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Article Excerpt
[Since the early 1990s, the parties to collective workplace agreements have been encouraged to give their bargains statutory effect by registering them under industrial legislation. Yet in the wake of the High Court's Electrolux Home Products Pty Ltd v Australian Workers Union ruling in 2004, and the introduction of 'prohibited content' rules as part of the Work Choices reforms, there has been a resurgence in the use of unregistered agreements that depend on the common law for legal effect. This article examines the use of such agreements and various barriers to their enforceability. It also looks at options for resolving disputes outside the courts--in particular whether parties can ask members of Australia's publicly funded industrial tribunals to provide private dispute resolution services.
CONTENTS I Introduction II The Use of Unregistered Agreements III 'Matters Pertaining' and 'Prohibited Content'. IV Current Strategies V Does the WRA Present an Insuperable Obstacle? VI Protected Action and Unregistered Agreements VII The General Law of Contract: Some Limitations VIII Overcoming the Privity Problem IX Enforcing Unregistered Agreements X Alternative Dispute Resolution A Private Arbitration and the AIRC B Private Arbitration in the State Tribunals under 'Referral Agreements' C The Commercial Arbitration Acts XI Looking Ahead
I INTRODUCTION
The Howard government's 'Work Choices' reforms (1) have generated a great deal of academic comment, (2) not to mention public debate. They also played a significant part in the government's defeat at the 2007 election. The changes, paradoxically made in the name of deregulation of the labour market, have significantly increased both the quantity and complexity of the federal legislation that governs employment conditions and industrial relations. (3) In so doing, they have confirmed that labour law is now primarily a field grounded in statutory regulation.
Nonetheless, an interesting by-product of the reform process has been to focus attention on the potential of the common law to provide an alternative to the statutory scheme embodied in the Workplace Relations Act 1996 (Cth) ('WRA') and the Workplace Relations Regulations 2006 (Cth) ('WR Regulations'). (4) Given the continuing role of the common law in both defining and regulating individual employment relationships, (5) it is unsurprising that much of the initial commentary has concentrated on that area. With so many of the Work Choices reforms enhancing managerial power at the expense of workers, it has become important to consider how that power might be moderated or constrained by recourse to established principles of equity or the evolving concept of fair dealing in contractual relations. (6) The removal of statutory unfair dismissal rights, in particular, has prompted writers to consider whether dismissed employees might be able to look to the courts for relief from 'bad faith' terminations. (7)
A further area for debate has emerged from the plan of the newly elected Australian Labor Party ('ALP') government to abolish individual Australian Workplace Agreements ('AWAs'). The AIP has repeatedly suggested that common law contracts--that is, terms expressly accepted as part of a worker's employment contract--are capable of delivering flexible and efficient outcomes for businesses, without impairing the integrity of the safety net set by legislation, awards and/or collective agreements. (8) This claim has been challenged by employer groups, notably in the mining industry. (9) But the ALP has nonetheless promised that all awards will contain 'flexibility clauses' that give employers and individual employees the freedom to vary the effect of the award in certain ways, provided always that the employees are not disadvantaged. Furthermore, awards will have no application to employees with guaranteed annual earnings of at least $100 000. (10)
In this article, however, our focus is on collective rather than individual relations. The Work Choices reforms have imposed stringent and intrusive controls on collective bargaining (11)--at least where employment conditions are involved. (12) Employers and trade unions in the federal system, who would prefer to operate on a pre-reform 'business as usual' basis, have been using common law agreements to sidestep the Work Choices constraints and maintain mutual commitments to former practices. The Rudd government has undertaken to remove most of the current restrictions on the content of workplace agreements. (13) But they remain in force at the time of writing, and full details of the proposed changes are yet to emerge. Furthermore, without a majority in the Senate the new government is not assured of having its proposals accepted by Parliament. Accordingly, we will examine the use of unregistered agreements and potential obstacles to making enforceable collective agreements between management and labour, by reference to the law as it stands at the beginning of 2008.
Even if the existing restrictions are ultimately removed, it is still worth considering the shape that a system of collective bargaining might take if truly based on the concept of freedom of contract and regulated by principles of general commercial law. Whether the common law might be marshalled to support an entire system of such bargaining, rather than merely as a device to escape the inconveniences currently associated with registering a workplace agreement, is an issue to which we hope to return in the future.
II THE USE OF UNREGISTERED AGREEMENTS
There is nothing new about the practice of employers and unions negotiating terms that have legal effect through the common law of contract. For the greater part of the 20th century, it was common to find parties making agreements that were neither registered under an industrial statute nor presented to a tribunal for adoption as a consent award. These agreements most often dealt with matters that were specific to a particular workplace, involved over-award commitments, or set a framework for industry or sector-wide conditions. (14) Their legality was rarely, if ever, tested. If a dispute arose over their effect, it was usually resolved either 'on the ground' or with the (often informal) assistance of an industrial tribunal.
