Australian Maritime Officers Union v Sydney Ferries Corporation

A term of a workplace agreement is void to the extent that it contains prohibited content.

Note 1: The Workplace Authority Director can vary the workplace agreement to remove prohibited content (see section 363).

Note 2: For civil remedy provisions relating to including prohibited content in a workplace agreement, see sections 357, 365 and 366.

9 Section s 356(1)(f) of the Act relevantly specifies 'prohibited content' as 'a matter specified in the regulations'. Regulation 8.7 of Subdivision C in Division 7.1, in Part 8 of Chapter 2 of the Workplace Relations Regulations 2006 (Cth) relevantly provides: 8.7 Matters that do not pertain to the employment relationship are prohibited content

(1) Subject to subregulation (2), a term of a workplace agreement is prohibited content to the extent that it deals with a matter that does not pertain to the employment relationship.

(a) a term deals with a matter that does not pertain to the employment relationship; and

(i) incidental or ancillary to a matter contained in the agreement which does pertain to the employment relationship; or

(iii) so trivial that it should be disregarded as insignificant;

then, to the extent that the term deals with the matter, it is not prohibited content.

(3) In this regulation, a matter pertains to the employment relationship:

(a) in the case of a collective agreement - if it pertains to the relationship between the employer bound by the agreement and all persons who, at any time when the agreement is in operation, are employed by the employer and who are bound by the agreement; or

UNION SUBMISSIONS 10 The union acknowledges that the income protection insurance proposed by the clause would operate to provide benefits to an employee whether the event giving rise to the disability arose from service as an employee or from an event unrelated to the employment. The union also acknowledges that the proposed insurance benefits would not operate until the happening of the disability or illness and that the insurance benefits can continue after the employment has ceased. 11 The union submits however that the benefits payable pursuant to the clause constitute part of the relationship of the employer and employee since income protection relates to an incident of employment. 12 The union further submits that the fact that the income protection benefit might become payable to employees arising from circumstances unrelated to the employment relationship does not lead to the conclusion that those payments cannot pertain to the relations of an employer with his employee and that it is of no significance that no immediate benefit is derived by the employee from payments made by the employer. 13 The union relies on the decision of the High Court of Australia in The Queen v Portus and Another; Ex parte Australia and New Zealand Banking Group Limited and Others (1973) 127 CLR 353 and subsequent decisions of the High Court and Federal Court of Australia considered hereunder which concern the relationship of employer and employee in support of its submission that income insurance protection arises out of the relationship between employer and employee. 14 The union also relies upon the decision of the Full Bench of the Australian Industrial Relations Commission in Re National Union of Workers; Re Agreement with Exel (Australia) Logistics Pty Ltd (2005) 146 IR 334. In that decision, the Full Bench upheld the validity of a clause pursuant to which an employer was to pay insurance premiums to an insurer nominated by the National Union of Workers for 'Safety Net insurance'. Such insurance was to protect future income. If an employee decided to terminate such insurance, an increment was to be added to the employee's wages. In the event of insurance premiums being increased, the employee was provided the right to terminate such insurance or to agree to a greater deduction from his or her wages. 15 Further, the union submits that the payments made by the employer to the insurer for income protection insurance should simply be seen as a reward for services, in the same way that a salary is a reward for services. The union relies upon the judgment of Steven J in Portus at 371 where his Honour said: The necessary quality of a subject matter demanded which is concerned with reward for work performed is, I think, that it be, of itself, inherently associated with the relationship of employer and employee and not with some other type of relationship. Reward by way of remuneration of course conforms most clearly to such a test; the payment of wages or salary is inherent in the relevant relationship. Likewise demands for, for instance, paid annual holidays or retirement benefits… would, I think, satisfy this requirement…

As evidence that payments are merely another form of reward for services, the union emphasises the fact that the clause requires payments of premiums to be made by the corporation to the insurer only whilst the Maritime Officer is in the employ of the corporation, adopting the reasoning of the High Court in Re Manufacturing Grocers' Employees Federation of Australia and Another; Ex parte The Australian Chamber of Manufactures and Another (1986) 160 CLR 341 ('the Superannuation Case') at 356. 16 Should the Court not uphold its submissions, the union submits that s 358 of the Act (which provides that a term of a workplace agreement is void only to the extent that it contains prohibited content) would result in the clause being held void only to the extent that it required income protection insurance in circumstances which were unrelated to the contract of employment.

