[2024] FWC 3354 [Note: a variation has been issued to this document]

Fair Work Act 2009

s.739 - Application to deal with a dispute

Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia, "Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union" known as the Australian Manufacturing Workers' Union (AMWU) & "Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union" known as the Australian Manufacturing Workers' Union (AMWU) (188V)

Application to deal with dispute under dispute settlement term of agreement -'no extra claims' clause - whether proposed changes precluded by 'no extra claims' clause - existing arrangements as express or implied contractual terms - whether terms implied by 'custom and practice'

• [1] The Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (AMWU) and the Communications, Electrical. Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (ETU) have made applications for the Commission to deal with a dispute under s.739 of the Fair Work Act 2009 (Cth) (Act) and the dispute settlement term, clause 26, of an enterprise called the Valmet Pty Ltd - B9 Opal Botany Enterprise Agreement (2023-2026) (Agreement).

• [2] The dispute concerns changes to the payment arrangements that the Respondent company, Valmet Pty Ltd (Valmet), proposes to make for certain employees at its site at Botany Road, Matraville. In summary, those changes relate to, firstly, the way the payment of a team leader allowance is paid and secondly, the cessation of the payment of wages on the basis of an existing averaging arrangement (and consequential changes to paid leave).

• [3] The unions, on behalf of their members employed by Valmet, oppose the proposed changes. They say that the changes are 'extra claims' which are prohibited by clause 7, 'No Extra Claims', of the Agreement. The unions do not rely on any other clauses of the Agreement to argue that the implementation of the changes cannot occur.[1] The unions also accept that nothing in the National Employment Standards or the relevant modern award, the Manufacturing and Associated Industries & Occupations Award 2020, which is incorporated into the Agreement under clause 6, prevented the implementation of the proposed changes (save for an argument that other clauses of the award assisted the Applicant's argument as to the proper construction of the 'no extra claims' clause).[2]

• [4] Valmet argues that clause 7 of the Agreement does not have the effect of preventing the implementation of the proposed changes.

• [5] The applications were in similar terms and were, by consent, heard together.

• [6] Valmet is part of the Valmet Group of companies which is based in Finland. It manufactures and sells industrial machinery and equipment. The Australian and New Zealand operations sell machinery and provide maintenance services to customers.

• [7] In 2010, Valmet (then known as Metso Paper (ANZ) Pty Ltd (Metso)) built the B9 Botany Mill paper machine at the Matraville premises for Amcor. Upon completion, the other machinery at the site ceased to operate and only the B9 machine continued to operate. Thereafter, Metso won the maintenance contract for the B9 machine and began hiring employees to perform that work. A number of the employees hired were previously employed by another company, ABB, at the Matraville site. Those employees transferred their employment to Metso/Valmet and continue to work at the site. They are affected by the proposed changes which are the subject of this dispute.

• [8] The employees were originally notified of the proposed changes by memorandum from Valmet in April 2024. The nature of the changes has since been modified by Valmet and it was accepted at the commencement of the hearing that the content of the proposed changes is now set out in a document provided by Valmet titled 'Schedule A'[3] to the Respondent's proposed questions for consideration. The substance of the proposed changes is set out below.

• [9] It was not in dispute that Valmet currently pay and have for some time been paying, a number of its employees a team leader allowance on a 'rolled-up' basis, that is, the flat total amount of the allowance is divided by 38 and added to the hourly rate for certain employees. The proposed change would remove the allowance from the hourly rate and see it paid as a flat daily amount. Valmet proposes to continue to pay the allowance in this way to employees who currently receive it even if they are not performing the duties of a team leader.[4]

• [10] Since at least 2014, Valmet have been using an averaging payment method for the payment of the 8-week shift roster worked by shift work employees. The shift roster involves employees working 2 consecutive day shifts, 2 consecutive night shifts and then having 4 consecutive days off, on an 8-week rotating basis. The pay rates for these shifts would, aside from the averaging arrangement, depend on where the day shift or night shift fell in the cycle and employees would receive different rates of pay for each fortnightly period. Under the averaging arrangement, which Valmet says was implemented at the request of employees,[5] the total amount that a shift worker was rostered to earn over the 8-week roster period was divided into 4 equal instalments paid over 4 fortnightly pay periods, irrespective of the actual hours worked during the fortnightly pay period.[6] The result of this arrangement is that shift workers are paid for 114.5 total hours of pay at ordinary time rates per fortnight which consists of 98.5 'pre-loaded' hours and 16 hours as compensation for working 4 hours of rostered overtime per week.[7]

• [11] Valmet's proposed change would mean that employees are to be paid for the actual hours worked during the fortnightly pay period consisting of a maximum of 76 ordinary hours paid per fortnight and any relevant shift loadings for hours worked on Saturday/Sunday/Night Shift.[8]

• [12] The averaging payment method also has implications for the deduction and payment of paid leave. Mr. Formica, Valmet's Human Resources Manager, described those implications as follows:

In the case of any taken leave entitlement, the averaging payment method operated to deduct the hours of the relevant shift (12 hours per shift) from the fortnightly pay period and replaced with time taken as leave (paid at the ordinary hourly rate). Issues with this payroll system arise, inter alia, where an employee takes leave on a day to which loadings or overtime were applicable (such as a Saturday or Sunday).

In these circumstances the deduction in hours was incommensurate with the 'averaged' hours paid as ordinary hours. For example, as hours worked during a 8 at 200% loading rate each hour worked on a Sunday would be paid as two ordinary hours, if an employee takes leave on a Sunday, then the hours as leave would be less than the hours paid. That is, they would be paid for two hours for each hour of leave taken on a Sunday.

