Is the no extra claims component of Clause 4 an "objectionable term"?
53 There is no issue that for the nominal term of the Agreement, the effect of the construction of the no extra claims component of cl 4 which the applicants have contended for and which I have accepted, is to prevent Toyota and its employees from pursuing and participating in the variation process provided by Subdiv A of Div 7 of Pt 2-4 of the FW Act ("the Subdiv A variation process"), in relation to Toyota's proposed variations.
54 Toyota contended that if the no extra claims component cl 4 has that effect, it is invalid because it is inconsistent with the FW Act. Toyota also contended that if cl 4 has that effect, it is an "objectionable term" rendered ineffective by s 253(1) of the FW Act. For both of those reasons and a further reason that I will consider last, Toyota contended that it could not have contravened cl 4 by pursuing proposed variations. I will consider the contention that cl 4 contains an objectionable term first. That consideration will assist in dealing with the broader issue of whether, even if cl 4 does not contain an "objectionable term", there is nevertheless an inconsistency between cl 4 and the FW Act.
55 The FW Act is not silent on the question of whether an enterprise agreement may restrict a person's participation in the variation processes provided by the FW Act. That issue is directly dealt with, at least in part, in the following way.
56 Before approving an enterprise agreement under s 186, the Commission must be satisfied that the enterprise agreement does not contain "unlawful terms" (s 186(1) and (4)). Section 194 identifies the kind of terms of an enterprise agreement which are to be regarded as "unlawful terms". Section 194(b) provides that an "objectionable term" is an "unlawful term". Section 12 defines an "objectionable term" to mean a term that:
(a) requires, has the effect of requiring, or purports to require or have the effect of requiring; or
(b) permits, has the effect of permitting, or purports to permit or have the effect of permitting;
either of the following:
(c) a contravention of Part 3-1 (which deals with general protections);
(d) the payment of a bargaining services fee.
57 Part 3-1 of the FW Act to which paragraph (c) of the definition of "objectionable term" refers, contains what are commonly referred to as the general protections provisions. Relevantly, it includes s 340(1) which provides that:
(1) A person must not take adverse action against another person:
(a) because the other person:
(i) has a workplace right; or
(ii) has, or has not, exercised a workplace right; or
(iii) proposes or proposes not to, or has at any time proposed or proposed not to, exercise a workplace right; or
(b) to prevent the exercise of a workplace right by the other person.
58 The meaning of "adverse action" to which s 340(1) refers, is dealt with by s 342(1) and relevantly includes action by an employer against an employee which injures the employee in his or her employment or alters the position of the employee to the employee's prejudice (s 342(1), Item 1). Adverse action includes threatening to take action (s 342(2)(a)) and "action" is defined by s 12 to include an omission.
59 Section 340(1) uses the expression "workplace right". The meaning of that term is given in s 341. Relevantly to the matters in issue, s 341(1) provides:
(1) A person has a workplace right if the person:
(a) …
(b) is able to initiate, or participate in, a process or proceedings under a workplace law or workplace instrument; or
(c) …
60 The expression in s 341(1)(b), "a process or proceedings under a workplace law or workplace instrument", is defined in s 341(2) to include the process of:
(e) making, varying or terminating an enterprise agreement;
61 The term "workplace law" used in s 341(1)(b) is defined by s 12 of the FW Act to include the FW Act.
62 There is no issue that the Subdiv A variation process is a process of the kind to which s 341(1)(b) refers.
63 It is necessary that I outline the key aspects of the Subdiv A variation process.
64 Subdivision A of Div 7 of Pt 2-4 sets out the process for variation of an enterprise agreement by agreement between employees and their employer.
65 Section 207(1) states that the following "may jointly make a variation of an enterprise agreement": employees who are covered by the agreement, employees who will be covered by the agreement if the variation is approved by the Commission (together, the "affected employees") and employers covered by the agreement.
66 An employer covered by the enterprise agreement may propose that the affected employees vote to approve a proposed variation (s 208(1)). The vote may be conducted by ballot or by electronic means (s 208(2)). If a vote is requested, the variation is "made" when a majority of affected employees of each individual employer covered by the agreement, who cast a valid vote, approve the variation (s 209). However, the variation will have no effect unless approved by the Commission (s 207(3)).
