John Lysaght (Australia) Ltd v Automotive, Metals and Engineering Union and anor

Industrial Relations Commission (NSW)|2001-12-17|Before: Harrison DP, Hungerford J

CITATION : Notification Under Section 130 by OneSteel Trading Limited Of A Dispute With The Australian Workers' Union, New South Wales and Others Re Proposed Contracting Out of Non Core Work [2001] NSWIRComm 337 PARTIES : OneSteel Trading Limited The Australian Workers' Union, NSW, The Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union, NSW Branch, the Electrical Trades Union of Australia, NSW Branch, the Construction, Forestry, Mining and Energy Union, NSW Branch FILE NUMBER: IRC 4939 of 2001 CORAM: Harrison DP CATCHWORDS : Contracting out - principles to be applied - redeployment program by consultation - exchange program waiting list of volunteers from other departments - held - no issue of harsh, onerous or unsafe working conditions - direction issued preventing opposition to company contracting out work in accord with established agreement on use of contractors and displaced employees. LEGISLATION CITED : Industrial Relations Act 1996 John Lysaght (Australia) Ltd v Automotive, Metals and Engineering Union and anor (IRC340 of 1994 Hungerford J 7/4/94, unreported) CASES CITED : Re Cram, ex parte NSW Colliery Proprietors' Association Limited (1987) 163 CLR 117 John Lysaght (Australia) Ltd Port Kembla Slit Recoil Line Rates of Pay Award (1994) 279 IG 548 BHP Steel (JLA) Pty Ltd v AWU-FIME Amalgamated Union (IRC 2374 of 1994, Hungerford J, 21/3/95, unreported) HEARING DATES: 10/22/2001; 10/23/2001 DATE OF JUDGMENT: 12/17/2001

LEGAL REPRESENTATIVES: RESPONDENT Mr K Maher and Mr M Stoker Australian Workers' Union, NSW Mr M Matheson Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union, NSW Branch

JUDGMENT: - 24 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES CORAM: HARRISON DP Monday, 17 December 2001 Matter No IRC 4939 of 2001

Notification under section 130 by Onesteel Trading Limited of a dispute with the Australian Workers' Union, New South Wales and others re proposed contracting of non core work

1 This is a notification pursuant to section 130 of the Industrial Relations Act 1996 ('the Act') filed by OneSteel Trading Limited ('the company') on 25 July 2001.

2 The notification advises of a dispute with The Australian Workers' Union, New South Wales (AWU), the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union, New South Wales Branch (AMWU), the Electrical Trades Union of Australia, New South Wales Branch (ETU) and the Construction, Forestry, Mining and Energy Union, New South Wales Branch (CFMEU) concerning the proposed contracting by the Company of certain activities/services, described as "non-core", within the Construction Department of its Pipe & Tube operations at Newcastle.

3 The notification advises that the production and maintenance employees of the Company commenced a 24 hour strike at 8.00 am on 24 July 2001 and have imposed an ongoing overtime ban over the proposed contracting. The employees, members of the AWU, AMWU, ETU and CFMEU, are covered by the Tubemakers of Australia Limited Newcastle General Award ('the Award') 319 IG 1183.

4 The matter was first subject to compulsory conference proceedings on 26 July 2001, resulting in a recommendation that the overtime ban be lifted forthwith. This recommendation was accepted by the parties and set in train a series of discussions between them punctuated by proceedings on 13 August 2001 for the purpose of report back and conference, where it was agreed that the parties develop a joint communique setting out their understanding of core and non-core activities, the need for change and processes of consultation.

5 On 17 August 2001 the Company sought the matter be re-listed after overtime bans were re-imposed in relation to the proposed contracting out of the subject work. Directions were issued pursuant to section 134(2) of the Act in the following terms:

HIS HONOUR: I issue directions, pursuant to section 134(2) of the Industrial Relations Act 1996, that:

The overtime bans, in place at Tubemakers Australia Division of OneSteel, be lifted immediately;

Employees, forthwith, work overtime in accordance with the usual manner and the lawful and reasonable instructions of their employers.

I do not require endorsement of that direction by a mass meeting of employees, though it is probably appropriate that the unions convene a mass meeting, no later than 4pm on Monday 20 August 2001, to convey to them the issues and information, that has arisen in these proceedings, as to the crippling effect that an overtime ban can have on the company upon which they rely so heavily for their future continued security of employment and accrued entitlements and to also convey to them my comments, which I cannot put in sufficiently strong enough terms, that the employees should not impose industrial action, in the circumstances of this matter, which are on track for an orderly and proper resolution.