PRINCIPLES 17 It is accepted by both parties that in determining the meaning of the phrase 'pertains to the employment relationship', the Court may have regard to the authorities dealing with the definition of 'industrial matter' in the Conciliation and Arbitration Act 1904-1968 (Cth) ('the Conciliation and Arbitration Act') as the same concepts applied under that statute as applies to the Act. Although the Conciliation and Arbitration Act is now repealed, the definition of 'industrial matter' contained in that Act included 'all matters pertaining to the relations of employers and employees' and included, inter alia: (a) all matters or things affecting or relating to work done or to be done;

(b) the privileges, rights and duties of employers and employees;

(c) the wages, allowances and remuneration of persons employed or to be employed;

18 In Portus the High Court considered whether an attempt to impose an obligation on banks to pay union dues out of monies earned by employees in accordance with authorities given by such employees gave rise to an 'industrial matter' as defined in s 4 of theConciliation and Arbitration Act. The High Court in Portus found that the dispute arising out of such demand did not constitute an 'industrial matter' as defined in s 4 since the payments for union dues were to be made by the employer only after income had been earned by the employee. Menzies J at 360 observed that the pivotal question was whether the imposition upon an employer of an obligation to make deductions for the purpose of making the subject payment 'affects the industrial relationship of employers and employees'. Having observed that the payment was to be made out of 'earned salaries' his Honour at 360 said: In my opinion, the relationship that would be affected by such an obligation is a financial relationship of debtor and creditor arising from the earning of salary, not the industrial relationship in which the salary has been earned and has become payable. What is sought, in reality, is to make the employer the financial agent of the employee for the benefit of the association…

In my opinion, the facts before the Court disclose a dispute which is not an industrial dispute. It is, in truth, a dispute between the association and the banks about whether or not the banks should perform for the association a dues-collecting service.

See also Walsh J at 363 and Steven J at 371. 19 In the Superannuation Case the High Court found that a demand that employers contribute to a superannuation scheme related to an 'industrial matter' within the meaning of s 4 of the Conciliation and Arbitration Act. At 356-357 their Honours said: First, it was said that the claims are for payments in respect of which employees will have no entitlement until the relationship of employer and employee has ceased to exist. The answer was made that the employee will receive a vested interest in the money paid, albeit not in possession, when the contributions are made by the employer to the fund. Whether or not this be so, the fact that there is no immediate benefit to employees from the payments to be made by employers, at any rate in any tangible form, does not in our view mean that those payments cannot pertain to the relations of an employee with his employer… payments do not cease to be remuneration for service during the relationship merely because the benefit from them is deferred until after the service has been finally performed and the relationship has ended. The obligation of the employer to make payments ends with the relationship between him and his employee unlike the obligation of an employer to pay a pension, which necessarily extends beyond the period of employment. It is in our view of no significance that an employee receives no immediate benefit, other than such interest as he might have in the superannuation fund, from the payment of contributions to the fund by his employer…

Next, it was submitted that, since the payments claimed are to be made to the trustees of superannuation funds who are third parties, they involve relationships which are not those of employers and employees. It is obvious that the relationship between an employer and the trustee of a superannuation fund is not that of employer and employee, but that is hardly to the point. As the decision in Reg. v. Portus; Ex parte A.N.Z. Banking Group Ltd. shows, the identity of the payee is ordinarily not of significance in determining whether payments made by an employer to a person other than his employee constitute an industrial matter. But the opposite is the case where the payments are to a superannuation fund, because the character of the payee and the capacity in which he receives the payments provides the very connexion with the relationship between the employer and employee which is necessary if those payments are to be an industrial matter. Because the payments are to a superannuation fund, they form, to use the words of Menzies J., an incident of the employment… There is no reason why those payments should be seen in any other way than as contributions by an employer to a fund for the benefit of an employee. No doubt the payments represent money earned in an industrial relationship, but they do not represent money to which an employee is himself presently entitled... [Footnotes omitted].