As a consequence, the impacted B9 employees were overpaid in circumstances where leave was taken on any day attracting loadings or overtime. This is exacerbated by the team leader allowance being rolled into the employees' hourly rates.[9]

• [13] According to Mr. Formica, the change proposed by Valmet would mean that:

• when an employee takes leave, leave is deducted from balance on the basis of leave taken;
• leave hours are paid at the ordinary hourly rate;
• shift loadings are not paid for leave taken on Saturday/Sunday/Night Shift;
• overtime is paid if ordinary hours worked plus leave hours are greater than 76 hours per fortnight pay period; and
• annual leave loading (17.5%) is applied to annual leave.

• [14] The parties were asked to provide agreed questions for determination. They were unable to agree on the terms of such questions prior to the hearing.

• [15] Valmet proposed the following questions for determination:
• 1. Is Valmet prevented from implementing any of the changes proposed by it as set out in Schedule A by:

1. The Valmet Pty Ltd - B9 Opal Botany Enterprise Agreement 2023-2026
2. The Manufacturing and Associated Industries & Occupations Award 2020, to the extent that the Award is incorporated into the Agreement; or
3. The National Employment Standards (NES).

1. If the answer to question 1 is yes with respect to any of the proposed changes, what, if any, orders should the Fair Work Commission make.

• [16] In their outline of submissions dated 11 September 2024, the unions said that they agreed with the 'general tenet' of the question proposed by the company, subject to the inclusion of a reference to the disputed changes being those described in the April memorandum. In reply submissions, the unions did not press for the inclusion of a reference to the April memorandum and, as referred to above, ultimately accepted that the changes which it was said were prevented by the operation of the no extra claims clause were those reflected in Schedule A.

• [17] As is referred to at paragraph [3] above, the unions also did not press the argument that either the Award or the NES prevented the proposed changes from being made. The question originally posed by the union did however include a reference to whether or not the proposed changes were prevented by 'contract of employment/custom and practice'. This was also the subject of discussion at the commencement of the hearing.

• [18] The Respondent submitted that the Commission did not have the power under the dispute settlement clause to deal with disputes relating to contracts of employment more broadly and that the dispute settlement clause was confined to matters arising under the Agreement or the NES. I understood the submission to be that the Respondent accepted that the dispute may be determined by reference to the proper operation of the no extra claims clause but not purely by reference to whether the proposed changes were actually prevented by 'contracts of employment or custom and practice' or whether they amounted to attempted unilateral variations to contracts of employment which were not accepted by employees and which might potentially amount to a repudiation or give rise to some cause of action for breach of contract.

• [19] The unions ultimately submitted that neither the terms of the contracts of employment nor any 'custom and practice' prevented the implementation of the proposed changes. Rather, they said that those things created the 'status quo' or an 'existing state of affairs' and that the changes proposed were changes to the status quo that constituted 'extra claims' that were prohibited by clause 7.[10]

• [20] Clause 26 of the Agreement relevantly provides;

The dispute resolution clause will be used if the dispute relates to

26.1(a) A matter arising under this agreement; or

• [21] Having regard to the terms of clause 26, Valmet's argument is clearly correct. Section 739(3) provides that in dealing with a dispute under the dispute settlement term in an enterprise agreement, the Commission must not exercise any powers limited by the term. The Commission is only empowered by clause 26 to resolve disputes relating to, relevantly, a matter arsing under the Agreement. The effect and proper application of the no extra claims clause in the Agreement is such a matter. The question of whether the implementation of these proposed changes is prevented by the operation of the no extra claims clause is properly the subject of the dispute.

• [22] Given the requirements of s.739 and the positions adopted by the parties at the commencement of the proceedings, I therefore propose to deal with the dispute by providing answers to the following questions:

1. Is Valmet prevented from implementing any of the changes proposed by it as set out in Schedule A, by the Valmet Pty Ltd - B9 Opal Botany Enterprise Agreement 2023-2026?

1. If the answer to question 1 is 'yes' with respect to any of the proposed changes, what, if any orders should the Fair Work Commission make?

It is agreed by the parties that up to the nominal expiry date of this Agreement:

• 7.1 The persons covered by this Agreement will not pursue any extra claims;
  • 7.2 This Agreement will cover all matters or claims regarding the employment of the Employees by the Company, which could otherwise be subject of protected action by either party pursuant the Fair Work Act 2009 (Cth) (FW Act), in the relation to the performance on any work covered by this Agreement; and
    • 7 .3 Neither the Employees, nor the Company, will engage in protected action pursuant to the FW Act or unprotected industrial action, in relation to the performance of any work covered by this Agreement.

• [24] The Respondent did not take issue with the validity of the no extra claims clause. In Toyota Motor Corporation Australia Ltd v. Marmara[11] (Toyota) the Full Court of the Federal Court of Australia concluded that a no extra claims clause was, in circumstances where the employer proposed no more than a variation of the agreement in question, inconsistent with the provisions of the Act relating to the variation of agreements and as a consequence, invalid. The Court said that conclusion was one "which relates only to so much of the no further claims term as would stand in the way of Toyota and its employees taking advantage of the provisions of the FW Act that deal with the subject of the variation of an enterprise agreement. In other respects, there has been no challenge to the validity of that term, and nothing we have said should be understood as going beyond that context."[12] Clause 7 does not expressly refer to the parties' capacity to utilise the variation provisions of the Act[13] and no variations to the Agreement are proposed here. I will proceed on the basis that the clause does not impede such applications and is otherwise a valid clause of the Agreement.

