s.318 - Application for an order relating to transferable instruments

Kmart Australia Limited Trading AS Kmart Australia

Application for an order relating to instruments covering new employer and transferring employees

• [1] Target Australia Pty Ltd (Target) operates a store located at the corner of Fifteenth Street and Deakin Avenue in Mildura (the Mildura Store). Employees of Target, including employees at the Mildura Store, have their terms and conditions regulated by the Target Australia Retail Agreement 2022 (the Target Agreement).

• [2] Both Target and Kmart Australia Limited (Kmart) are part of the Wesfarmers Limited corporate group. Target and Kmart are therefore associated entities within the meaning of clause 12 of the Act.

• [3] Target has decided not to renew the lease of the Mildura Store. The Wesfarmers Group have decided to convert it to a Kmart Store. In order to facilitate that change, Kmart has offered employment to all 10 permanent Target employees of the Mildura Store. Kmart has also offered employment to the casual staff.

• [4] Kmart has sought orders for the Target Agreement to cease application to employees at the Mildura Store who accept employment with Kmart. Kmart employees' terms and conditions are regulated by the Kmart National Agreement 2024 (Kmart Agreement). Kmart wishes the terms and conditions of employees who accept employment with it at the Mildura Store to be regulated by the Kmart Agreement.

• [5] On 12 June 2025, Kmart Australia Limited (Kmart Australia), made an application for the following orders.

1. By s 318(1)(a) the Target Agreement (or any successor agreement) does not and will not cover:
   1. All Target employees covered by the Target Agreement who are employed at the Mildura Store (which either has been or will be converted to a Kmart Store in 2025) who have accepted offers of employment with Kmart at the Mildura Store; and
   2. All employees employed by Target from 12 June 2025 (the date of this application) who accept offers of employment with Kmart to work in the Mildura Store (the class of employee composed of Target employees of the Mildura Store who have accepted offers of employment before 12 June 2025 (class 1.a) and after 12 June 2025 (class 1.b) are the "Transferring Employees").
2. By s 318(1)(b), the Kmart Agreement (or any successor agreement) covers the Transferring Employees in respect to their employment with Kmart.
3. By s 318(4), the order is to come into operation at the later of the time the Transferring Employees become employees of Kmart or the date the order is made.

• [6] For the reasons I give below; after considering the matters I must take into account under s 318(3), I exercise my discretion under s 318(1) to make the orders sought.

• [7] The material filed by Kmart is comprehensive. It includes a detailed application, written submissions and a witness statement of Ms. Madeleine Ball, the State People and Capability Manager - Victoria and Tasmania for Kmart.

• [8] The SDA also made submissions on the factors in s 318(3). The SDA broadly supports the Commission exercising its discretion to make the orders sought.

• [9] A short mention hearing was held on 3 July 2025. The hearing was attended by Ms. Emily Dempster, the Senior Employee Relations Manager of Kmart together with Mr. Will Fletcher, a graduate employee. Mr. Anthony Lay represented the SDA, the union which has coverage of, and members at, the Mildura Store.

• [10] Following the short mention, I issued directions which included:

• Kmart to provide copies of the directions to employees affected by the application by 7 July 2025.
• Kmart to provide copies of submissions of fact and law it filed in this application to all affected employees and to the SDA by 14 July 2025.
• SDA to file with the Commission and to serve on Kmart any material it filed to reply to the Kmart submissions by 21 July 2025.
• Any affected employee who opposes the application to notify Chambers by 21 July 2025.

• [11] The Commission received no correspondence opposing the orders sought. On that basis, I will decide this matter on the papers.

• [12] At the mention the SDA confirmed it "did not oppose" the application. Its submissions support, or at least do not oppose, the orders being made.

LEGISLATIVE FRAMEWORK FOR ORDERS UNDER S 318

• [13] The discretion to make the orders sought by Kmart under s 318(1) will only be exercised after the factors set out in s 318(3) are considered.[1] These factors, which must be read having regard to the objects of Part 2.8, are intended to enable the Commission to balance appropriately the protection of employees' entitlements under certain instruments with the need for some flexibility to depart from the default rules about coverage of instruments following a transfer of business.[2]

• [14] The objects of Part 2.8 of the Act are:

The object of this Part is to provide a balance between:

(a) the protection of employees' terms and conditions of employment under enterprise agreements, certain modern awards, and certain other instruments; and

(b) the interests of employers in running their enterprises efficiently.

if there is a transfer of business from one employer to another employer.

• [15] Section 318 sets out the circumstances where the proposed orders can be made: that the Target Agreement will not cover the Transferring Employees; and the Kmart Agreement will cover those employees in respect of their work at Kmart.