The imposition of industrial action, contrary to the Disputes Procedure, is an unnecessary, unproductive distraction from a proper resolution of the issues which will eventually be found. 6 These proceedings were adjourned to report back and conference on 28 August 2001 with leave to re-list on short notice if required. A Certificate of Attempted Conciliation was issued on 28 August 2001. 7 The matter was subject to proceedings for the purpose of directions to set a schedule for inspection and arbitration proceedings on 11 September 2001.

8 An inspection of the Company's Pipe and Tube facilities at Mayfield, a suburb of Newcastle, took place on 17 October 2001. Present during the inspection were Mr D Lloyd, Solicitor of Blake Dawson Waldron, acting on behalf of the Company, with Messrs Krix, Jago and Hall; and Mr K Maher of the AWU with Messrs Shaw, Boyle, Whitbread, Watson and AMWU delegate Mr J O'Neill.

9 The matter then proceeded to arbitration on 22 and 23 October 2001. Mr Lloyd continued his appearance on behalf of the Company with Mr Hall. Mr Maher continued his appearance on behalf of the AWU with Mr W Shaw. Mr O'Neill appeared on behalf of the AMWU with Mr S Murphy.

10 Mr Lloyd brought evidence from Mr Ian Krix, Support Services Manager; Mr Gavin Jago, Site Services Manager; and Mr Mark Hall - Human Resources Manager, Pipe & Tube, Newcastle Site.

11 Mr Maher brought evidence from Mr Stephen Hayes, Maintenance Crew employee; Mr Brain Watson, Construction Department employee; Mr Anthony Boyle, Construction Department employee; Mr Steven Whitbread Construction Department employee; and Mr Donald Moran, Construction Department employee

12 Mr Lloyd sought remedy in terms of a direction under section 136(1)(a) of the Act, filed on 31 August 2001 and revised in proceedings of 22 October 2001, in the following terms: "A case has not been made out for the Commission to intervene to prevent, or restrict, OneSteel Trading Limited (trading as OneSteel Pipe and Tube) from having the activities/services currently undertaken by the Construction Department at its site being performed by contractor entities."

13 The grounds and reasons relied upon by the Company are set out at point E of the application: E. Grounds and reasons:

(1) OneSteel Trading Limited (the "Company") operates a steel pipe and tube manufacturing site at Mayfield, trading as OneSteel Pipe and Tube. The Company's operations at the Mayfield site include a Construction Department.

(2) The Company has proposed the contracting, of the activities/ services undertaken by the Construction Department, ie that these activities/ services be undertaken by contractor entities instead of the Company. The activities/ services are: (a) plant office and amenity cleaning; (b) transportation of product to local customers; (c) maintenance of transport fleet; (d) ground maintenance; and (e) building services, painting and related services.

(3) The proposed contracting follows an extensive period of consultation by the Company with its employees at the Mayfield site and the Respondent Unions.

(4) A dispute exists between the Company and the Respondent Unions about the proposed contracting. Specifically, the Unions have opposed the contracting.

(5) The current focus of the Company's business is to produce acceptable returns, significantly lower its fixed costs base (and consequently the break-even point), and concentrate on the activities in the business which produce profit, principally the manufacture of pipe and tube. Consequently, it is no longer appropriate for the Company to continue to undertake internally all of the ancillary activities/ services that have historically been undertaken at the Mayfield site.

(6) The Company contends that the activities/ services undertaken by the Construction Department are not core to the Company's pipe and tube manufacturing business and that it is appropriate for these activities/ services to be contracted.

(7) The Company contends that the proposed contracting would result in improved performance of its business, including increased efficiencies, significant cost savings and benefits derived from a reduced requirement of the Company to manage and administer the activities/ services of the Construction Department.

(8) The Company contends that suitably able, qualified and experienced contracting entities can be engaged by it to perform the activities/ services undertaken by the Construction Department.

(9) The Company contends that the proposed contracting would not place any unfair or unreasonable demands on employees of the Company; nor would it involve any safety issue.

(10) The Company contends that the proposed contracting is in accordance with relevant award provisions, including sub-clause (HI) of clause 7, Contract of Employment; and clause 32, Labour and Business Flexibility, of the Tubemakers of Australia Limited Newcastle General Award (the " Award").

(11) The proposed contracting would affect the employment of 15 employees of the Company. The Company contends that the proposed contracting can be effectively implemented with fair and equitable treatment of these employees. The employees have the benefits afforded by clause 36, Employment Security, and clause 37, Retention of Rate, of the Award. The Company further contends that the compulsory retrenchment of employees can be minimised by the utilisation of an individual redundancy plan for each employee, by a voluntary redundancy scheme, by a redundancy swap scheme, retraining of employees and by alternative employment opportunities with the contracting entities.