• [25] The Applicants referred to and relied on the decision in Toyota in support of their argument as to the effect of clause 7. In that matter, the Full Court was considering an appeal from a decision at first instance which held that a no extra claims clause in the enterprise agreement prevented Toyota from pursuing applications to vary the terms of that agreement. Whilst ultimately disagreeing with the decision at first instance on the validity of the no extra claims clause, the Full Court nonetheless adopted[14] the approach taken to the construction of what constituted a 'claim' or a 'further claim' for the purposes of the clause being considered. The Full Court endorsed the conclusions at first instance on that issue which were as follows:

In the context of the scheme for bargaining provided by the FW Act, where agreements are made in resolution of claims pursued through bargaining, a proposal by one party to vary the outcome arrived at in a way which advances its interests is apt to be regarded as a further claim. That is particularly so where the proposed variations are significant and suggest an attempt, as I consider is here the case, to strike a new bargain. Both the ordinary industrial meaning of "claim" and the scheme of the Agreement to which I have referred, are consistent with the construction of "further claims" in cl 4 as encompassing a proposal made by a party to the Agreement to materially change the terms and conditions of employment set out in the Agreement other than in a manner already provided for by the Agreement. Such a proposal is not merely a request or offer, it is also a "further claim" within the intended use of that expression in cl 4.[15] (emphasis added)

• [26] The Full Court in Toyota also rejected the argument that the embargo on 'further claims' only applied in the case of those claims that were ultimately supportable by industrial action.[16]

• [27] The unions here also relied on the more recent decision in NSW Trains v. Australian Rail Tram and Bus Industry Union[17] (NSW Trains). There the applicant sought declarations regarding its ability to issue directions to employees as to the operation of a new fleet of trains. The declarations were opposed by the union on the basis that the directions were contrary to the no extra claims clause in the extant but expired enterprise agreement. In the course of refusing the application, the Court came to the view that the directions would involve the making of 'extra claims' for the purposes of the relevant clause. At [105] His Honour Flick J said:

If attention be confined for present purposes to the phrase "no extra claims", it is considered that at least two things are well-established in respect to the term "claim", namely:

• the word "claim" is to be construed by reference to the industrial context in which it is employed and not by reference to its ordinary English meaning of an assertion of a right or entitlement to something;

• embraces a claim by an employer or employee "designed to improve upon or advance their respective entitlements or interests" or (expressed differently) to "materially change the terms and conditions of employment..."

So much seems to follow from the decision at first instance (Marmara v Toyota Motor Corporation Australia Ltd [2013] FCA 1351 ("Toyota First Instance")) and on appeal (Toyota Motor Corporation Australia Ltd v Marmara [2014] FCAFC 84, (2014) 222 FCR 152 ("Toyota Appeal")) in the Toyota Motor Corporation litigation.

• [28] Importantly, the Court went on to reject the argument that the wording of the no extra claims clause confined its operation to restricting changes that were made under the agreement, as opposed to changes made to conditions of employment set out in the contracts of employment.[18]

• [29] Flick J in NSW Trains then analysed whether directions that were the subject of the application amounted to 'extra claims' for the purposes of the clause. The analysis was conducted by reference to both the terms of the relevant enterprise agreement and contracts of employment and a qualitative and quantitative assessment of the changes which were proposed

to be implemented for both the drivers and guards involved. At [121] and [129] respectively, his Honour said:

It is concluded that these changes are "material changes" such as to fall within the phrase "extra claims": Toyota First Instance [2013] FCA 1351 at [52]. To employ the language of Bromberg J in that case, NSW Trains is seeking "to strike a new bargain" with its drivers, the 2018 Agreement not contemplating that its drivers would be called upon to drive trains other than those in its existing fleet, together with possibly such "new technology" as may be implemented in respect to that fleet. NSW Trains is asking of its drivers in respect to the Mariyung Fleet to perform tasks "additional to the matters already provided for" in their existing duties: United Fire Fighters' Union [2013] FWCFB 2301 at [26]. Even though part of the 2018 Agreement between NSW Trains and its drivers includes an agreement to embrace "new technology" and agreement to be retrained, the driving of the Mariyung Fleet - it is respectfully concluded - is a "material change" to the tasks already assumed by the drivers.

A conclusion that "extra claims" are being made upon guards is not, with respect, as self-evident as the like conclusion with respect to drivers. Unlike drivers, it is the case that the tasks to be performed by guards on the Mariyung Fleet are fewer than those presently being undertaken. The functions to be performed by guards on the Mariyung Fleet are nevertheless different from those now being undertaken. It is nevertheless concluded that the different functions to be undertaken by guards on the Mariyung Fleet are:

• "additional to the matters already provided for" (cf. United Fire Fighters' Union [2013] FWCFB 2301 at [26]); and that
• the changed roles are "material changes" (cf. Toyota First Instance [2013] FCA 1351 at [52]).

A resolution of the question as to whether "extra claims" are being made is not to be arrived at exclusively by reference to whether "more is being asked" of guards, but also by reference to the nature of the new tasks guards will be required to undertake: cf. National Union of Workers v Qantas Airways Ltd [2013] FCA 976 at [92] to [93] [2013] FCA 976; , (2013) 216 FCR 1 at 19 to 20.

• [30] The unions submitted that, as was the case with the no extra claims clause in NSW Trains, clause 7 was not confined in its operation to claims or changes in rates and conditions under the Agreement but extended to restrict proposed changes that were to be made to existing contractual rights that had been established including through implied terms, or through custom and practice. As I understood it, the submission went as far as to say that the clause extended to limit claims that involved any change to an existing state of affairs established by industrial custom and practice.

