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Focus: Workplace Relations – September 2004

In this issue: We look at how the High Court has limited the content of certified agreements; the vicarious liability of employers in sexual harassment claims; unfair contract claims for employees who earn more than $200,000 a year; and implied rights to redundancy payments.

High Court limits the content of certified agreements

In brief: Following the long-awaited Electrolux appeal1, parties must now be careful about the range of claims put on the negotiating table during enterprise bargaining negotiations. Lawyer Nico Burmeister reports on a critical decision affecting the protected status of industrial action taken during a bargaining period.

The High Court's restrictive approach to claims that may be the subject of enterprise bargaining negotiations restores symmetry between the approaches taken by the Federal Court and the Australia Industrial Relations Commission (AIRC). Before the appeal, the Federal Court's approach to the issue meant that industrial action could be protected even though it was taken to support a claim that the AIRC would treat as disqualifying the agreement from certification. Unlike the AIRC, the Federal Court accepted that a wide range of matters could pertain to the employment relationship.

Since the High Court's decision, negotiating parties can now be confident that any claim that would disqualify an agreement from certification will also deny protected status to any industrial action taken in support of it.

While this does limit the scope of claims that are open to negotiation, it also ensures that matters really concerning the union and either the employer or non-member employees cannot be advanced through protected action.

Background

During enterprise bargaining negotiations, the Finance Sector Union (FSU) proposed a clause that required Electrolux to deduct union fees from all employees' wages (whether union members or not) – ostensibly to pay for the union's services in the bargaining of the agreement. When Electrolux rejected the clause, the FSU threatened to take industrial action, claiming that such action was protected under Part VIB of the Workplace Relations Act.

Electrolux argued that a federal certified agreement was no place for union rights provisions (such as a bargaining fees clause), a provision that pertains only to the relationship between the union and the employees. As a result, agreements containing such provisions cannot be certified – meaning that any industrial action taken relying on such an agreement cannot be protected.

Federal Court decision

Employers will recall that the Federal Court initially accepted Electrolux's argument, but this decision was overturned on appeal by the Full Court. In essence, the Full Court took a broad view of the employment relationship and generally accepted that the parties to agreements were free to negotiate and agree on matters that they saw as affecting the relationship of employer and employee.

Electrolux appealed to the High Court, and the High Court agreed with Electrolux, confirming:

  • the AIRC cannot certify an agreement that contains any material provision outside the relationship between the employer and its employees;
  • because a bargaining fees clause is a matter between employees and the union, it does not pertain to the relationship between the employer and its employees; and
  • industrial action cannot be protected if it is taken in support of such matters.
Implications

The High Court's decision confirms that the subject matter of certified agreements must be limited to matters pertaining to the relationship between employer and employee. Agreements about extraneous matters (unless they are machinery or incidental provisions) may be enforceable only as common law contracts. Those contracts do not receive the benefits that flow from certification.

Unanswered questions

In the aftermath of the Electrolux appeal, several important questions remain:

  • which matters pertain to the relationship between an employer and its employees? The High Court ruled out bargaining fees, but this is no longer significant after the federal government legislated to reverse the impact of the Full Court's approach;
  • when does a provision become material and when does it remain machinery or incidental in nature? The High Court chose not to address this point;
  • what is the effect of the Electrolux case on existing agreements that contain matters that do not pertain to the employment relationship? The High Court made no mention of the ongoing validity of such agreements; and
  • in the context of a federal election campaign, how will the Australian Labor Party respond?

The significance of the High Court's decision suggests that it should not be too long before these questions are tested. The most likely ways will be:

  • through the certification process in the AIRC, although usually the matter will have to be raised by the AIRC itself, given that the parties applying for certification will have achieved consensus; or
  • through a re-run of the Electrolux scenario, involving one party challenging the protected status of industrial action because of one or more claims during the negotiations.

Keep reading Focus: Workplace Relations for further developments.