67 Once the variation is made, an application must be submitted within 14 days to the Commission to approve the variation (s 210). Under s 211(1), unless the Commission is satisfied there are serious public interest grounds for not approving the variation, the Commission must approve the variation provided it is satisfied that:
had an application been made for the approval of the agreement as proposed to be varied as a new agreement, the Commission would have been required to approve the agreement; and
the agreement as varied does not specify a nominal expiry date that is more than 4 years from the date the agreement was first approved by the Commission.
68 Where the Commission has concerns that these requirements are not met, the Commission may approve a variation subject to undertakings which meet its concerns, provided the undertakings do not result in substantial changes to the variation or cause financial detriment to any affected employee (s 212).
69 Various requirements for the making of an enterprise agreement have application to the variation process (s 211(3)), including steps that must be taken prior to seeking approval of affected employees (s 180), matters the Commission must consider before approving an agreement (s 186(2)) and the requirement for genuine agreement by employees (s 188).
70 Toyota contended that on the basis of the statutory framework described above and if the no extra claims component of cl 4 precludes Toyota and its employees from participating in the Subdiv A variation process in relation to Toyota's proposed variations, cl 4 is an "objectionable term". Toyota contended that this is so because cl 4 permits a contravention of s 340(1) of Part 3-1 of the FW Act in that it permits Toyota to injure an employee in his or her employment or alter the position of the employee to the employee's prejudice by preventing the exercise of a workplace right by the employee, namely the right to participate in the Subdiv A variation process. Toyota did not contend that by reason of any action which may be taken by employees, cl 4 was capable of preventing Toyota from exercising its workplace right to participate in the variation process in contravention of Part 3-1. I suspect it did not make that argument because the definition of "adverse action", in so far as it applies to action taken by employees against an employer (s 342(1), Item 5), excludes the possibility of contravention.
71 Toyota placed particular reliance on the terms of s 340(1)(b) to contend, in essence, that cl 4 "permits, has the effect of permitting, or purports to permit or have the effect of permitting" (s 12) the taking of adverse action by Toyota (s 340(1)) "to prevent the exercise of a workplace right" (s 340(1)(b)) by Toyota's employees, namely the ability to "initiate, or participate in" (s 341(1)(b)) the Subdiv A variation process (s 341(2)(e)).
72 Toyota contended that it was not necessary for the Court to determine whether in fact Toyota had engaged in conduct which resulted in an injury and/or prejudicial alteration to the position of an employee. It was submitted that the relevant test is whether, at the date of approval of the Agreement, cl 4 permitted Toyota to engage in conduct which would result in an injury and/or prejudicial alteration.
73 Toyota identified the circumstances in which cl 4 would authorise or have the effect of authorising a contravention of s 340(1). It contended that if Toyota's employees approached it to discuss changes to the Agreement which would be beneficial to the employees and which required a variation of the Agreement, in order to avoid contravening cl 4 (and despite Toyota wanting to pursue the necessary variations), Toyota would have to decline to enter into any discussion. Clause 4, it was contended, would in those circumstances be permitting Toyota to take "adverse action" to prevent the employees from initiating the variation process. Toyota contended that the adverse action in the circumstances here illustrated would be by omission and would be constituted by Toyota's refusal to participate in the pre-application processes contemplated by ss 207 and 208 which are a necessary precondition for approaching the Commission for a variation. That action would be adverse to the employees because it would be injurious to their employment as variations which would be beneficial to them could not be pursued. Lastly, Toyota contended that in the theoretical circumstances here contemplated, Toyota would be taking the adverse action described for a prohibited reason because it would be motivated by a desire to avoid contravening cl 4. That motivation, so Toyota contended, and the motivation of preventing the employees from exercising their workplace right of initiating and participating in the variation process, were "inextricably linked" and thus Toyota's conduct would be infected with the prohibited reason.
74 The applicants resisted the proposition that the no extra claims component of cl 4 is an "objectionable term". They contended that cl 4 does not require or permit action from anybody. Whatever effect cl 4 has, it has that effect directly, without requiring or authorising any further action.
75 The applicants referred to and relied upon the judgment of North, McKerracher and Reeves JJ in Australian Industry Group v Fair Work Australia (2012) 205 FCR 339. In considering whether a term in an enterprise agreement was an "objectionable term", the Full Court was called upon to interpret what was meant by the word "permits" in paragraph (b) of the s 12 definition of "objectionable term". At [66] the Full Court noted that a number of decisions of Full Benches of the Commission had come to the view that the word "permits" means "authorises". The Full Court concluded that, taken in context, "permits" should be read in that manner. As can be seen from [18] of the Full Court's reasons, the rationale for the approach taken in the Commission which the Full Court accepted, is based on the word "permit" being used in relation to a term in an enterprise agreement, in the sense of the term giving permission or opportunity for conduct to take place and thus authorising that conduct.