• [31] Valmet did not take issue with the unions' submission as to the approach to be adopted in the interpretation of enterprise agreements or, in particular, the proper construction of 'no extra claims' clauses. The company argued that the authorities made it clear that each no extra claims clause and each 'claim' would have to be considered having regard to the particular terms of both. They pointed out that the relevant question was not whether the proposed changes were a 'claim' in any general sense, but whether they were an 'extra claim' for the purposes of clause 7. Further, the company said that the Court in Toyota was considering amendments to the enterprise agreement, not, as was the case here, a change to an arrangement the result of which is permitted by the Agreement. They said a situation where one party is simply attempting to implement the terms of an agreement according to those terms and to 'correct a misapplication' of the agreement cannot be regarded as an extra claim and that this was so even where the misapplication has occurred over successive agreements.[19]

• [32] Valmet submitted that the terms of clause 7, read as a whole, supported the view that the clause was directed to alterations to the Agreement, not to the implementation of particular changes that are otherwise permitted by the Agreement. Further, the company argued that the reference at subclause 7.2 to the Agreement covering 'all matters or claims regarding the employment of the Employees' by Valmet showed that the question of what changes were permitted was to be determined according to the terms of the Agreement and not by reference to what may or may not be in an employee's contract of employment.[20]

• [33] The principles to be applied in the construction of an enterprise agreement are well settled[21] and not contested by the parties in this matter. It is unnecessary for me restate those principles in full. I need only refer to the regularly quoted passage in WorkPac Pty Ltd v. Skene[22] where the Full Court of the Federal Court of Australia said:

The starting point for interpretation of an enterprise agreement is the ordinary meaning of the words, read as a whole and in context: City of Wanneroo v Holmes [1989] FCA 369; (1989) 30 IR 362 (Holmes) at 378 (French J). The interpretation "turns on the language of the particular agreement, understood in the light of its industrial context and purpose": Amcor Ltd v Construction, Forestry, Mining and Energy Union _[2005] HCA 10; (2005) 222 CLR 241 (Amcor) at [2] (Gleeson CJ and McHugh J). The words are not to be interpreted in a vacuum divorced from industrial realities (_Holmes _at 378); rather, industrial agreements are made for various industries in the light of the customs and working conditions of each, and they are frequently couched in terms intelligible to the parties but without the careful attention to form and draftsmanship that one expects to find in an Act of Parliament (_Holmes at 378-379, citing George A Bond & Company Ltd (in liq) v McKenzie [1929] AR (NSW) 498 at 503 (Street J)). To similar effect, it has been said that the framers of such documents were likely of a "practical bent of mind" and may well have been more concerned with expressing an intention in a way likely to be understood in the relevant industry rather than with legal niceties and jargon, so that a purposive approach to interpretation is appropriate and a narrow or pedantic approach is misplaced: see Kucks v CSR Ltd (1996) 66 IR 182 at 184 (Madgwick J); Shop, Distributive and Allied Employees' Association v Woolworths SA Pty Ltd [2011] FCAFC 67 at [16] (Marshall, Tracey and Flick JJ); Amcor at [96] (Kirby J).[23]

• [34] Subclause 7.1 of clause 7 is in broad and unqualified terms. It refers simply to a limitation on the pursuit of any 'extra claims'. Although the subclause itself is obviously the product of the bargaining and agreement-making process, there is no specific reference in that subclause to the limitation for which it provides being restricted to extra claims which relate to changes in the terms and conditions of employment in the Agreement itself. Subclause 13.1(b) of the no extra claims clause considered in NSW Trains was, aside from the reference to the variation process referred to in another clause of the Agreement, in terms to similar effect. It referred to a restriction on 'any changes in remuneration or conditions of employment'. In this respect there is, in my view, no material difference between sub-clause 7.1 of this Agreement and clause 13.1(b) of the no extra claims clause considered in NSW Trains. Of course, the subclauses should not be read in isolation. But it is noteworthy that in the NSW Trains litigation both the Full Bench of the Commission[24] and the Federal Court concluded that the no extra claims clause in question was not to be construed as restricting the operation of the clause to changes to terms set out in the agreement itself.

• [35] I do not see any reason why the reach of subclause 7.1 should be limited by reason of the text of subclauses which follow it or on a proper reading of the clause (or the Agreement) as a whole. Subclause 7.2 provides that the Agreement will 'cover all matters or claims' regarding the employment of the employees which could otherwise be the subject of protected industrial action by either party. This is a conventional expression of a shared intention that the Agreement settles the subject matters with which it deals and that those matters should not be reopened while the Agreement operates. It is supportive of the limitation expressed in subclause 7.1. It is not permissive of the pursuit of any 'matters or claims' provided they are consistent with the existing terms of the Agreement. Nor does it evince a clear intention that the limitation on extra claims referred to in subclause 7.1 should only relate to those claims that might disturb the terms of the Agreement itself.

• [36] Subclause 7.3 is a mutual commitment by the parties in relation to industrial action in relation to the performance of work covered by the Agreement. For present purposes it has no material impact on the operation of the preceding subclauses.

• [37] I reject the submission of Valmet that the operation of the no extra claims clause is confined to limiting extra claims relating to proposed changes to the terms of the Agreement.

Are the proposed changes 'extra claims' prohibited by clause 7?

• [38] The parties did not dispute that the existing arrangements in relation to both the team leader allowance and the averaging arrangement were of longstanding.

• [39] The unions argued that the payment of the team leader allowance on a 'rolled-up' basis was a term of the relevant employees' contracts of employment[25] and could be an implied term[26] of those contracts. Valmet employees gave evidence about the payment of the allowance. The admission of the evidence was not objected to and none of those witnesses were required for cross-examination.