(12) The Company has given certain commitments to the Respondent Unions about the engagement of contracting entities. These commitments are documented in the OneSteel Market Mills Code of Conduct for Contractors.

(13) The Company contends that the proposed contracting is consistent with the outcome of the recent engineering and maintenance review conducted by OneSteel for its three Market Mills sites in Newcastle (which includes the Company's Pipe and Tube site). Arising out of this review, OneSteel has proposed the establishment of a Manufacturing Support Services group to provide all engineering and maintenance functions across the three sites. The other two sites (ie Rod and Bar, and Wire) do not have an equivalent of the Company's Construction Department and, generally, have previously contracted the equivalent activities/ services undertaken by the Construction Department at the Company's Pipe and Tube site (with the exception that Rod and Bar undertakes the Mills cleaning function). For operational and business organisation reasons it is appropriate that the proposed contracting of the Construction Department be implemented prior to the establishment of the Manufacturing Support Services group.

(14) The Company is currently undertaking a "Managing Complexity for Profit" project, which is examining the profitability of all of the Company's products, including product range, market price and the quantity of product supplied to the market. This project is separate to the proposed contracting of the Construction Department.

(15) For such other grounds and reasons as to the Commission appears sufficient. 14 These arrangements were supported by the statement of evidence of Mr Gavin Jago (ex 5) who identified the extensive consultative process by the Company with its employees and their unions. 15 The Company's proposal to contract out particular activities/services at it's Mayfield site are detailed in the statement of Mr Ian Krix (ex 1) which set out the process of consultation and economic benefits to the company from the contracting out of the identified tasks. 16 The evidence of Mr Hall is that the company currently employs a redundancy swap scheme and that he is confident that there would be sufficient volunteers for redundancy from other parts of the plant in order that there be no necessity for forced redundancies to occur as a result of the present propositions. 17 Mr Hall deposed that there was some 20 people seeking voluntary redundancy and that a process of consultation and discussion would take place to allow the best fit for both the employee and the company when placing people surplus to construction department requirements into positions vacated by those being allowed to take up voluntary redundancy in accordance with their previously expressed desire to do so. 18 Mr Lloyd tendered correspondence from Cromwell Cleaning Services, a prospective contractor dated 8 August 2001 (ex 3), which specifies quality standards if awarded the contract.

19 Mr Lloyd tendered a proposal, dated 4 September 2001, setting out the arrangements for managing people in the transition to Manufacturing Support Services (MSS) and the conditions of employment that will apply to award covered employees within MSS (ex 4). The arrangements provide for one on one discussion with effected employees to establish an action plan which will encompass temporary duties as necessary. Provisions for temporary duties for displaced employees are found at item 4.4 of exhibit 4 in the following terms: 4.4 TEMPORARY DUTIES FOR DISPLACED EMPLOYEES

4.4.1 Where a displaced employee does not accept a redundancy, package, options will be pursued to identify meaningful alternative work whilst waiting for a suitable job to become available. This will ordinarily require employees to transfer to MSS whilst awaiting an alternative placement.

4.4.2 Both management and the employees concerned will continue to actively pursue opportunities for permanent placement for employees engaged on temporary duties.

4.4.3 Where there is a substantial mismatch between employees' intending to leave the organisation and required labour reductions in certain categories of employment, OneSteel management will give consideration to options such as selectively extending implementation timetables or temporarily carrying above target labour numbers provided that displaced employees can be usefully and competitively employed 20 Exhibit 4 further provides for security of employment at item 5 in the following terms: 5.0 SECURITY FOR EMPLOYEES AFFECTED BY THE CHANGE

5.1 Recognising that the formation of Manufacturing Support Services will generate surplus employees, security was clearly identified and recognised as fundamental to employees, their representatives and unions.

It is recognised that the avoidance of forced redundancies would greatly assist in employees' willingness to co-operate and contribute positively to the transition.

5.2 The processes outlined in this document are written on the assumption that the necessary labour reductions can be achieved through voluntary means on the basis that :- · The redeployment of redundant employees can be addressed in a positive, flexible and creative manner which balances human needs and the requirement for business outcomes. · There is a commitment to achieving the business outcomes required in the formation of Manufacturing Support Services. · Displaced employees will take a flexible approach in taking up jointly designed opportunities for redeployment.