76 The applicants did not contest Toyota's contention that a restriction imposed upon the capacity for employees to initiate or participate in the Subdiv A variation process could be action which injured or prejudicially altered the position of employees and thus could be capable of being characterised as "adverse action". The applicants contended however that cl 4 did not authorise or purport to authorise or have the effect of authorising Toyota to take any adverse action for a prohibited reason.
77 They contended that there are two relevant scenarios in which the relevant terms of cl 4 need to be considered. The first is a situation in which the employees want to effectuate a variation and Toyota does not. In that situation, Toyota would be entitled to refuse to participate in the pre-application processes contemplated by ss 207 and 208. Those processes are necessarily founded upon an employer's willingness to participate and the employer is given the option of not participating. It would be pointless to require a ballot of employees of the kind which s 208 contemplates to determine whether there is majority employee support for a variation, because no variation could be made if the employer opposes it. The employer's entitlement to oppose a variation is authorised by the terms of the Subdiv A variation process and as such could not constitute "adverse action", including because s 342(3) provides that "adverse action" does not include action that is authorised by the FW Act.
78 The other possible scenario that the applicants' submission raised is essentially that which was relied upon by Toyota. In that scenario, both the employees (or some of them) and the employer want to pursue a variation. On the applicants' contention, this too is not a situation in which the terms of cl 4 would authorise a contravention of s 340(1). In this situation, Toyota's refusal to pursue the variation process, whilst motivated by the terms of cl 4, would not be motivated by any intent to deny to its employees their workplace right of initiating or participating in the Subdivision A variation process. The holding of such a motivation would be inconsistent with the foundation upon which the scenario is based where Toyota wants to pursue a variation and desires, rather than intends to preclude, the exercise of the participatory rights of its employees.
79 The determination of whether cl 4 is an objectionable term should commence with consideration of what the FW Act intends by placing the restrictions that it has placed on terms which require or permit a contravention of Pt 3-1. The FW Act relevantly restricts the operation of an "objectionable term" in three ways. First, s 186(4) provides that in approving an enterprise agreement under s 186(1), the Commission must be satisfied that the Agreement does not include any "unlawful terms" and thus any "objectionable term". Second, s 253(1) provides that a term of an enterprise agreement has no effect to the extent that it is an "unlawful term" which expression includes an "objectionable term". Section 253(2) provides however that where an enterprise agreement includes a term that has no effect because of s 253(1), the inclusion of the term does not prevent the Agreement from being an enterprise agreement. Finally, s 356 which is found in Part 3-1 provides as follows:
A term of a workplace instrument, or an agreement or arrangement (whether written or unwritten), has no effect to the extent that it is an objectionable term.
80 The s 12 definitions of "workplace instrument" and "workplace law" make it clear that the expression "workplace instrument" in s 356 includes an enterprise agreement.
81 The Explanatory Memorandum to the Fair Work Bill 2008 (Cth) at [1063]-[1065] when read with [660]-[665], suggests that it was not intended that by reason of s 186(4) the Commission "will have to scrutinise each enterprise agreement to ensure that all its terms are about [non-objectionable terms] as this would unduly delay the agreement approval process" (at [664]). Rather, the primary role for excluding the operation of "objectionable terms" is given to s 253(1) and s 356. By reason of those provisions a term in an enterprise agreement, or in the wide range of other agreements or arrangements described in s 356, will have no effect to the extent that it is an "objectionable term".
82 In so far as the definition of "objectionable term" is directed to precluding a term from requiring or authorising "a contravention of Pt 3-1", the FW Act's apparent purpose is to protect the intended operation of Pt 3-1 from being undermined by the making of enterprise or other agreements. That purpose needs to be understood and kept in mind.
83 Additionally, an understanding of what the FW Act intends by restricting the capacity for an objectionable term to impinge upon the operation of Pt 3-1 needs to be informed by an understanding of what that Part proscribes.