20 In Electrolux Home Products Pty Ltd v Australian Workers' Union [2001] FCA 1600 ('Electrolux No. 1') the Court considered whether a claim that the employer contribute the equivalent of 1.5 per cent of an employee's weekly wage for a scheme to protect long service leave and other entitlements in an external trust deed pertained to the relationship of employer and employee. Justice Merkel at [21] conveniently summarised the relevant principles as follows: The general approach to be adopted in determining the characterisation of an industrial claim is to look at the substance of the demand and to identify the aspect that is central to the claim, or a critical part of it, having regard to the context in which the claim is made: see Re The Amalgamated Metal Workers Union of Australia; Ex parte Shell Co. of Australia Ltd [1992] HCA 38; (1992) 174 CLR 345 ("Shell") at 358-359. The claim is not to be construed as if it were a document creating legal rights and obligations: see Shell at 359. Finally, a claim can be properly characterised as pertaining to the relationship of an employer and its employees notwithstanding that parts of a claim that are machinery provisions giving effect to the claim (see Shell at 359), or ancillary aspects of it (see R v Portus; Ex parte Australia and New Zealand Banking Group Ltd [1972] HCA 57; (1972) 127 CLR 353 ("Portus") at 372), may not pertain to that relationship. If a claim pertains to the requisite relationship in accordance with the above principles it is because it is in respect of a matter that pertains to that relationship.

21 Merkel J at [22] observed of the scheme before the Court: The employee entitlements claim is expressed to be a claim by the unions for payment to employees, as part of their remuneration for service, of amounts that will secure and protect their severance pay, long service and other leave entitlements, notwithstanding that the right to payment of the entitlements is contingent and has not yet crystallised. As the entitlements are not payable until some time in the future the claim for payment to be to a trustee seeks to ensure that the employee entitlements will be paid to the worker on the right to payment crystallising. The claim for payment on account of the entitlements, which protects and enables portability of the entitlements, is analogous to the claims of unions for employers to participate in a superannuation scheme by payment of superannuation contributions to a trustee of a particular superannuation trust fund pending the superannuation entitlement becoming payable to the employee, for example on retirement. Such a claim is in respect of a matter pertaining to the relationship of employers and employees…

22 His Honour concluded at [34]: In my view, the substance of the employee entitlement claim, the central and critical aspects of it, and its subject matter, relate to payments by the employers, as such, for the benefit of the employees, as such. The payments relate to particular aspects of the remuneration to be received by employees for service to their employer (that is, employee entitlements in respect of severance pay and leave) and belong to and are within the sphere of the relationship between Electrolux and its employees, as such. In so far as there may be some circumstances where amounts paid on account can accrue to the benefit of the trust fund, and interest earned on payments made by the employer is to be paid to the trustee for its services, such provisions are ancillary or incidental aspects of the matter to which the claim relates and do not alter the substantive characterisation of that matter.

23 The High Court in Electrolux Home Products Pty Ltd v Australian Workers' Union (2004) 221 CLR 309 ('Electrolux No. 2') confirmed that the principles discussed in the preceding paragraphs apply to the Act. Gleeson CJ said at [10]: The Court [in Portus at 359, 362] approved statements in R v Kelly; Ex parte Victoria to the effect that "the relations of employers and employees" refers to the industrial relationship, and not to matters having an indirect, consequential and remote effect on that relationship. [Footnote omitted].

24 McHugh J at [60] said: The cases emphasise that "matters pertaining" to the relations of employers and employees must pertain to the relation of employees as such and employers as such, that is, employees in their capacity as employees, and employers in their capacity as employers.

