company relied on the manual and the email in claiming that the commission was not payable either because the clients in those deals had not paid the invoices, as required by the manual, or Mr Akmeemana had not completed the necessary administration, as required by the email.

Mr Akmeemana initially brought a breach of contract claim in the NSW Local Court. The court found that Mr Akmeemana was not entitled to commission because he failed to comply with a lawful direction by not completing the necessary administration.

Findings

On appeal, the NSW Supreme Court reversed the result, noting that the power to change or introduce policies must be exercised with due regard for the employment contract – ie the employer may not act capriciously or unfairly.⁷

Even though Mr Akmeemana was bound to comply with firm policies and guidelines under his employment contract, the court found that the requirement in the manual that invoices had to have been paid before commission fell due was not something that required Mr Akmeemana's 'compliance'. Introduced four months after the employment contract, the manual simply stated what the company intended to do in relation to commission and was an attempt by the company to unilaterally change the employment contract.

In relation to Mr Akmeemana's failure to complete the necessary administration, the court held that, while this was a failure to comply with a lawful direction, the employment contract did not permit the forfeiture of the commission. As with the manual, the email was a unilateral attempt to change the employment contract.

Prudent employers will ensure that company policies are expressed in language that minimises both:

• the prospect of policies being contractually binding; and
• the risk of inflexibility, should the employer decide to vary or withdraw a benefit offered under it.

What have we learned about bargaining under Fair Work reforms?

In brief: Since the introduction of various Fair Work reforms on 1 July 2009, Fair Work Australia has had the opportunity to consider some of the key provisions. Partner Jamie Wells and Senior Associate John Naughton reflect on some of the lessons learned about enterprise bargaining.

Background

Among other matters, the provisions of the Fair Work Act 2009 (Cth) (the Act) dealing with agreement-making commenced on 1 July 2009.

The Act contains a number of provisions directed to encouraging enterprise-level collective bargaining, including provisions:

• relating to the appointment of bargaining representatives;
• regulating the conduct of bargaining representatives (in particular, the 'good faith' obligations); and
• containing new tools to address and overcome barriers to bargaining.

In contrast to WorkChoices, which envisaged a limited role for the Australian Industrial Relations Commission in bargaining, the Act gives FWA a more interventionist brief. In particular, FWA may now make majority support determinations, scope orders, and bargaining orders to facilitate bargaining. Further, FWA has a role in ensuring that industrial action taken in support of a proposed enterprise agreement is conducted lawfully, through protected action ballots.

So what have we learned so far?

One of the factors FWA is to take account of when considering whether to make majority support determinations, scope orders, and bargaining orders, is whether to do so 'is reasonable in all the circumstances'. That means FWA has a broad discretion, which the relevant cases show it has been willing to exercise based on the conduct of the parties.

The cases to date show that:

• A union can succeed in obtaining a bargaining order, despite it not having been involved previously in negotiations.
• An employer may avoid a bargaining order if the union bargaining representative fails to put their concerns in writing and give the employer a reasonable time to respond. However, as FWA's power to make a bargaining order is discretionary, it will also help if an employer can show they have complied with all other relevant award or legislative requirements.
• A bargaining representative may use a variety of methods to show that employees wish to bargain, ranging from formal processes, such as secret ballots conducted by the Australian Electoral Commission, to surveys, written statements or petitions. What will satisfy FWA in a particular case may vary. For example, where there is a history of litigation, and a union bargaining representative relies on an informal survey method yielding a non-definitive result, FWA may be disinclined to make a majority support determination until a more rigorous methodology is applied.
• FWA will not make a majority support determination if it is premature. For example, if an employer can show – even belatedly – that it has taken some steps toward bargaining (such as issuing notices of employee representational rights and convening some meetings), FWA may elect not to make the determination.
• Similarly, FWA will not make a scope order unless a union bargaining representative has first given written notice of their concerns and given the employer a reasonable time to respond.

The aim of the protected action ballot provisions was to create a fair, simple and democratic process for bargaining representatives to determine whether employees wish to engage in industrial action in support of a proposed enterprise agreement. Before issuing an order, FWA must be satisfied that the bargaining representative has been, and is, genuinely trying to reach an agreement with the employer.

From the matters brought before FWA to date, we have learned that:

• A protected action ballot must express clearly the questions to be voted on and the types of industrial action contemplated. FWA will not allow wording likely to compromise an employee's ability to make an informed choice.
• If an employer wishes to oppose a bargaining representative's application, it should put evidence before FWA about the bargaining representative's unwillingness to bargain.
• Evidence that will satisfy FWA that a bargaining representative is genuinely trying to reach an agreement will vary. However, where a bargaining representative makes an application after serving a log of claims and attending meetings, the threshold is not high.
• A protected action ballot application may be made at any time during the bargaining process. While it would not usually be made as a 'first resort', there is no requirement that negotiations reach a particular point (or a standstill) before an application is made.
• Evidence that a bargaining representative has handled negotiations poorly, or even unprofessionally, will not necessarily show the bargaining representative has not been trying to reach an agreement. However, conduct breaching the good faith bargaining requirements under the Act may be relevant to FWA's assessment.
• Disagreement – and a consequent failure to reach agreement about the terms and conditions for an agreement – will not necessarily be evidence of the parties not genuinely trying to reach agreement or not bargaining in good faith.

Footnotes

1. Macpherson v Coal & Allied Mining Services Pty Ltd (No. 2) [2009] FMCA 881.
2. CFMEU v Nubrick Pty Ltd [2009] FMCA 981.
3. CFMEU v Nubrick Pty Ltd [2009] FMCA 981, [10 and 11].
4. Section 358 FWA.
5. Section 359 FWA.
6. Akmeemana v Murray [2009] NSWSC 979
7. Akmeemana at [53] citing Riverwood International Australia Pty Ltd v McCormick [2000] FCA 889 per Justice Mansfield at [152].

For further information, please contact:

• Tim FrostPartner, Sydney
  Ph: +61 2 9230 4930
  Tim.Frost@aar.com.au
• Peter ArthurPartner, Sydney
  Ph: +61 2 9230 4728
  Peter.Arthur@aar.com.au
• Jamie WellsPartner, Brisbane
  Ph: +61 7 3334 3268
  Jamie.Wells@aar.com.au
• Simon McConnellManaging Partner - Hong Kong and China, Hong Kong
  Ph: +852 2840 1202
  Simon.McConnell@aar.com.au