84 An object of Pt 3-1 is to protect workplace rights (s 336(1)(a)). The manner in which that is done is specifically addressed by the provisions of Pt 3-1. For example, and in relation to the "workplace rights" protected by s 340(1)(a), the holder of a workplace right is protected from being exposed to adverse action taken by another person because the first person has the workplace right; has exercised or has not exercised the workplace right; or proposes to or proposes not to exercise the workplace right. Section 340(1)(b) is similar in effect and proscribes adverse action taken "to" prevent the exercise of the workplace right.
85 The conduct which s 340(1) proscribes is conduct taken for a particular reason ("a prohibited reason"). What is proscribed is reason dependent. Section 340(1) is not contravened simply because the conduct identified as "adverse action" by s 342(1) has occurred. To give a simple example, the dismissal of an employee does not constitute a contravention of s 340(1) but could constitute such a contravention if the dismissal was done in whole or in part (s 360) for the reason that the employee held a workplace right.
86 It follows that there can be nothing wrong with an enterprise agreement authorising an employer to dismiss an employee. That of itself could not constitute an "objectionable term". If however the enterprise agreement provided that the employer was required to, or that the employer may dismiss an employee because the employee had a particular workplace right, the provision would clearly be an objectionable term. If that were not so, the protection which s 340(1) seeks to provide to the holder of a workplace right could be substantially undermined by the provisions in an enterprise or other agreement.
87 The restrictions placed upon the operative effect of an "objectionable term" are designed to ensure that the protections provided by Pt 3-1 are not undermined in that way. Thus, a provision in an enterprise agreement which by its terms requires (either directly or indirectly) adverse action to be taken for a prohibited reason, would be an objectionable term and therefore ineffectual.
88 A provision in an enterprise agreement that required or permitted action to be taken that could fall within the FW Act's definition of "adverse action", but which was silent as to the reason or reasons for which the conduct could be taken, could authorise or have the effect of authorising a contravention of Pt 3-1 if the conduct was taken or threatened to be taken for a prohibited reason. In relation to a provision in an enterprise agreement of that kind, ss 253(1) and 356 would have ambulatory effect. Such a term would be effective where the action authorised by it was taken or threatened to be taken for a non-prohibited reason, but ineffective to authorise the action if taken or threatened to be taken for a prohibited reason. In that way a person taking adverse action for a prohibited reason would not escape liability under Part 3-1 on the basis that their conduct was required or authorised by the enterprise agreement.
89 It cannot be the case that conduct permitted by a term in an enterprise agreement which could constitute adverse action (for instance the dismissal of an employee) must be ineffective because it is theoretically capable of being taken or threatened to be taken for a prohibited reason. However, when such conduct is taken or threatened to be taken for a prohibited reason, s 253(1) and s 356 will render the clause ineffective to authorise the taking of that conduct in that circumstance.
90 Clause 4 of the Agreement prohibits the making of any further claims and in that respect is capable on its face of precluding the pursuance of a variation application. As "action" includes an omission, what is precluded is capable of constituting "adverse action" within the meaning of s 342(1). However, the no extra claims component of cl 4 does not require or permit any action to be taken for a prohibited reason. It does not by its terms require or permit a contravention of Pt 3-1, have that effect or purport to have that effect. It is not ineffectual on that basis.
91 For reasons I have explained, it is not appropriate to consider (as the submissions of the parties have done) whether such a clause is otherwise rendered ineffective by reference to the theoretical capacity for the action permitted by cl 4 to be taken for a prohibited reason. If that action is taken or threatened to be taken for a prohibited reason, the operative authorising effect of the clause would be rendered ineffective in that circumstance.
92 On this basis, the question then is whether the no extra claims component of cl 4 is ineffective in the current circumstances. There is no evidence to suggest that Toyota is threatening to or has pursued the proposed variations for reasons that include the reason that Toyota wants to preclude the exercise by its employees of their ability to initiate or participate in the Subdiv A variation process. To the contrary, everything that Toyota has done suggests that it would like to facilitate the participation of its employees in the variation process. In those circumstances, the ambulatory effect of s 253(1) and s 356 has not rendered the no extra claims component of cl 4 ineffective in relation to the conduct in question. Toyota's contention that cl 4 is, for relevant purposes, an objectionable term must therefore be rejected.
93 If my analysis is not correct, and it is necessary to consider whether a theoretical capacity exists for the no extra claims component of cl 4 to be utilised in furtherance of a prohibited reason, I would accept the applicant's contention that the scenario posited by Toyota should be rejected. There could be no basis for attributing to Toyota a prohibited reason of the kind Toyota contended for.