5.3 Should circumstances arise where either the business cannot meet realise the required improvements or we are unable to present displaced individuals with reasonable options for alternative placement, discussions will be held with affected employees and their unions regarding what further actions may be necessary to ensure that the objectives outlined in 3.0 can be realised (Note: leave is reserved to the unions as to various matters under clause 19 in the event of forced redundancies being considered). 21 Mr Lloyd tendered a document detailing the process for managing employees displaced by the present proposals titled "Construction Department Contracting Process for Managing Displaced Employees" (ex 6) which identifies the elimination of 15 full time equivalent positions, as follows: a) Plant office and amenity cleaning 7.5 b) Transportation of product to local customers 1 c) Maintenance of transport fleet 2.5 d) Ground maintenance 1 e) Building Services, Painting and related services 3 22 Exhibit 6 sets out the employees affected by the proposed contracting of the Construction Department in the following terms: The contracting would potentially affect the employment of 19 Construction Department employees and up to 10 other employees employed in other departments of the site, but who perform Construction Department work or who are otherwise affected by the contracting. The Company would seek a workforce reduction of 15 full time employees.

23 The process of managing displaced employees is set out as follows: One on One Discussions

As a first step in managing the displaced employees, the Company would have one on one discussions with each employee. These discussions are to explain to each employee his/her options, answer any questions and seek the intentions of each employee. Employees would have sufficient time to consider their circumstances before making a decision.

The Company has already had a one on one discussion each Construction Department employee. A further discussion(s) with each employee would occur.

The Company would firstly attempt to achieve the workforce reductions by voluntary redundancy. The one on one discussions that have occurred to date indicate that the number of employees who ma y wish to take voluntary redundancy is in the order of 6. (This is non-binding on an employee.)

The Company would utilise the existing redundancy swap scheme. Approximately 20 Mayfield site employees remain on the waiting list from the last general voluntary redundancy offer. The Company would seek to have discussions with unions about which employees should have access to redundancy swaps.

The Company would attempt to redeploy displaced employees to available positions with the Company or other OneSteel entities. The Company would offer retraining as may be appropriate.

Where appropriate, the Company would attempt to secure offers of alternative employment for its employees with contractor entities.

The award retention of rate provisions apply to employees redeployed to another position.

The award employment security provisions also apply to affected employees.

This process would be subject to consultation and discussions with employees and unions. 24 Mr Lloyd tendered correspondence from OneSteel Market Mills to Mr Maher of the AWU with attached OneSteel Market Mills documents titled 'Code of Conduct for Contractors' and 'Use of Contractors' (ex 7) which details arrangement previously negotiated between OneSteel and the unions for the introduction of contractors which will apply in the present circumstances.