318 Orders relating to instruments covering new employer and transferring employees

(a) an order that a transferable instrument that would, or would be likely to, cover the new employer and a transferring employee because of paragraph 313(1)(a) does not, or will not, cover the new employer and the transferring employee;

(b) an order that an enterprise agreement or a named employer award that covers the new employer covers, or will cover, the transferring employee.

(2) The FWC may make the order only on application by any of the following:

(a) the new employer or a person who is likely to be the new employer;

(b) a transferring employee, or an employee who is likely to be a transferring employee;

(c) if the application relates to an enterprise agreement - an employee organisation that is, or is likely to be, covered by the agreement;

(d) if the application relates to a named employer award - an employee organisation that is entitled to represent the industrial interests of an employee referred to in paragraph (b).

(3) In deciding whether to make the order, the FWC must take into account the following:

(i) the new employer or a person who is likely to be the new employer; and

(ii) the employees who would be affected by the order;

(b) whether any employees would be disadvantaged by the order in relation to their terms and conditions of employment;

(c) if the order relates to an enterprise agreement - the nominal expiry date of the agreement;

(d) whether the transferable instrument would have a negative impact on the productivity of the new employer's workplace;

(e) whether the new employer would incur significant economic disadvantage as a result of the transferable instrument covering the new employer;

(f) the degree of business synergy between the transferable instrument and any workplace instrument that already covers the new employer;

Restriction on when order may come into operation

(4) The order must not come into operation in relation to a particular transferring employee before the later of the following:

(a) the time when the transferring employee becomes employed by the new employer;

• [16] Kmart, as the new employer, has standing to bring this application pursuant to s 318(2)(a) of the Act.

HAS THERE BEEN A TRANSFER OF BUSINESS FROM TARGET TO KMART AND IS THE TARGET AGREEMENT A TRANSFERRABLE INSTRUMENT?

• [17] It is clear there was a 'transfer of business' from Target to Kmart within the meaning of s 311 of the Act and the Target Agreement is a transferable instrument under s 312. It follows that the transferable instrument covers Kmart under s 313.

• [18] Given Kmart can make this application and the relevant agreement is a "transferrable instrument" under s 318(1), the next step is to consider each of the matters which I must take into account under s 318(3).

CONSIDERATION OF THE MATTERS THAT MUST BE TAKEN INTO ACCOUNT UNDER S 318(3)

The views of Kmart - s 318(3)(a)(i)

• [19] Kmart submits the Target Agreement should not apply to the Transferring Employees. It favours the Kmart Agreement to cover them. The reasons for this view include that Kmart wishes to:

• avoid a situation where the Kmart Agreement and the Target Agreement both apply at the Mildura Store;
• ensure terms and conditions of employment are consistent at Kmart stores nationally;
• avoid employee dissatisfaction arising from inconsistent terms and conditions of employment, and a negative impact on employee morale between the Target team members and existing and future team members of Kmart who are covered by the Kmart Agreement;
• encourage a harmonious, single workplace culture in Kmart Mildura; and
• avoid costs associated with implementing and managing two separate agreements in Kmart's stores.

• [20] Ms. Bell, in her witness' statement, articulates a series of problems which would arise should the Kmart Agreement and the Target Agreement both apply at the Mildura Store. They include:

• The terms of the Target Agreement and the Kmart Agreement have different span of hours, overtime penalties, weekend penalties and minimum part time hours. This would pose challenges for the Store Managers and Line Managers at Mildura who are responsible for rostering. This would not be viable operationally.
• Operating two enterprise agreements in one store would require upskilling and additional training to ensure Store and Line Managers understand the differences between the agreements and to ensure that Managers avoid breaching either agreement.

• [21] Ms. Bell also states that "material payroll and other administrative issues" would result from the Target Agreement applying at one of Kmart's stores. These issues include:

• Target and Kmart payroll systems are processed by two different teams with two different "operating rhythms."
• The Target payroll system runs from Sunday to Saturday whilst the Kmart payroll system runs from Monday to Sunday, with payment being made on different days. a
• Additional costs would be incurred, and additional resourcing would be required to try to manage these systems in an integrated way.

Views of the employees who would be affected by the order - s 318(3)(a)(ii)

• [22] The submissions and evidence provided by Kmart in support of this factor include

Consultation and engagement with Mildura Store staff

• Consultation with team members on the conversion of Target Mildura to a Kmart store commenced in or around September 2024. The consultation process initially involved team talks.
• Following the team talks, team members were provided with a letter of consultation and FAQs in relation to the closure of the Target store.
• "ongoing conversations" were undertaken with team members regarding the store closure and conversion. The s 318 application was discussed and team members were provided with additional FAQs. This material included a "high level summary" comparison of the Target Agreement and the Kmart Agreement.