• [40] Mr. Godkin is a former employee of ABB. He said he was employed by that company as a team leader and was paid an additional hourly amount to perform that role. He said when he was interviewed for his position by Metso (now Valmet), he was told that he 'would be coming across on exactly what (he) was being paid at ABB.'[27] At the time he was employed under an agreement that applied to ABB which included a team leader allowance which was expressed as being payable 'per week'.[28] Mr. Godkin said he accepted the offer on the basis that he would be paid the same hourly rate as he was receiving with ABB and that he had foregone a bonus and long service leave to do so. He said that his contract of employment with Metso provided for the payment of his 'current rate of pay and any permanent allowances received.'[29] Mr. Godkin provided payslips dating back to 2019 and a current payslip showing the allowance being rolled into his hourly rate.

• [41] Valmet argued that Mr. Godkin's evidence was not that he was told the team leader allowance would be rolled into his hourly rate. They said that his letter of offer and contract of employment provided no more than that he was to be paid in accordance with the relevant agreement and any 'permanent allowances' received. They said it was unclear why a team leader allowance would be regarded as a 'permanent allowance'.

• [42] Mr. Stellato is also a former ABB employee. His evidence was that Mr Johnson from Metso said at the time of his engagement with Metso that the hourly rate being offered was inclusive of the team leader's allowance that ABB was paying because Metso did not want him to be financially disadvantaged on making the transition from ABB to Metso.[30] Valmet said that the evidence did not establish that the hourly rate that was offered would be preserved for all time and that the contractual documents supersede any prior agreement and at their highest, those documents only make provision for the ongoing payment of a 'permanent allowance.'

• [43] Mr. Delfs is also a former ABB employee who was employed as a team leader and transferred to Metso. He said he was told during his interview with Metso that he would be paid in the same way as he was with ABB and with all allowances 'rolled in'. He said he accepted the position with Metso on that basis even though the position which he was taking was a more junior one than he had at ABB. He said for the duration of his employment with Valmet the team leader allowance was not identified on his pay slips. He was simply paid the one hourly rate. He said that the company acknowledged that his hourly rate included the team leader allowance and provided an email exchange from 2019 about the passing on of a wage increase under the agreement to demonstrate this.

• [44] The company said that Mr. Delf's evidence was in uncertain terms and that in any event, as with the other transferring employees, whatever he was told at the point of engagement was superseded by the 'entire agreement' clause of his contract of employment with Metso which provided for no more than payment in accordance with the relevant agreement and any 'permanent allowances' received.

• [45] Mr Formica gave evidence as to the company's understanding of circumstances that prevailed when Metso engaged the previous ABB employees. He said the understanding was conveyed to him by Mr. Peet, one of Valmet's directors. The evidence was as follows:

I am informed by Mr Peet, and believe, that Valmet was, at that time, of the misunderstanding that the pay rate which the ABB employees were on and that would be maintained by Valmet was not an all-inclusive rate when, in fact, the pay rates were all-inclusive and included allowances such as a Team Leader Allowance.

• [46] Mr. Peet, who was site manager[31] at the time the employees transferred from ABB, did not give evidence. Mr. Formica commenced employment with Valmet in 2022 and therefore had no direct knowledge of what the 'company's understanding' was of the rates that were paid by ABB. He did not say that the rate paid by ABB was not paid on an all-inclusive basis. He simply repeated in cross-examination that the company did not know at the time the employees came across from ABB that the team leader allowance was paid as part of an all-inclusive rate.

Was the payment of the team leader allowance on a 'rolled-up' basis an express term of the contracts of employment?

• [47] The terms of the contracts of employment between the affected employees and the company must be construed objectively to determine whether there is an obligation to pay the allowance on a 'rolled-up' basis provided for as an express term.

• [48] The contracts of employment were reduced to writing and were comprehensive. The contracts contained an 'entire agreement' clause. That clause was relied upon by the company to overcome any assertion that the written terms were to be supplemented or qualified by earlier representations or oral terms.

• [49] The written terms of engagement for Messrs Godkin, Delfs and Stellato were that those employees were to be employed on the terms and conditions set out in the employment agreement and the letter of offer.[32] The agreements referred to remuneration 'on commencement' being 'in accordance with your classification under the Enterprise Agreement'.[33] The letters of offer referred to 'key working conditions' as including a 'weekly rate of pay' described as 'current rate of pay & any permanent allowances received'. There is in my view, some ambiguity in these expressions. It is not clear for example, that remuneration 'in accordance with your classification under the Enterprise Agreement' is the same as an employee's 'current rate of pay' or 'current rate of pay & any permanent allowances received'.

• [50] Valmet submitted that the contracts did not provide for the payment of the allowance on a rolled-up basis. They said the term 'permanent allowance' was not defined and in any case, even if it were taken as including the team leader allowance, there is nothing in the terms of the contract as to how such an allowance is to be paid. Further, they argued that the reference to the 'key working condition' was to a 'weekly rate of pay' and not an hourly rate, and that the letter of offer was a commitment to continue to apply the ABB Australia Pty Ltd Amcor Botany Enterprise Agreement 2009-2013 (ABB Agreement), which provided for the allowance to be paid on a weekly basis. Finally, Valmet submitted that, at most, the term only provided that employees would be paid their then current rate plus permanent allowances and if a rolling-up arrangement were preserved by the term, Valmet could comply with it by paying an hourly rate (exclusive of the team leader rate) which is greater than the rolled-up rate at the time the contract was entered into.

• [51] In situations where ambiguity arises in a contract of employment it is permissible to take into account the objective background facts within which the contract came into existence.[34] Such facts are those that are known to both parties or are notorious such that knowledge of them will be presumed.[35] One background fact that may be relevant to determining the meaning of the expressions 'current rate of pay' and 'current rate of pay & any permanent allowances' is the payment arrangements between the employees and ABB immediately prior to the transfer and at the time the contracts were entered into.