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Vicarious liability of employers in sexual harassment claims

In brief: The precautions taken by employers to prevent sexual harassment in the workplace need only be reasonable, not ideal. Partner Julian Riekert and Lawyer Luke Gattuso report.

Background

Ms Howard alleged sexual harassment by a co-worker, Mr Lewis, during her employment with Geradin Pty Ltd (trading as Harvard Securities) (Geradin).2 However, the Victorian Civil and Administrative Tribunal (VCAT) found for the employer, even while accepting that harassment actually occurred.

The complaint against Mr Lewis was settled separately, so the case before VCAT was limited to a vicarious liability claim against Geradin, based on Mr Lewis' status as an employee of Geradin when he harassed Ms Howard.

Facts and claim

Ms Howard was employed as an investment portfolio manager at Geradin for a probationary period of three months.

It was alleged that, at various times during Ms Howard's employment with Geradin, Mr Lewis made comments to her about her body, and also left a lewd note on her desk. Ms Howard reported the note to her supervisor, which led to an investigation.

Ms Howard resigned shortly after Mr Lewis left the note at her desk and returned to work for her previous employer. She later said that her resignation had been brought about by the sexual harassment, a claim that was denied by Geradin.

Ms Howard claimed that Geradin had failed to take reasonable precautions to prevent Mr Lewis from harassing her, and that it victimised her by involving her in discussions as to an appropriate response. She claimed compensation for pain and suffering, plus $26,000 for loss of income.

Decision

While VCAT had little difficulty in determining that the alleged conduct was of a sexual nature, it had more difficulty determining whether the conduct was unwelcome. There was disputed evidence regarding the relationship between Ms Howard and Mr Lewis, the level of sexual banter that occurred in the workplace, and the extent and content of sexually explicit text messages sent between employees. VCAT observed that the willingness of a complainant to exchange sexually explicit text messages with work colleagues would tend to suggest the behaviour was welcome. Notwithstanding the evidential difficulties, VCAT concluded that the alleged conduct had occurred and was unwelcome.

VCAT then considered whether Geradin, as the employer, could be held liable for the sexual harassment. Section 103 of the Equal Opportunity Act 1995 (Vic) (the Act) provides a defence if an employer took reasonable precautions to prevent the employee from contravening the Act. A similar defence applies under sexual harassment legislation in other states.

The Act does not set out the factors that determine whether the employer has taken 'reasonable precautions'. However, VCAT referred to previous decisions indicating that preventative measures could include:

  • implementing educational programs;
  • monitoring the workplace to ensure compliance with sexual harassment policies; and
  • communicating sexual harassment policies to all employees and ensuring that they understand behaviour that constitutes unlawful sexual harassment.

In this case, VCAT found that Geradin had taken a number of precautions to prevent the contraventions that occurred. VCAT found that Geradin had a sexual harassment policy in place, had informed all employees of the policy, implemented the policy, and provided some feedback to staff concerning sexual harassment issues. As a consequence, the complaint against Geradin was dismissed.

Conclusion

To defeat claims of vicarious liability for sexual harassment, employers must take 'reasonable' steps, including having a sexual harassment policy, conducting regular training in the policy, and arming employees with the skills to understand and avoid acts of unlawful sexual harassment. If handled well, the employer can discharge its responsibility and leave the matter to be resolved between the individuals themselves.

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Your contract is not unfair if you earn more than $200k

In brief: The NSW Industrial Relations Commission has emphatically stated that employees earning more than $200,000 a year are not eligible to bring an unfair contract claim, regardless of when their employment ceased. Senior Associate Tony Saunders and Law Graduate Peter Beacroft report.

Limits introduced in June 2002

As readers of Focus: Workplace Relations will recall, the NSW Parliament introduced limits on who could bring an unfair contract action, with effect from 24 June 2002. Significantly, executives receiving remuneration of more than $200,000 in the 12 months before termination are excluded from bringing claims. The $200,000 cap is found in section 108A of the Industrial Relations Act 1996 (NSW).