See also the observations of McHugh at [80] and of Gummow, Hayne and Heydon JJ at [160]-[162].

FINDINGS 25 In these proceedings there are three distinct facets of the income protection clause which are at issue, the determination of any one of which could result in a finding that the clause is void for failing to pertain to the relationship between the employer in its capacity as employer and the employee in its capacity as employee. The first is that the benefit of the income protection may never vest in the employee, that is, any benefit is contingent. The second issue is that the payee is a third party. The third issue is whether such benefit may be characterised as being connected with employment. 26 As to the first facet, the fact that such benefit is contingent and has not yet crystallised or may not crystallise does not necessarily render such clause invalid. An entitlement to long service leave may never arise because an employee may not work for a sufficient period with an employer to enable such benefit to accrue. Nevertheless a scheme protecting long service leave entitlements was found to pertain to the relationship between employer and employee in Electrolux No. 1. 27 In relation to the second facet, the statement from the Superannuation Case extracted in paragraph [19] of this judgment suggests that the mere fact that the payee is a third party is usually irrelevant to any determination as to whether the particular scheme pertains to the employment relationship. However, the union submits that, in accordance with the reasoning of the Superannuation Case in the aforementioned passage, the identity of the payee provides the 'very connexion' with the relationship between the employee and employer. Such claim will be dealt with below in relation to the third facet.

Benefit not sufficiently connected with employment 28 The clause requires the corporation to effect income protection insurance for its Maritime Officers in respect of long term illness or injury equivalent to 75 per cent of salary. Such disability may arise out of the employment in which the employee is engaged. However, it is not confined only to those circumstances. The clause imposes the obligation to provide insurance which covers injury or illness causing such disability in circumstances wholly unconnected with the employment. That is, any cause resulting in long term illness or injury would be sufficient to engage the payment of insurance benefits for the employee. 29 Further, the insurance benefits under the clause would be payable whilst the employee remains in the employ of the corporation but also in circumstances where the employment has ceased. Although the employee may have resigned his or her employment or been terminated, entitlement to receive payments pursuant to the clause would continue indefinitely provided that the event which triggers the payments occurs while an employee is in the employ of the corporation. 30 When considering whether the clause is connected with the relationship between an employer in its capacity as an employer and an employee in its capacity as an employee, the relationship had to be 'direct and not merely consequential'in order to be the subject of an industrial dispute under the Conciliation and Arbitration Act:see the Superannuation Case at 353; see also Gleeson CJ's statement at [10] in Electrolux No. 2. That is, the obligation imposed upon the corporation must arise inherently from the relationship of employer and employee. 31 The union sought to equate the income protection insurance scheme with superannuation contributions as considered in the Superannuation Case. Superannuation contributions have been recognised as a form of payment in lieu of remuneration: see the Superannuation Case at 354; see also 355-356 wherein the Court referred to the fact that superannuation payments were commonly regarded as an aspect of the terms and conditions of employment. However, the benefit to be obtained under the clause and the circumstances in which it becomes payable are very different to a superannuation entitlement, for the reasons explained below. 32 Firstly, the quantum of the benefit which accrues under superannuation entitlements is directly connected with the service performed by the employee. This is demonstrated by the fact that generally the greater the size of the employee's salary and the greater the length of time worked, the greater the superannuation benefit that accrues, even though receipt of such benefit is postponed until an event such as retirement occurs, and even though the exact dollar amount of the eventual benefit is unlikely to be the same as what was contributed by the employer. This was recognised by the High Court in the Superannuation Case when it said at 354: … the superannuation schemes which are envisaged are to provide benefits either upon the accumulation principle so that the extent of those benefits will depend on the level of the contribution to the particular scheme, or as defined benefits which will be fixed… it is said that an employee will have a vested interest in the fund and thus in the contributions when they are made, although his interest will not fall into possession until he retires or otherwise establishes his entitlement.