25 The evidence of Mr Boyle is that he has been employed by the company and its predecessors at the Mayfield site for 29 years and for the past 19 years has been engaged in the construction department on day work. 26 Mr Boyle deposed that his duties primarily involve cleaning of lunch rooms, amenities blocks and other areas, along with a number of other duties and from time to time is called upon to assist the gardener, move furniture, or assist various trades people within the department. 27 Mr Boyle deposed that he is approaching 59 years of age, his health is generally good, that he relies upon public transport to travel to and from his place of work, and has undertaken some retirement planning on the basis that he would have a further three years employment with the company. Mr Boyle expressed concern that alternative positions available to him may only be shift work production, which would compromise his transport arrangements and family life, which he deposed is an unreasonable impost upon him at the end of his career following 29 years of loyal and unblemished service. 28 Mr Boyle deposed that he was concerned that the introduction of contractors would have a detrimental effect upon the hygiene and cleanliness standards established by existing arrangements. 29 The evidence of Mr Whitbread is that he has been employed by the company and its predecessors at the Mayfield site for 25 years, the past 20 years in the construction department on day work. Mr Whitbread deposed that his work was arranged in a four weekly cycle, two weeks of which he is primarily involved driving a twin steer delivery vehicle to convey product to internal and external customers. The second two week period, during which Mr Trevor Jones drives the delivery vehicle, Mr Whitbread's duties consist of general yard work clean ups, driving a front end loader, and assisting trades persons in the construction department and relieving trades assistants in the machine shop and boiler shop. 30 Mr Whitbread deposed that he is approaching 49 years of age, is of generally good health apart from a mild diabetic problem, and wishes to remain in employment. 31 Mr Whitbread deposed that he had been informed that his redeployment options were internally within the Mayfield plant or to another OneSteel company in the event that he did not take up the voluntary redundancy offer. He deposed that he has very little or no production experience and has no knowledge of the techniques or processes that now apply. Mr Whitbread put that accepting voluntary redundancy would prevent him from maximising retirement benefits and that to do so he needed to remain in full time employment for a further 10 years. 32 Mr Whitbread further deposed that he was concerned that the only positions that may be available to him were shift work, production positions where he would be expected to compete with younger, more skilled production employees. He deposed that rather than take voluntary redundancy, he would be prepared to have a go at anything, however believes that his options are limited. Mr Whitbread challenged the cost advantage to the company of removing himself and Mr Jones from alternative roster on the delivery vehicle, putting that the only savings would be wages and vehicle registration. 33 The evidence of Mr Moran is that he has been employment by the company and its predecessors for 11 years, during which time he has worked solely in the construction department on day work. 34 Mr Moran deposed that he is currently engaged as the site gardener, describing his duties as mowing, edging, pruning, weeding, watering, planting and general maintenance of the extensive grounds and gardens at the Mayfield site. Mr Moran put that he attends to the repair and maintenance of the necessary plant and equipment and is responsible for the storage and use of hazardous chemicals and poisons. Mr Moran deposed that he is also required to assist in many other areas in the construction department, such as assisting trades persons, furniture removal, crane driving, front end loader driving, site cleaning, concreting, and other general yard duties. Mr Moran holds TAFE qualifications as a gardener. 35 Mr Moran is 37 years of age, in good health, and deposed that he has no production skills or experience. He put that he perceives his options as taking voluntary redundancy or taking up a production position at the present site or another company department. Mr Moran deposed that he is concerned that if he were to take voluntary redundancy that he would face very limited opportunities for suitable employment. 36 Mr Moran deposed that he had been informed by Messrs Krix and Hall that at the present time the company was unable to find a contractor who could carry out his duties at a lower cost. 37 Mr Hayes deposed that he has been employed by the company for seven years during which time he has worked in dispatch on shift work, the construction department on day work, and is currently employed in the No 2 Mill in the maintenance crew on day work and has also worked on production in the No 2 Mill on shift work. 38 Mr Hayes deposed that his duties in the maintenance crew are those of relief cleaner for No 2 Mill, involving the cleaning of amenities, offices, toilets, roadways in and around the mill, emptying waste bins, assisting mechanical tradespeople, and other functions associated with maintenance. Mr Hayes deposed that central to his duties is the cleaning of mill rolls. 39 Mr Hayes put that his major concerns are that on the introduction of contract cleaners there would be a reduction in hygiene standards and a reduction in productivity as a result of the contractor's inability to adjust to production changes; and the loss of assistance to the maintenance department such as road sweeping, bin emptying and saw swarf removal. 40 Mr Watson deposed that he has been employed by the company or its predecessors at the Mayfield site for 35 years, the previous 30 years in the construction department on day work. 41 Mr Watson deposed that his duties involve the driving of plant and equipment, grounds maintenance relief for the gardener and amenities cleaner as required, assistance to construction department trades persons, and in the machine shop. Mr Watson put that he is also required to assess many and varied civil works around the site and once a year is required to organise and implement galvo bath repairs. 42 Mr Watson deposed that he is 52 years of age and in good health. Mr Watson put that the voluntary redundancy option posed difficulties for him due to his low expectation of finding alternative employment; as does the prospect of transfer to shift work production areas as he has little or no experience in production matters. Mr Watson deposed that after 30 years of daywork he was of the opinion that transfer to a shift work would have a negative effect on his health and family life, however, he would take up such a position in preference to voluntary redundancy. 43 Mr Watson deposed that in his view there were many important reasons why the construction department should continue to function. The foremost of which he deposed was the ready availability of employee with extensive plant knowledge. Mr Watson put that contractors would not be able to undertake the necessary work with the efficiency of the existing employees, and that the changes would ultimately be to the company's disadvantage. 44 Mr Watson deposed that the construction department had "already done its bit to reduce costs by a steady reduction of labour over the last ten years". 45 Mr Watson deposed that after 35 years of loyal service with an exemplary employment record he considers himself not old enough to retire and did not want to be put on the "scrap heap". 46 He deposed that one of the most important reasons for keeping the company together is that many employees would be unsuitable for production positions. SUBMISSIONS

47 On 23 October 2001 Mr Lloyd continued his appearance for the Company. Mr M Stoker appeared on behalf of the AWU with Mr Shaw. Mr M Matheson appeared on behalf of the AMWU with Mr S Murphy.

48 Mr Lloyd referred the Commission to three unreported decisions of Hungerford J in which he submitted the relevant principles are appropriately described.