Path to interpretation

Mr Aveling, a former investment banker earning more than $200,000, had his employment terminated two months after the new s108A was introduced. He made an unfair contract claim, alleging that his contract was unfair from the time it commenced and, since that was before the amendments were introduced, his claim was not affected. Mr Aveling argued that legislation cannot remove existing rights (such as his right to bring an unfair contract claim), without express words to that effect.

After hearing submissions in Aveling, but before judgment was entered, a single judge in Larsen3 found that amending legislation could extinguish the mere right to bring a claim even if it did not say so expressly, with the effect that s108B had retrospective effect. This led to the postponement of the Aveling decision to allow the parties to make submissions in light of Larsen.

The Aveling decision

On 15 September 2004, the Commission unanimously dismissed Mr Aveling's claim. In a forceful judgment, the Commission stated that the amendments were meant to 'bring about significant changes and limits to the Court's jurisdiction from a particular time; the particular time being the date of s108A's operation'.

Implications

It is now clear that all employees earning remuneration of more than $200,000 are precluded from bringing an unfair contract claim, regardless of when their employment began. Those employees must rely on rights agreed under the contract of employment.

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Implied right to redundancy payments

In brief: The Western Australian Industrial Relations Commission has recognised a management level employee's right to a generous redundancy payment based on a formula in the company's enterprise agreement, despite the agreement being restricted to production employees. Senior Associate Sally McFarlane reports.

Background

Ms Miller-Smith was employed as WA state manager by Richardson Pacific Ltd (RPL) and was a long-standing employee, with more than 14 years' service. She was dismissed by way of redundancy when RPL was purchased by The Locker Group Ltd.

Ms Miller-Smith claimed that there was a practice of paying redundant employees severance pay, calculated according to enterprise bargaining agreements (EBAs) negotiated for production staff. Payment according to the EBAs would result in 3.5 weeks' pay per year of service, rather than the 2 weeks' pay per year of service that the employer paid to her.

Ms Miller-Smith brought claims of unfair dismissal and for a contractual benefit under the Industrial Relations Act 1979 (WA).

Decision

Dismissing the claim for unfair dismissal and proceeding to deal with the contractual benefit claim, the Commission concluded that it was an implied term of Ms Miller-Smith's partly oral and partly written contract of employment that she be entitled to payment of severance at the level prescribed in the EBAs. In reaching this conclusion, the Commission distinguished the decision of the WA Industrial Appeal Court in Dellys v Elderslie4, which set down a strict five-point test to be followed before implying a term into a contract.

The Commission held that, while it was not necessary to imply a term into the contract for the 'reasonable or effective operation' of the contract, this general principle did not exclude a term based on the 'professional practice and past course of dealing between the parties'.

The Commission accepted evidence from Ms Miller-Smith, and two other employees corroborating Ms Miller-Smith's assertion, that there was a policy of paying redundancy payments at the level provided for in the EBAs. The Commission held that this justified implying a term into the contract based on the practice. Accordingly, Ms Miller-Smith's contractual benefits claim succeeded.

Implications

This decision strikes a cautionary note on a number of levels:

  • obligations are not always set out in black and white. This takes on great significance if there is a change in management or ownership of the employer, so that decisions are taken without full knowledge of all of the history and prior practices;
  • in the absence of an express policy or contractual obligation, an employer can still be liable to meet an obligation to an employee if there is a practice of paying severance based on a particular formula; and
  • the best means of creating certainty about obligations that might arise through past practice is to establish a policy that clearly identifies the boundaries.
Footnotes
  1. Electrolux Home Products Pty Limited v The Australian Workers' Union & Ors [2004] HCA 40 (2 September 2004).
  2. Howard v Geradin Pty Ltd Trading as Harvard Securities [2004] VCAT 1518.
  3. Larsen v Ondeo Nalco Australia Pty Limited [2004] NSWIRComm 123.
  4. Dellys v Elderslie Finance Corporation Ltd (2002) 82 WAIG 1193.

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