33 Secondly, superannuation benefits arise solely in consequence of the employee's service and it is that service which provides the nexus to the employment relationship. In contrast, the clause provides that insurance benefits are payable upon the happening of events which may be entirely unconnected with the employer and employee relationship. For example, if the employee sustained a disabling injury during a recreational activity, such as a weekend sporting engagement, or contracted a disabling illness whilst on an overseas holiday, benefits would be payable. Further, the benefits could continue long after the employment has been terminated. In these respects there is no equivalent direct connection with the employment relationship. 34 The union has submitted that because the amount of the insurance benefit is stated as a fixed percentage of the actual income, namely 75 per cent, a closer connection to the employment relationship exists than with superannuation. Such submission has a superficial attraction. However, this submission overlooks an important factor. That factor is that while the benefit is certain in that the insurance benefit would constitute a fixed proportion of a known income, the duration of any insurance payments, and therefore the overall quantum of the benefit, is entirely unknown. The long-term injury or illness might last for a few years. It might equally last for much longer. Therefore the delimiting factor of the overall quantum of the benefit does not arise out of the relationship between the employer and employee. Rather, it arises out of the duration of the period of incapacity due to illness or disability. It follows that the claim that the clause has a closer connection to the employment relationship as compared to superannuation contributions fails. 35 In The Queen v Hamilton Knight and Others; Ex parte Commonwealth Steamship Owners Association (1952) 86 CLR 283 the High Court recognised that a causal connection between the employment and the injury was a vital consideration in determining whether workers compensation benefits could be found to be directly connected with the relationship between the employer and employee: see Dixon CJ at 296; Kitto J at 329. In the present case there is no necessity that there be a causal connection between the employment and the injury which triggers income protection insurance benefits, since the event giving rise to the insurance benefit may be unconnected with the employment. 36 In its judgment, the Full Bench in Exel quoted in full paragraph [22] of Merkel J's judgment in Electrolux No. 1, as set out at [21] in this judgment, and then continued at [41]: The payee in this case is an insurer which has issued a policy over the income of the employee. Does such a payment relate to "an incident of the employment"? We have no doubt that a scheme for income protection insurance, in which the employer pays the premium, pertains. In this case, there is an income protection insurance scheme which allows that if premiums rise the employer and the employee are to pay a share of the premium. In those circumstances at least, a provision for the employee's share of the premium to be deducted by the employer from the employee's wages and remitted to the insurer also pertains. We think that such a payment relates to an incident of the employment in the sense in which Menzies J. used that expression in Portus. For that reason cl.19.4 is a matter that pertains to the relevant relationship.

37 The Full Bench in Exel equated a scheme for income protection insurance to a scheme for long service leave entitlement protection. However, there are significant conceptual differences between such schemes. For example, the long service leave benefits under consideration in Electrolux No. 1 accrued during the long service of the employee and arose directly from the relationship of employer and employee in that the protection of the long service leave entitlement only arose if the employee became entitled to such benefit arising from their relationship with the employer. Such benefits are significantly different to a scheme as envisaged by the clause pursuant to which premiums are required to be paid to an insurer by an employer for possible future payments, the entitlement to which may arise out of a cause wholly unrelated to the employment. Further, the scheme in Electrolux No. 1 sought to protect employees against the loss of entitlements which accrued as a result of the relationship between employer and employee. An entitlement connotes a right to a benefit. An income protection scheme does not protect employees against the loss of future entitlements, since it can hardly be said that an employee has a right to an income from the company if, because of a disability unconnected with their employment, they are unable to continue to work for the company. 38 The decision of the Full Bench in Exel may possibly be explained upon the basis that the employer paid the premium for income protection insurance in lieu of remuneration to the employee in accordance with the reasoning of the High Court in the Superannuation Case at 355. This was demonstrated by the fact that if the employee chose to opt out of the insurance his or her wage was to be increased by 1.15 per cent. Unfortunately, the details of the proposed income protection insurance considered in Exel are not apparent from the judgments of the Full Bench. For example, it is not known whether the insurance was payable in respect of disability resulting from work-related causes, or whether such causes were unrelated to employment. Without such information, it is not possible to accept the Full Bench's findings as stating a general principle that all employer sponsored schemes for income protection insurance necessarily arise out of the employment relationship. If the decision is intended to operate as a principle of universal application, this Court respectfully declines to follow it. 39 The Court concludes that the income protection insurance scheme proposed by the clause cannot be said to be analogous to any of the schemes referred to by the authorities relied upon by the union. It is not sufficiently connected to the employment relationship and consequently cannot be said to pertain to the relationship between corporation in its capacity as an employer, and the Maritime Officers in their capacity as employees. The scope of the clause has the consequence that insurance benefits could be payable arising out of circumstances having no direct connection to the employee's relationship with the employer. For this reason, the clause cannot be justified even on the more abstract level that the preservation of a disabled employee's salary is a matter that pertains to employment.