• [52] As is mentioned above, Valmet argued that they misunderstood the existing payment arrangements between ABB and the employees. This assertion as to the company's understanding is difficult to accept. Firstly, how Mr. Formica came to that view about the company's understanding is unclear given he said in cross-examination that he did not have any discussions with Mr. Peet about how ABB was paying the allowance.[36] Secondly, and perhaps more tellingly, Mr. Formica readily accepted that the employees who came from ABB were paid the allowance as part of their hourly rate from the moment they commenced employment with Metso/Valmet to the present day.[37] If Valmet did understand that the rate had not been paid as an all-inclusive rate, no other explanation was provided as to how or why the practice commenced with Valmet in the first place. I do not think Valmet misunderstood that the payments for the team leader allowance that the transferring employees had been receiving from ABB were not paid on a rolled-up basis. Rather, I think it was known to Valmet that the allowance was 'rolled-in' and they implemented the practice of 'rolling in' the allowance at the outset.

• [53] Former ABB employees gave evidence as to the pre-existing arrangement. Mr. Stellato's evidence was that he was offered an hourly rate by Metso that was to be inclusive of the allowance that he was being paid by ABB. Mr. Godkin said he received the allowance as an additional amount per hour.[38] Mr Delfs said the allowance was separately identified on his pay slips and was paid as a weekly allowance. He said the allowance was included in his rate when he was paid annual leave and overtime.[39] He provided examples of pay slips which showed this to be the case.

• [54] Ultimately Valmet did not seriously dispute that immediately prior to their transfer to Metso/Valmet, the employees were being paid the allowance on a 'rolled-up' basis. In that event I think the background facts support a conclusion that the expression 'current rate of pay' in the letter of offer is of itself broad enough to encompass the payment of the team leader allowance as part of the hourly rate of pay and a reasonable person would understand it in that way. I do not think that the additional words '& any permanent allowances received' disturbs this conclusion. In any event the term 'permanent allowances' would objectively be understood as including a team leader allowance. Such an allowance could be described as permanent in the sense that it applied because of the position that the employee occupied on an ongoing basis, as opposed to an allowance paid to compensate for some temporary disability associated with work. The fact that the words are used to describe the 'weekly rate of pay' indicates that read as a whole, the objective intention was that the existing overall weekly rate would be maintained and that would only be possible where the allowance continued to be paid in the way it was.

• [55] In my view Valmet and the transferring employees expressly agreed that current rates of pay and permanent allowances, namely a rate of pay that included the team leader allowance, would be maintained at that time. That was the arrangement that was put into effect from the commencement of the employment of the transferring employees by Valmet. It is therefore unnecessary to consider whether such a term was implied because it was expressly provided for in writing. However, those terms do not go so far as to require the inclusion of that allowance in the rate of pay on an indefinite basis. They require only that the hourly rate be no less than the rolled-up rate at the time the contract was entered into.

• [56] Mr Soligo's evidence was that shift work arrangements were discussed between employees and management in 2012. He said the shift proposal put forward by the company was not favoured by the employees and they suggested an alternative arrangement which was the 2/2/4 roster which is the roster currently in place. He said the company accepted this proposal. He said the move to the present averaging payment arrangement was initiated by the company and accepted by the shift workers who were working shifts at the time. Mr. Dacron gave evidence that the averaging payment arrangement concept came from Mr. Peet who was the site manager to address the issue of fluctuation in earnings depending on the shifts worked. Mr. Monardo's evidence was that he commenced employment with Metso in May 2013 and that the averaging arrangement was already in place when he started. He said that the averaging arrangement for him had been confirmed by exchange of correspondence with the company before he commenced.

• [57] Mr Formica said that his understanding (gained from Mr. Peet) was that the shift rosters and the move to the averaging payment system, were implemented at the request of the employees and agreed to by Valmet.

• [58] Union submissions on the issue of averaging were not entirely clear. The original submission was that the averaging arrangement was a 'custom and practice' that gave rise to an implied term of the contracts of employment because of 'the way it came into existence' and its 'continued observance over a lengthy period'.[40]

• [59] In written submissions in reply, it was argued that the contracts of employment with the transferred employees were either superseded or varied when they had ceased to be day workers under their original contracts and had become shift workers under new contracts. The terms of these new contracts were said to be comprised of 'express verbal representations, terms implied by conduct and terms implied by custom and practice'. Alternatively, it was put that the existing written contracts were varied by mutual agreement such that the employees were no longer day workers, and the written contracts were no longer entire contracts.[41]

• [60] A further alternative argument was developed in oral submissions to the effect that the averaging arrangement was an 'industrial custom and practice' which had given rise to a 'state of affairs' any variation to which was prohibited by the no extra claims clause. Reliance for this proposition was placed on the Full Court decision in Toyota.

• [61] Valmet argued that the evidence fell far short of establishing that a term had been implied into the contracts of employment by virtue of 'custom and practice'. They said that the evidence showed that for one employee the arrangement was put in place after he commenced employment and did not exist at the time the contract was made. Accordingly, it was put that the custom was not one that was 'so well known and acquiesced in that everyone making a contract in that situation can reasonably be presumed to have imported that term into the contract.'[42] To the extent the arrangement applied to an employee who had commenced after the arrangement was put in place, Valmet said there was no commitment that the arrangement would not be changed and that any prior representations were overridden by the written 'entire contract' clause of the employment contract.