From the early 1990s onwards, however, legislative changes in all jurisdictions not only promoted enterprise-level bargaining as the primary method of determining wages and employment conditions, but sought to encourage parties to formalise and register their agreements. (15) Within a few years, around 40 per cent of employees were covered by registered collective agreements. (16) These instruments did not necessarily supplant other forms of regulation: for instance, many of them operated alongside or even incorporated award provisions, rather than supplanting them. The same was often true of unregistered agreements or understandings previously made between the parties. It was common to find clauses in registered agreements that acknowledged the existence of informal commitments, or indeed preserved their effect. (17) Nonetheless, for at least a decade it became the norm for employers and unions to think in terms of expressing their bargains in a registered instrument. (18)
The interest in unregistered agreements was effectively revived by a technicality that emerged in the federal system of agreement making under what was then Part VIB of the WRA. Even before the Work Choices reforms sought to emasculate collective bargaining under the WRA, unions and their legal advisers were investigating ways of making effective agreements under the common law to secure commitments to workplace management practices that might not concern 'matters pertaining' (19) to the employment relationships in question.
III 'MATTERS PERTAINING' AND 'PROHIBITED CONTENT'
The 'matters pertaining' requirement has a long and unhappy history in Australian labour law. It was originally part of the definition of the term 'industrial matters' in s 4 of the Conciliation and Arbitration Act 1904 (Cth). The Commonwealth Court of Conciliation and Arbitration (and later the Commonwealth/Australian Conciliation and Arbitration Commission) could only deal with a dispute--and hence make an award--regarding such matters. This led to frequent litigation as to whether the Court/Commission was empowered to regulate a given matter, on the basis that it might or might not have the necessary connection to the employment relationships covered by the dispute. The result was a series of High Court decisions that sought to distinguish between matters that 'directly' pertained to employment, and those that lacked a sufficient connection. It did not help that many of these decisions could not be readily reconciled with one another, that form often seemed to matter more than substance, and that some of the reasoning bordered on the arcane. (20)
For a time, after the shift to formalised bargaining in the 1990s, parties seemed to forget about the requirement that agreements must deal with matters pertaining to the employment relationship. However, it was still there in the legislation, a point highlighted in the litigation that culminated in the High Court's 2004 decision in Electrolux Home Products' Pty Ltd v Australian Workers Union ('Electrolux'). (21) Here the Court interpreted the WRA to mean that every substantive provision in a certified agreement must directly pertain to employment for the agreement to be registrable. (22) Furthermore, industrial action could not be 'protected' (that is, lawful) under what was then s 170ML of the WRA if taken in support of a proposed agreement that contained a single 'non-pertaining' clause--in that case, a provision for a bargaining agent's fee to be paid by employees, whether union members or not. (23)
Given the number of agreements with potentially suspect clauses, the Electrolux ruling caused consternation for parties. The prospect of an apparently settled certified agreement being dislodged by the discovery of an impermissible term was a particular concern to employers who did not want to face a premature round of bargaining, with its attendant capacity for protected industrial action. These worries were partly allayed when legislation was passed preventing agreements registered before the date of the Electrolux decision being rendered wholly invalid. (24) However, confusion quickly emerged as to the ability to register new agreements. With the Australian Industrial Relations Commission ('AIRC') now required to test proposed agreements by reference to principles derived from a complex and confused line of High Court authorities, it is scarcely surprising that different members of the AIRC disagreed as to which clauses pertained and which did not. (25)
The status of a number of contested clauses was effectively resolved by a decision of a Full Bench of the AIRC in a test case in March 2005. (26) While the Full Bench took a fairly liberal view of what could be regarded as a matter pertaining to employment relations, it held that a number of provisions commonly included in union negotiated agreements must be omitted. These included clauses relating to the automatic deduction of union dues from wages, prohibitions on the engagement of independent contractors or labour hire workers to do work hitherto performed by employees, and provisions conferring a broad right on union officials to enter workplaces.
With the inclusion of non-pertaining clauses now threatening the validity of agreements, a practice quickly developed where unions sought to negotiate two separate instruments: the formal agreement that would be put to the AIRC for certification, and a separate or 'side' agreement that would contain all the provisions that either could not or might not be capable of satisfying the matters pertaining test. These latter provisions would often have been standard inclusions in agreements certified over the previous decade. The side agreement might be described as a contract, formalised as a deed or simply set out in a letter of understanding signed by the employer.
In March 2006, the practice of seeking an unregistered agreement became almost compulsory for many unions, with the enactment of the 'prohibited content' rules. (27) These rules perfectly illustrate the 'command and control' mentality pervading the Work Choices reforms, (28) and make a mockery of any commitment to promoting 'freedom' and 'choice' in workplace bargaining. (29) As Jill Murray notes:
Work Choices is based on a fundamental mistrust of employers, the favoured regulators under the system. The government seems [to] be afraid that they will collude in the reversion to the collective, civilising, fair standards and procedures of the traditional system. (30)
Section 357 of the amended WRA currently provides that an employer must not lodge a workplace agreement that contains prohibited content. A reckless breach of this provision may expose the employer to a penalty of up to $33 000. (31) Indeed, any person who recklessly proposes the inclusion of prohibited content in an agreement, or misrepresents an agreement as not containing prohibited content, risks a similar penalty under ss 365 and 366 of the WRA. Section 358 also provides that a term of an agreement will be void to the extent that it contains prohibited content, though the wording of the provision makes it clear that it is only that term that is affected, not the entire agreement.