• [23] In May 2025, Kmart offered contracts of employment to all permanent team members at Target Mildura on the basis that Kmart would:

• recognise employees' prior service with Target;
• apply to the FWC for the section 318 orders with the effect that, if granted, the Kmart Agreement would apply to their employment with Kmart; and
• make a one-off payment in relation to the transfer.

• [24] All casual team members at Target Mildura were offered contracts of employment, however, those offers did not include a one-off payment in relation to the transfer.

• [25] Ms. Ball, in her statement confirmed that "all of the Target Mildura team members have accepted offers of employment with Kmart."

• [26] Since 9 September 2024, Ms. Ball has engaged in communication with Trevor Libbis - a Regional Senior Organiser of the SDA, who represents employees covered by the Target Agreement and the Kmart Agreement. That communication included discussions regarding the store conversion, the transfer process and intention to apply for the section 318 orders.

• [27] By a letter dated 11 June 2024, Mr. Gerard Dwyer, the National Secretary of the SDA, informed Ms. Ball that the SDA "are supportive of the application as it relates to the transferring employees". The SDA in its written submissions confirm it is "not opposed to the orders".

• [28] It should also be noted that I invited the affected employees to indicate opposition to the orders sought by Kmart. No responses were received.

Whether any employees would be disadvantaged by the order in relation to their terms and conditions of employment - s 318(3)(b)

• [29] Ms. Bell states that a financial comparison was made by the Kmart Employee Relations team which compared the payment that permanent team members would receive under the Target Agreement to what they would receive under the Kmart Agreement.

• [30] A comparison was made with the team members' current rates of pay compared to the rate they would receive under the Kmart Agreement. The comparison revealed "a minor negative variance for 5 of the 10 permanent team members". This results from the shift penalties being calculated differently under each Agreement. Under the Target Agreement, shift penalties are paid on the base rate of pay plus the penalty, but the shift penalties under the Kmart Agreement are paid on the Award rate of pay plus one cent.

• [31] For the ten permanent team members, when comparing their entitlements for their current rosters under the Target Agreement to Kmart Agreement, the results are:

• Five out of the ten team members have a "positive variance." They are better off under the Kmart Agreement, with an average positive variance of $33.77 over the nominal life of the Target Agreement for these five team members.
• Five out of the ten team members have a "negative variance", that is, they are not better off under the Kmart Agreement, with an average negative variance of $87.36 over the nominal life of the Target Agreement for these five team members. In the "worst-case scenario", the highest negative variance was determined to be $309.12 over the nominal life of the Target Agreement, if that team member continued to work the same roster based on the current rates of pay.

• [32] In order to deal with the potential outcome that some of the permanent team members would be worse off should they be covered by the Kmart Agreement, Kmart included a one-off payment of $350 for all 10 permanent team members which (in the submission of Kmart) "exceeds the worst-case scenario modelled with an additional buffer". Ms. Bell then submits:

"This was offered to all ten transferring permanent team members, even though some would not experience a negative variance and despite pay rate increases under the Kmart [Agreement] being more favourable over the course of the agreement. This Payment is non-refundable, and team members receive the benefit of it even if they choose to leave Kmart before the nominal expiry date of the Target Agreement."

• [33] How exactly Kmart could recover a payment it agreed to make under a contract of employment is an open question. More to the point, how the "non-refundable" nature of a contract payment can be said to be an advantage to employees is not clear to me. I take the point, however, that employees get two benefits; one is that they get an upfront payment and, should they leave, they keep that benefit.

• [34] Ms. Bell also makes submissions about the relative benefits of the pay increases under the Kmart Agreement when compared to the Target Agreement. Kmart argues the pay increases under the Kmart Agreement are superior. The pay increases under the Target Agreement are due in July 2025 and July 2026; they amount to the Award rate "plus five cents an hour" for team members.

• [35] According to Ms. Bell, the pay increases under the Kmart Agreement are equivalent to the "Award rate plus

• 10 cents in July 2025.
• 15 cents per hour in July 2026.
• 20 cents per hour in July 2027.
• 25 cents per hour in July 2028, with penalties also paid on the base rate of pay rather than the equivalent Award rate of pay (including penalties) plus one cent per hour."

• [36] Kmart submits, even though the increases over the course of the Kmart Agreement are higher than the Target Agreement, the one-off payment was offered "to remove any doubt that the team members would not be placed at a disadvantage with respect to their terms and conditions."