• [62] In Paull and Ors v. Linfox Australia Pty Ltd[43] a Full Bench of the Commission dealt with an appeal against a decision which had concluded that a direction by the employer that employees undertake particular work was not contrary to a clause of an agreement which provided that the agreement shall not alter a custom and practice applicable to the parties. In dismissing the appeal, the Bench observed that there was no suggestion in that matter that there was an industry-wide or trade custom that existed in respect of distribution centres broadly. Nonetheless, the Bench accepted the reasoning in Con-Stan could also apply to custom and practice at a particular worksite.[44] The Bench also accepted that the custom and practice might arise within a particular group, including a minority group, where the group had 'enough in common for the practice to be notorious among them.'[45]

• [63] The practice in that case, as is the case here, had developed amongst long-serving employees at a particular facility but it did not pre-date the engagement of those employees by their original employer. In that situation the Bench said:

It can be seen that this is quite a different setting from the one with which the High Court was concerned in Con-Stan, where a custom and practice in an industry was already established, and those making new contracts in the industry were presumed to be aware of it. There must therefore be some question about whether the appellants in this case could make good the requirements of the principles in Con-Stan.[46]

• [64] In the circumstances that prevail here, I do not consider that a term can be implied into the contracts for existing employees on the basis of Con-Stan principles given there was no pre-existing practice in place.

• [65] The situation may be different for employees such as Mr. Monardo who commenced after the practice was implemented. Such a term could be implied in this case given the practice was well-established and understood by all the parties, provided it was not contrary to the express terms of the contract. There was no other express term referred to by the Respondent as precluding such an implied term other than the 'entire agreement' clause. That clause does not expressly exclude implied terms and the present weight of authority[47] supports the view that where such terms are otherwise properly implied on BP (Refinery) Westernport principles, such a clause will not preclude the implication of a clause. I consider that in the case of Mr. Monardo, such a term can be implied on the basis of those principles.

• [66] It was not in dispute that the averaging arrangement had been discussed, agreed and implemented after discussions between the company and its employees working shift work. It has been in operation since at least 2014 on the employer's version, and even earlier according to the employees. Mr Formica said the objective of the arrangement was to 'smooth over' the fortnightly pay amounts by paying an averaged amount over the 8-week shift roster.

• [67] Not all changes to working arrangements will amount to a variation of a contract of employment. A variation will require the usual elements of offer, acceptance and consideration. Valmet argued that a change will not amount to a variation where it relates to an aspect of the employment relationship not regulated by the contract of employment and that if the change is dealt with by the contract, it will not be a variation where the contract itself permits the change. They said that the dayworker to shift worker distinction was not dealt with by the contract and that any change of 'status' was outside the contract and not a variation. I note that the contracts do however provide at 2.3 that 'This agreement will continue to regulate your employment in any new position and for any new, amended, varied or supplementary duties unless otherwise agreed in writing.' The company also said that the contracts did not deal with how the employees are to be paid, that is, according to an averaging arrangement or otherwise.

• [68] It is true that the contracts make no express reference to shift workers being paid on an averaging system or some other method. However, as discussed above, the offers of employment and contracts make reference to 'weekly rates of pay', 'current rates of pay' and remuneration 'on commencement' being in accordance with the relevant enterprise agreement. Given the central importance of the wages for work bargain, it is difficult to conceive of an employment contract that makes no provision as to payment to the employee, whether that be by reference to the rates in an industrial instrument or otherwise. Although it is well recognised that employment law provides latitude for changes in relation to, for example, the performance of work, without necessarily engaging contract variation processes, the proposed change here goes the entire basis on which the shift work employees were to be paid. I do not regard that issue of as being something entirely outside the terms of the contracts that had been entered into here.

• [69] The contract provided for the payments that would be received by employees 'on commencement'. A fundamental rearrangement of the basis upon which wages payable would be determined would, in my view, ordinarily be considered a matter that would involve a variation to a contract of employment - and so it was the case here. The parties discussed and agreed on the averaging arrangement. They each accepted that it was in their own interests to do so. The employees committed to a shift work arrangement on the basis that they would be remunerated by the averaging system. The employer secured the performance of shiftwork by employees on an ongoing basis.[48] In the case of employees, they gained predictability in their earnings. In the case of the employer there was administrative convenience. Both parties continued in the relationship upon this revised basis for more than 10 years. In my view the parties varied the terms of the employment contracts for shift workers to introduce the averaging system as a term of those contracts.

• [70] Having concluded that the averaging arrangement was a contractual term I now consider whether a reversion to the proposed system is a claim that is prevented by clause 7.

• [71] Applying the approach in NSW Trains, it clearly is such a change. The change is material. It would alter the income of shift workers from one pay period to the next. The company regards the averaging system as constituting an overpayment. The employees resist it as a reduction in entitlements. It is an attempt to strike a new bargain. It is an 'extra claim' for the purpose of clause 7 and is prevented from being implemented by operation of that clause. I reach the same conclusion in relation to the proposed changes to the Team Leader allowance.

• [72] Subject to what is said below, the answer to the first proposed question is 'yes, but in the case of the team leader allowance, the proposed change is prevented only to the extent that it would result in the payment of an hourly rate of pay that is less than the hourly rate of pay that was paid at the time the contracts were entered into.'

Section 739(5) and consistency with the Agreement

• [73] Subsection 739(5) of the Act provides:

(5) Despite subsection (4), the FWC must not make a decision that is inconsistent with this Act, or a fair work instrument that applies to the parties.