Under the original version of s 356 of the WRA, it was left entirely to regulations to define prohibited content. (32) When reg 8.5-8.7 of chapter 2 of the WR Regulations were promulgated, they set out a lengthy list of such matters. Besides specifying that matters not pertaining to the employment relationship would remain prohibited, (33) the regulations also outlined a far more extensive list of forbidden content--including a number of matters that had previously been ruled by the AIRC to satisfy the matters pertaining test. (34)
Much of what is prohibited is specifically targeted at excluding union involvement in statutory workplace bargaining. For example, payroll deduction for union dues, union training leave and guaranteed union involvement in dispute resolution procedures are specifically proscribed. (35) A number of other provisions which more subtly support the continued influence of unions in workplaces are also prohibited, including clauses dealing with engagement of independent contractors and labour hire workers, limitations on offering AWAs, and even the process for renegotiating an agreement. (36)
Besides the restrictions that these rules seek to place on unions, they have also caused considerable difficulty for employers due to the uncertainty of what is prohibited. This is partly because some of the rules are capable of variable interpretations, not least the matters pertaining requirement. It is also a reflection of the fact that under the Work Choices system there is no chance of getting a formal ruling on contentious clauses, unless someone is actually prosecuted for proposing prohibited content, or the Workplace Authority (formerly the Office of the Employment Advocate) chooses to take action under s 363 of the WRA to vary an agreement to remove such content, (37) or the issue arises in the context of a union seeking to take protected industrial action. (38)
Under the previous system, issues could be raised with or by the AIRC during the certification process and then made the subject of a formal decision, which could in turn be appealed to a full bench. (39) The publication of these judgments ensured both that the AIRC and parties generally became aware of what was and was not permissible, despite the fact that it might take time to resolve differences between individual members of the AIRC. This process no longer occurs now that agreements are simply lodged with the Workplace Authority and can take effect without formal scrutiny. (40)
It is true that employers may seek a pre-lodgement assessment of an agreement by the Workplace Authority to determine whether it contains prohibited content. If the draft agreement is cleared, the employer may rely on that assessment to defend any prosecution for recklessly lodging an agreement with prohibited content. (41) However, as many employers have found out, this can be a frustrating process. Aside from the delays that waiting for advice can cause in finalising an agreement, (42) officials reviewing agreements frequently (and perhaps wisely) 'hedge their bets', indicating that they cannot say for certain that a particular clause might not qualify as prohibited content. Worse still, it is not uncommon for the same clause to be cleared by one official and then questioned by another. (43) All of this is exacerbated by the fact that none of these rulings are made public and that there are no formal procedures for external or internal review. (44)
IV CURRENT STRATEGIES
In light of the limitations and uncertainties that the prohibited content rules have created, it is not surprising that unions have turned attention to the potential for using common law agreements to secure the commitment of union-friendly employers to continue with former practices.
The most common strategy seems to be the one already mentioned: simultaneously pursuing a registered instrument that will deal with wage increases and a range of other matters, and a side agreement to cover any content that might be prohibited.
An interesting alternative, however, has been to seek only an unregistered agreement, while leaving any pre-Work Choices agreement on foot. The transitional provisions in sch 7 of the WRA allow certified agreements in force as of 27 March 2006 to remain in force indefinitely, at least where made by a federal system employer. (45) Importantly, pre-reform certified agreements are not required to comply with the prohibited content provisions, except in one respect: any clauses precluding the employer from making AWAs are prohibited in all kinds of agreements, pre-reform and post-reform. (46) Of course, the agreement must deal only with matters pertaining to employment, but that is a function of the pre-reform legislation (as interpreted in Electrolux), rather than the new rules on prohibited content. That aside, pre-reform certified agreements can be left in place without the need to vet them for compliance with the restrictions introduced by Work Choices. The same is true of a 'preserved state agreement' that has effect under Part 2 of sch 8 of the WRA.
A further advantage, especially for employers, is that a pre-reform agreement does not have to comply with the Australian Fair Pay and Conditions Standard in Part 7 of the WRA, at least to the extent that the agreement deals with a 'matter' also covered by the Standard. (47) This avoids the need to apply the highly complex rules that determine whether a particular provision in a post-Work Choices agreement does or does not provide a more 'favourable' outcome than the Standard in some 'particular respect' (48)--a question which can prove quite difficult in respect of some kinds of benefits, especially leave entitlements.
Of course, pre-reform agreements cannot be varied--hence the utility of an unregistered agreement. The parties can make a common law agreement to deal with matters of pay and any other...
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