Income protection insurance as reward for services 40 The findings so far have focused on the benefit which flows to the employee as a result of the income protection insurance payments, and whether that benefit is or is not sufficiently connected with employment. However, the union has also submitted that the proper characterisation of payment of premiums by the employer to an insurance company for income protection insurance is as a reward for services. 41 Immediately before the passage of Steven J in Portus cited at [15] of this judgment, his Honoursaid: Not every demand for reward for work performed will render the subject matter of the demand an industrial matter. The matter demanded must always pertain to the employer-employee relationship…

It follows that the mere assertion by the union that such payments of insurance premiums are a reward for services does not, without more, establish the necessary nexus to the employment relationship. The union's reliance on the High Court in the Superannuation Case at 356where it said 'the obligation of the employer to make payments ends with the relationship between him and his employee' is insufficient to establish that nexus. This particular passage was used in the context of distinguishing superannuation from pensions, which had been found in Hamilton Knight to not pertain to the relationship between employer and employee, rather than to provide a reason why superannuation could be considered to pertain to the relationship between employer and employee. 42 As Steven J said in the passage cited above, the subject matter must still pertain to the relationship between the employer and employee. In the Superannuation Case payments were found to be in lieu of remuneration, thus providing a necessary link to the employer and employee relationship. This was also the case in Electrolux No. 1 and Exel. In the absence of similar evidence that the payments of insurance premiums by the employer were a reward for services and in view of the Court's finding that the benefits do not pertain to the relationship between employee and employer, the claim that such payments are merely a reward for services cannot be sustained.

Can the clause be read down? 43 The Court concludes that the clause is not one which relates to the employer and employee relationship. In the event of such finding the union submits that such clause is void only to the extent that it applies to disability insurance to be effected in respect of injury or illness arising out of the employment relationship. However, clause 22.1.1 of the Agreement provides: In accordance with New South Wales Workers Compensation Laws, SFC shall ensure its Employees are insured for workers compensation against incidents or injuries at work.

44 Clause 22.1 therefore makes provision for insurance for employees arising out of the employer and employee relationship. If the income protection clause were read down to exclude benefits arising from causes outside the employer and employee relationship, there could be a duplication of insurance for potentially the same or similar causes. Accordingly, the Court considers it unlikely that the parties, in formulating their Agreement, would have intended that the clause be able to be read down to lead to such result. The Court is not satisfied that the clause can be read down in such a way and it is therefore void in its entirety.

CONCLUSION 45 The Court finds that the obligation to effect the income protection insurance as proposed by the clause does not arise out of the employer/employee relationship. Accordingly it is a prohibited clause within the meaning of s 358 of the Act in its entirety. The Court observes that as a consequence of such finding the corporation may be in breach of s 357(1) of the Act. However, such matter was not argued before the Court and consequently the Court makes no finding on this issue. 46 It follows that the application must be dismissed. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cowdroy.

Associate: Dated: 18 March 2009 Counsel for the Applicant: Mr Crawshaw SC

Solicitor for the Applicant: Mr Wydell of the Australian Maritime Officers Union

Counsel for the Respondent: Mr Dixon SC with Mr Chin

Solicitor for the Respondent: Allens Arthur Robinson