• [37] The SDA in its submissions refers to the "one-off payment" and submits it "fully offsets any potential disadvantage that might otherwise arise from the application of the Kmart Agreement during the remainder of the nominal term of the Target Agreement".

The nominal expiry date of the enterprise agreements - s 318(3)(c)

• [38] The nominal expiry date of the Target Agreement is 7 February 2027. The nominal expiry date of the Kmart Agreement is 17 November 2028.

• [39] Kmart submits this factor is "neutral". The SDA agree this is a "neutral consideration".

Whether the enterprise agreement would have a negative impact on the productivity of the Kmart workplace - s 318(3)(d)

• [40] The submissions Kmart make concerning this factor include:

• The continued application of the Target Agreement at the Mildura Store would negatively impact the productivity of Kmart's business and there "would likely be increased tensions amongst the workforce due to the application of different terms and conditions".
• There would be administrative burdens resulting from the introduction of another enterprise agreement in Kmart stores. This would cause Kmart to incur significant costs in respect of its payroll system. Additional resourcing would be required and the potential for error would be increased.

• [41] Kmart contrasts these issues with the situation if only the Kmart Agreement applied. It would provide certainty for transferring team members and, for Kmart itself, regarding the applicable terms and conditions of employment at Kmart.

• [42] The SDA submits "from a practical perspective, coverage by a single enterprise agreement supports administrative efficiency, reduces pay roll errors, and ensures no employee is disadvantaged by the concurrent operation of multiple instruments".

Whether Kmart would incur significant economic disadvantage as a result of the Target Agreement or Kmart Agreement covering it - s 318(3)(e)

• [43] Kmart argues difficulties in implementing and administering two sets of conditions across a single workforce will cause Kmart to incur additional costs because:

• Training and resourcing costs would be involved in up-skilling staff so they can understand and implement the terms of the Target Agreement in addition to the Kmart Agreement;
• Costs would be incurred in "building" the Target Agreement into Kmart's rostering and payroll system; and
• A financial impact would arise from reduced team member satisfaction and a reduction in team morale at a store level. This would be caused by having team members working under different terms and conditions. This will impact productivity and profitability. It may also result in "low morale amongst team members, which could lead to deterioration of customer experience and consequential reduction in profit."

The degree of business synergy between the Target Agreement and The Kmart Agreement - s 318(3)(f)

• [44] Kmart argues there is little business synergy between the Kmart Agreement and the Target Agreement. There are significant operational differences between the two instruments including inconsistencies in span of hours, overtime and weekend penalties and minimum part time hours. The application of two Agreements at the Mildura store would hamper the efficient conduct of Kmart's operations.

• [45] In contrast, should the orders be made, the business synergy for Kmart would be enhanced because all its stores, including the Mildura Store, will be covered by one agreement.

• [46] The SDA submit "coverage under a single agreement will promote consistency in terms and conditions and reflect the reality of the employee's new employment circumstances".

Public interest - s 318(3)(g)

• [47] Kmart argue the public interest supports the orders being made because it supports ongoing employment for the Mildura workforce in the new Kmart store, in a manner that is "efficient" and which "does not result in employees being disadvantaged".

• [48] The SDA also submit that making of the orders sought is in the public interest.

• [49] On my examination of the material filed in relation to the relative advantages and disadvantages of the Kmart Agreement over the Target Agreement, the transferring employees, even after taking into account the one-off payment to the 10 permanent team members are, at best, only marginally better off under the Kmart Agreement. However, this must be balanced against the benefit of the continuity of employment Kmart has agreed to provide, and the considerable benefit of ongoing employment in a regional centre.

• [50] The marginal improvement in the conditions of transferring employees must be balanced against the gross inefficiencies and problems that would be experienced by Kmart in the application of two enterprise agreements at the Mildura Store. The complexity of applying two industrial instruments for payroll, rostering, and other systems are significant.

• [51] On balance and taking into account all the factors under s 318(3) I am satisfied that I should exercise my powers under s 318(1).

• [52] For these reasons I will publish orders to the effect of the following together with this decision:[3]

• Under s 318 (1)(a), I will order the Target Agreement (or any successor agreement) does not, and will not, cover Kmart or the Transferring Employees.
• Under s 318(1)(b), I will order the Kmart Agreement (or any successor agreement) will cover the Transferring Employees.
• These orders will come into operation on and from 4 August 2025 under s 318(4)(b).

[1] Explanatory Memorandum of the Fair Work Bill 2008 (Cth) [1259].

[3] PR789951.

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