49 Mr Lloyd first referred to his Honour's decision in John Lysaght (Australia) Limited v Automotive, Metals and Engineering Union and the Federated Ironworkers' Association of Australia, New South Wales Division (IRC 340 of 1994, 7 April 1994) in which his Honour at p10 states: "The way in which issues of this nature are assessed by the Commission, involving as they do potential intervention in the employer's operation and management of its business, requires the Commission not to assume the role of the employer. Rather, the approach is, and this is of long-standing and established principle, to attend to whether the employer's action imposes unfair or unreasonable demands on employees, not infrequently referred to as industrial injustice, or where safety is involved. The way in which issues of this nature are assessed by the Commission, involving as they do potential intervention in the employer's operation and management of its business, requires the Commission not to assume the role of the employer. Rather, the approach is, and this is of long-standing and established principle, to attend to whether the employer's action imposes unfair or unreasonable demands on employees, not infrequently referred to as industrial injustice, or where safety is involved. Relevant cases in the steel industry in that respect decided by the Commission were cited in my recent decision in John Lysaght (Australia) Limited - Port Kembla - Slit Recoil Line - Rates of Pay Award. ((1994) 279 IG 548). However, it is appropriate to repeat the observations of the High Court in Re Cram; ex parte N.S.W. Colliery Proprietors' Association Limited ((1987) 163 LCR 117): Many management decisions once viewed as the sole prerogative of management, are now correctly seen as directly affecting the relationship of employer and employee and constituting an industrial matter.

A dispute about the level of manning is a good example. It has a direct impact on the work to be done by employees; it affects the volume of work to be performed by each employee and the conditions in which he performs his work. So also with the mode of recruitment of the workforce. The competence and reliability of the workforce has a direct impact on the conditions of work, notably as they relate to occupational health and observance of safety standards. Employees, as well as management, have a legitimate interest in both of these matters.

These considerations indicate that the objection voiced by O'Connor J. in Clancy to the regulation and control of business enterprises by industrial tribunals is not a matter that goes to the jurisdiction of the tribunals. Rather it is an argument why an industrial tribunal should exercise caution before it makes an award in settlement of a dispute where that award amounts to a substantial interference with the autonomy of management to decide how the business enterprise shall be efficiently conducted.

The significance of the reasoning in Cram , as to the need for caution before a decision is made amounting to a substantial interference with the autonomy of management in efficiently conducting a business enterprise is to be seen in the observation of their Honours that employees, as well as management, have a "legitimate interest" in such matters as concern the work to be done by employees, the volume of work and the conditions in which the work is performed. I think that the Agreement here is a most powerful demonstration of that legitimate interest. The point may be illustrated by what Cullen J. said in The Federated ironworkers' Association of Australia (NSW Division) and BHP Steel Sheet & Coil Products Division (91/1262 30 March 1992) as to the use by the Company of contractors in light of the effect on the industrial relationship of the former Sheet & Coil Products, Port Kembla, Steel Industry Development Agreement (SIDA), the forerunner to the present Agreement, as follows: In other words, the company is not entitled, pursuant to the two agreements which it has made with the unions, to implement a policy of using contractors purely on policy grounds. It is bound, as are the unions by the terms of the Agreements made which, in my opinion, have to be read together. SIDA is in more general terms, but gives particular emphasis to the need to improve business competitiveness. However, the mechanisms have been established pursuant to the JCC to enable the unions to participate and, if necessary, to influence management decision making.

And, later, his Honour concluded: Further reduction of staff in the Mechanical Services Department should not take place except by agreement until the issues concerning transfers and training of employees have been finally determined between the parties. This involves joint consultation involving the company taking fully into account any counter proposals by the unions. The use of contractors during that time will necessarily be limited to requirements beyond the capability of the present staff of 55 employees.

I respectfully agree with his Honour's comments and approach 50 Mr Lloyd relied further upon this principle and took the Commission to John Lysaght (Australia) Limited - Port Kembla - Slit Recoil Line - Rates of Pay Award ((1994) 279 IG 548) where Hungerford J in his decision on making the award states at p40: "I am not inclined to depart from it by imposing on the Company a structure different from or additional to that which it has decided. That approach is consistent with the traditional approach of arbitral tribunals in being reluctant to intervene in organisational or manning matters in the absence of unfair or unreasonable demands being made on employees or where safety issues arises - no such matters are in question here: see In re Dispute between John Lysaght (Australia) Limited and the Amalgamated Engineering Union, Australian Section and the Federated Ironworkers' Association of Australia, New south Wales Division re Mill Crews and Fitters at CRM Works ((1963 AR 348), In re Dispute at Broken Hill Pty Co Ltd re Manning Scale for Wharf Clerks (1965) AR 46, In re Australian Iron and Steel Pty Ltd and The Federated Ironworkers' Association of Australia, New South Wales Division re Sinter Plant Manning (1977) AR 738, In re Broken Hill Pty Co Ltd Newcastle Coke Ovens Department Manning, No. 5 Battery (1979) AR 627, and Electrolytic Refining & Smelting Co. of Aust. Ltd v Federated Engine Drivers and Firemen's Association of Australasia (NSW ) (1984) 9 IR 186. In In re Iron and Steel Works Employees (Australian Iron and Steel Limited - Port Kembla) Award [1955] AR (NSW) 663 at 665, Richards J said: "Prima facie, the management of the company has the right to manage the company's business in its own way and is entitled to exercise its own discretion in the manning of the company's plant. To obtain an order against the company in relation to the manning decided upon by the management in a case of this kind, the union carries the onus of establishing that the work which the employee is called upon to perform on his shift is more than a fair shift's work under the conditions in which the work is to be performed".