• [74] Valmet did not contend that a continuation of the existing arrangement for the payment of the team leader allowance would be inconsistent with the terms of the Agreement. They argued that the proposed change was consistent with the terms of the Agreement. They pointed to Schedule A[49] of the Agreement which provides that a 'team leader allowance' is to be paid 'per day'. However, Schedule A also provides that the wage rates in the schedule are 'inclusive of all allowances, including productivity, tool and other disability payments i.e. it represents an all-purpose rate.' (emphasis added). As a matter of practice, the team leader allowance is paid as an additional hourly rate component in addition to weekly rates in Schedule A, even though those weekly rates are expressed as being inclusive of all allowances and an all-purpose rate.[50]

• [75] Schedule A of the Agreement bears a striking similarity to Schedule A of the agreement that applied to the ABB employees when they were working at the Amcor site - the ABB Australia Pty Ltd Amcor Botany Enterprise Agreement 2009-2013 (ABB Agreement).[51] The team leader allowance in the ABB Agreement is expressed as an amount 'per week' but the references to the rates as being 'inclusive of all allowances' and representing an 'all purpose rate' are the same.

• [76] Although there is a lack of clarity in the terms of the Agreement, I do not think that, read as a whole, a continuation of the payment of the team leader allowance on a rolled-up basis would necessarily be inconsistent with the terms of the Agreement. This is because the rates are expressed as being inclusive of all allowances and 'all-purpose'. The ongoing payment of the allowance on the current basis may be an overpayment of the weekly rate but it would be sufficient to discharge the employer's obligations under the Agreement in that respect and would not necessarily be inconsistent with its terms. It may be the case that the proposed change could be implemented, subject to the conclusion in paragraph [72] above, in a way that was also consistent with the terms of the Agreement, that is, by the payment of an hourly rate that was not less than the amount paid at the time the contracts were entered into and an all-purpose weekly rate including the team leader allowance, that was no less than the amount provided for in Schedule A.

• [77] Valmet did contend that a continuation of the averaging arrangement may be a breach of the Agreement. This was because it was possible that the payment of the average wage in a particular pay period might be less than an employee would be entitled to if they were paid on the basis of the hours actually worked. Mr Formica gave evidence of such a scenario. Valmet said there was uncertainty as to whether the averaging arrangements of the incorporated award would permit averaging of overtime payments.

• [78] In Linfox Australia Pty Ltd v Transport Workers Union of Australia[52] the Court gave consideration to the operation of s.739(5) and concluded that no inconsistency arose in that case. Rares J said:

Such an inconsistency might arise if a private arbitration arrived at an outcome in which one or more employees was worse off overall (see e.g. cl 7.3 of the Federal Award). However, that was not an issue in the present case.[53]

• [79] Nothing in this decision should be taken as requiring the continued application of the averaging arrangement in circumstances where, in a particular pay period, an employee would receive less than they would be otherwise entitled to under the Agreement.

• [80] The resolution of the present dispute has required an examination of the practices that were adopted some time ago. It is obvious that the issues that have presented themselves should be the subject of negotiation and clarification by the parties in the next round of bargaining. I would encourage the parties deal with the issues directly at that time.

I do not propose to issue orders in relation to the matter at this stage. Should the parties be unable to implement the outcome of this decision without the making of orders they are at liberty to apply within the next 14 days to provide further submissions as to the nature of any orders that should be made.

In-person at the Fair Work Commission in Sydney commencing at 10:00am AEDT on Thursday, 10 October 2024.

Final written submissions filed by the Respondent on 18 October 2024.

[3] See Schedule A, Hearing Book page 314.

[4] Exhibit R1 Statement of Paul Formica, paragraph 24.

[11] [2024] FCAFC 84.

[13] Australian Rail Tram and Bus Industry Union v. NSW Trains t/as Trainlink [2021] FWCFB 1113 at [15].

[15] [2013] FCA] 1351 at [52].

[17] [2021] FCA 883.

[19] Australian Rail, Tram and Bus Industry Union v. Sydney Trains [2021] FWC 2319 at [224]- [225 and [217].

[21] See for example Kucks v. CSR Ltd (19960 66 IR 182 at 184, Amcor Ltd v. Construction, Forestry, Mining and Energy Union [2005] HCA 10; (2005) 222 CLR 241, King v. Melbourne Vicentre Swimming Club Inc [2020] FCA 1173, Kentz Pty Ltd v. CEPU [2017] FWCFB 2600 and AMWU v. Berri Pty Ltd [2017] FWCFB 3005.

[22] [2018] FCAFC 131.

[24] [2021] FWCFB 1113 at [16].

[32] Exhibit R1 Annexures PF3a, 3c and 3e.

[34] Codelfa Construction Pty Ltd v. State Rail Authority (NSW) (1982) CLR 1149 337 at 352.

[38] Exhibit AMWU 2 paragraphs, 8, 10 and 12.

[39] Exhibit CEPU 2, paragraphs 4 and 5.

[41] Submissions in Reply paragraph 15.

[42] Con-stan Industries of Australia Pty Ltd v. Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; 160 CLR 226 at [8] (Con-stan).

[43] [2018] FWCFB 1563.

[47] Hart v MacDonald [1910] HCA 13; (1910) 10 CLR 417: Etna v Arif [1999] VSCA 99; [1999] 2 VR 353; Insight Oceania Pty Ltd v Philips Electronics Australia Ltd [2008] NSWSC 710 at [158], GEC Marconi Systems v BHP Information Technology (2003) 128 FCR 1; [2003] FCA 50 at [922].

[48] See Ajax Cooke Pty Ltd v Nugent (1993) 5 VIR 551 at 556-8.

[49] See also clause 13, Wage Payments, which refers to Schedule A.

[51] [2010] FWAA 1140, Exhibit CEPU 2 annexure JD1.

[52] [2013] FCA 659.

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