The decision goes on to quote the previously cited passage in Cram . And to page 42 of this judgment where Hungerford J remarked: "If the Commission were to intervene, then, it seems to me, it would effectively be assuming a regular and continuing role in the manning of the SRL and with effects on the Finishing Department generally. The Commission is inappropriately positioned to assume such a role and would only be justified in intervening were it to be shown the operators in some way were being unfairly prejudiced in the performance of their work".

51 Thirdly, Mr Lloyd referred me his Honour's decision in John Lysaght (Australia) Limited - Port Kembla - Slit Recoil Line - Rates of Pay Award Reference by BHP Steel (JLA) Pty Ltd pursuant to s188(1) of the Industrial Relations Act 1991 of a question dispute or difficulty re manning on the Slit Recoil Line (IRC 2374 of 1994, 21 March 1995) where at p 12 his Honour states: "A question of manning is, it seems to me, concerned necessarily with the management of an employer's business. The long settled approach to such matters by the Commission is for it not to intervene by assuming the role of employer but rather to assess whether what the employer proposes would impose unfair or unreasonable demands on employees, including unsafe work practices. So much was acknowledged in Re John Lysaght (Australia) Limited Port Kembla - Slit 'Recoil Line - Rates of Pay Award (279 IG 548) when the present Award was made. Specifically as to disputes about the level of manning, I refer to what was observed in the unanimous decision of the High Court in Re Cram. This decision also goes on to quote the previously cited passage from Cram . 52 Mr Lloyd emphasises that the proposals did not extend beyond the five specific areas detailed in the application. Mr Lloyd put that the proposed contracting follows an extensive period of consultation by the company with its employees and the unions which involved a detailed review process of the construction department in three stages. 53 Mr Lloyd put that the first stage involved the identification of departmental functions; the second stage involved a compilation of the costs of providing those functions by the construction department; and the third stage, an examination of the alternate forms of providing those functions by alternative means. 54 Mr Lloyd put that assertions that employees had not been given an opportunity to produce savings by more efficient means of providing particular services "in-house" is not sustained as there have been no positive suggestions or proposals put forward during the extensive consultation process. 55 Mr Lloyd relied upon the evidence of Mr Krix which sets out the financial imperatives to the changes sought, putting that the previous operation at Mayfield as an integrated site is no longer consistent with the focus of the company in the present commercial environment. Mr Lloyd submitted that the operation at Mayfield is the only remaining business unit within OneSteel Newcastle which has a construction department and undertakes activities subject to these proceedings "in-house", the others having contracted out equivalent activities some years ago. 56 Mr Lloyd submitted that there are sufficient suitable, able, qualified and experienced contracting entities who could be engaged to perform services at a lower cost without compromising the level of services or departing from award wages and conditions of employment. Mr Lloyd identified Cromwell Cleaning as the selected contractor for cleaning services and relied upon correspondence tendered (ex 3) which specifies quality standards to be adhered to should Cromwell Cleaning undertake the subject work. Mr Lloyd submitted that the company would regularly inspect the cleaning work and was clear and determined that its obligations to occupational health and safety, cleanliness and hygiene would be met. 57 Mr Lloyd noted that employees would also be in a position to observe, and if necessary raise issue with, the standard of cleaning provided. 58 Mr Lloyd submitted that in contracting out local deliveries the company intended to extend the use of an existing contractor, identified as Gosford Roadways, which would bring not only cost savings directly attributable to the company from not performing work itself, but would produce further efficiencies in the existing contract. 59 In referring to the maintenance of the transport fleet, the proposal is for the company's mobile fleet to be sold to a service provider identified as "Red Australia" which would then supply a replacement fleet of new, more efficient mobile equipment and assume the maintenance of that equipment which Mr Lloyd put is an extension of existing contractual arrangements with Red Australia, the principal supplier of forklifts to this and other OneSteel sites. 60 In dealing with the proposal for contracting out the maintenance activities, Mr Lloyd noted that at the time of hearing no specific contractor has been selected and quotes are to be sought. Mr Lloyd acknowledged that to date contractors have not yet produced quotes giving a cost saving in the same way as produced for the other four services. 61 Current quotations are to the order of $15,000 per annum more than the existing "in-house" cost, though there is a difference of opinion between witnesses to the order of $8,000 as to the cost of consumables to be added to the company's cost structure. Mr Lloyd submitted that this item is subject to ongoing commercial negotiations and that consideration also has to be made of the cost savings to be achieved by not having to provide a management structure in respect to the employee involved in this activity. 62 Mr Lloyd submitted that in respect to the contracting out of building services, painting and related activities, the company proposes to put these services out to an existing contractor who currently performs these services by arrangement with the construction department on a job to job basis. Contracting out these services would allow the company to avoid the costs of maintaining capability "in-house" and centralised management structure. 63 Mr Lloyd referred to the code of conduct for contractors (ex 7), noting that it includes undertakings concerning compliance by contractors with awards and other industrial laws, taxes and superannuation requirements, controls on sub contracting and proper mechanisms for identifying contractor employees who are performing the work. 64 Mr Lloyd relied upon the extensive evidence introduced in respect to the arrangements for dealing with displaced employees and the undertaking that there be no forced redundancies to ground his submission that the contracting out would not impose any harsh, onerous or unjust circumstances upon individual employees. 65 Mr Lloyd referred to clause 36 of the Award wherein it is provided that: "Real and lasting employment security can only be achieved by satisfying customer needs better than our competitors. This requires continuous improvement in our productive performance." 66 Mr Lloyd put that the contracting out of these services is in fact in the interests of all employees who rely upon the company's operation at Mayfield for their continued secure employment. 67 Mr Stoker reiterated the concerns of employees that they may be unable to cope with shift work and that contractors may not provide the proper level of services and would have difficulty integrating themselves into the complex industrial site at Mayfield. 68 Mr Stoker put forward the plea that the existing employees be allowed to continue to undertake the necessary work in a more autonomous and better resourced manner, putting that there are efficiencies available for the company in this approach. 69 Mr Stoker also submitted that the operation of seniority rules as administered on the site may see people transferring from the construction department with significant seniority, to production areas with loss of status; and in the event of future retrenchment be regarded as the most junior employee in the new department which he put was a significant disadvantage visited upon them. 70 Mr Stoker put that the authorities relied upon by Mr Lloyd were not relevant to the present consideration as the circumstances in those matters were different and distinct from those found here. 71 Mr Matheson submitted that the approach adopted by the company in this matter represented a quantum shift away from the best practice process, a feature of the company's operations over the past 15 years, which effectively dealt with massive changes in technology and associated work practices resulting in a significant reduction in the workforce in a bipartisan manner with minimal disruption. 72 Mr Matheson submitted that the company should be restrained from contracting out the present work and be required to deal with the matter by revisiting best practice processes. 73 In reply, Mr Lloyd rebutted the assertion by Messrs Stoker and Matheson, emphasising further that there is no wider agenda for contracting out other than the particular services subject to these proceedings, which the company proposes to contract out in a manner consistent with established arrangements within the OneSteel group.

CONSIDERATION 74 The principles enunciated by his Honour Hungerford J. in the matters referred to by Mr Lloyd are the appropriate principles to be applied here. 75 The evidence is this matter established that there has been extensive consultation and consideration of the contracting arrangements proposed by the company, and that displacement of employees is supported by specifically documented redundancy or redeployment programs which protect and safeguard the options available to employees. 76 I am satisfied on the evidence that the desire for re-organisation and restructure by contracting out of the specified, so called "non-core" activities subject to these proceedings is in the overall interest of the company and, when undertaken in association with the obligations to employees, poses no issues of hardship or onerous work conditions so as to ground the intervention of the Commission. 77 The company should, and I believe will, maintain the level of consultation and deal with the displacement of individual employees in a compassionate and patient manner as evidenced during the course of these proceedings. 78 To the extent that Mr Stoker's prediction that the operation of seniority rules significantly disadvantages people with the length of service evidenced here, there is a case for modification of those rules, an issue to be dealt with when and if the matter is raised. 79 The application for a direction pursuant to s 136(1)(a) of the Act as sought is granted and the direction so made.

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At a glance

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Judgment (67 paragraphs)

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Cases Cited (2)

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