Re: Crown Employees (NSW Fire Brigade Retained Firefighting Staff) Award 2008 [2012] NSWIRComm 122

Preliminary questions for determination 9In these circumstances, arising out of the proceedings before Staff J, the parties each posed a preliminary question for determination. The question posed by FRNSW was: What process is required to be followed by the parties and members of the Industrial Commission of New South Wales (Commission) in arriving at an arbitrated Award or Order in relation to the Community First Responder function consistent with the requirements of the Industrial Relations Act 1996 (NSW) (Act) and the Industrial Relations (Public Sector Conditions of Employment) Regulation 2011 (NSW) (Regulation). 10The question posed by the FBEU was: Whether the Commission has jurisdiction to hear and determine a work value claim pursuant to the Wage Fixing Principles set out in the State Wage Case [2010] NSWIRComm 183 (16 December 2010) for the prescription of a new rate for new work in accordance with the Arbitrated Case Principle (principle 8) clause 8.2 Work Value Considerations, or for a new allowance for new work in accordance with clause 5, Adjustment of Allowances and Service Increments, and in particular, clause 5.5 which provides: 'Where changes in the work have occurred or new work and conditions have arisen, the question of a new allowance, if any, will be determined in accordance with the Arbitrated Case Principle'. 11The President subsequently granted (12 July 2012) the application to refer the two questions for decision by a Full Bench of the Commission: s 193(2) of the Act.

Case for the FBEU 12The essential elements of the argument put by the FBEU may be stated as follows: (a) it was not the intention of the legislative amendments to remove the power of the Commission to award wage increases. Rather, the amendments were intended to qualify that power; (b) the clear words of the Government's Public Sector Policy speak to a situation where existing levels of remuneration are sought to be increased by the pressing of industrial claims; (c) a new allowance represents an increase in remuneration but not by reference to any pre-existing established rate of pay. A new allowance is an entirely new prescription, which deals with the introduction of new work; (d) if the new legislation is to be interpreted as 'choking off' an opportunity to have new work assessed and evaluated (and paid for) this will mark a very significant retrograde step in the conduct of orderly industrial relations. Any employer can only require work to be performed within the scope of an employee's contract of employment. It may be conceded for the purpose of this exercise that some degree of flexibility and accommodation of the evolution of workplace techniques and processes will be expected of the employees concerned. However, where entirely new processes are introduced - for example where a firefighter is required to do ambulance work - a new dispensation with respect to this new work, will be required. (e) the Public Sector Wages Policy fails to deal with, or fails substantially to deal with, the introduction of new work of the kind which has traditionally attracted the operation of the wages principles and resulted in wage increases for the employees concerned; (f) the Commission's Wage Fixing Principles have not been replaced or expressly excluded by the legislative amendments. The effect of the amendments, however, is that public sector employees might now never be able to qualify for the award of any increase in their remuneration despite the fact that they take on new work requiring increased training, skills and responsibilities. This may be an unintended consequence of the manner in which the regulation and policy operates; (g) the introduction of entirely new work would not seem to fall within the contemplation of the new legislative scheme. Employees have a legitimate expectation that new work will be properly acknowledged and this expectation has reconciled employees to the introduction of new work. Where there is no such expectation, it may be expected that employees will refuse to perform duties that have not been within the scope of their contracts of employment; (h) the right of management to direct employees to perform work is not unqualified. An employee is not under an obligation to obey an order which would require him (or her) to undertake work which, according to his (or her) contract of employment, falls outside what the employee has been engaged - and in some cases, accredited - to perform; (i) in answer to the question posed by the FBEU the Commission should find that the issue of entirely new work is not covered by s146C and the regulation and Policy. It follows that the Commission should proceed upon the basis that it is at liberty to value the work and make an award in the form of a new allowance - under the wage fixing guidelines; (j) In the alternative, should the Commission find that the introduction of new work is covered by s146C and the regulation and policy, the FBEU proposes the following answer to the question formulated by FRNSW: The process required to be followed by the Commission in arriving at an arbitrated Award or Order in relation to the CFR function (assuming there is no agreement) will be: Step 1: the Commission should examine and value the work; Step 2: the Commission should make an award which properly evaluates and recognises the changes in work value and the appropriate level of any new allowance which is warranted; Step 3: the award so made will be expressed to operate on or after the date of the Commission's decision;. Step 4: the Commission should next invite the parties to address it upon the costs savings intended to be identified to 'fund' the new allowance; Step 5: the Commission should indicate whether it accepts the costings proposals advanced; Step 6: the Commission should next invite the parties to address it upon the timetable and program designed to realise the savings which underpin the proposed award; Step 7: the Commission should next hear the parties at the time when the savings proposals in steps 4, 5 & 6 have been realised. Step 8: the Commission should stipulate its satisfaction that the requisite savings have been achieved; Step 9: the award will come into effect on the date so specified and operate on and from the date of operation specified in Step 3.

Case for FRNSW 13The essential elements of the argument put by FRNSW are as follows: (a) the Commission has jurisdiction to deal with the application. The issue is how that jurisdiction should be exercised having regard to the provisions identified; (b) there is no warrant for a reading of s 146C and the Regulations that would support a contention that the s 146C and the Regulation do not apply to this application. There is nothing in the terms of the legislation that exclude their application to new work or to work value claims. There is nothing in the provisions that relevantly excludes any particular or general class of award claim or variation; (c) the relevant context is that the Award provides for increases in excess of 2.5% per annum in wages, allowances and other remuneration over the currency of the Award. Fire & Rescue concede that retained firefighters who perform community first responder work (which is voluntary) to date have received no increase in their rate of pay or any allowance directly referable to performing this function; (d) in order for the FBEU to succeed in its application it is a precondition to the exercise of power to award an increase in the circumstances that 'sufficient employee related cost savings' have been achieved to fully offset the increased-related costs. The Regulations require that the costs savings in fact be achieved before any increase can have effect. To this end the parties either must first agree on the fact that those cost savings have been achieved, or alternatively, the Commission must determine whether those cost savings have been achieved prior to giving effect to any increase in remuneration; (e) the procedure the Commission should follow in applying s 146C of the Act and the Regulation is as follows: (i) First, the Commission must determine whether or not there has been an increase in employee related costs of 2.5% per annum or more. In determining this question the Commission should look at the Award (and any other relevant instrument prescribing terms and conditions of employment for the relevant employees) and determine by reference to the salaries, wages, allowances and other remuneration payable to the employees together with superannuation and any other personal employment benefits what the increase (if any) has been over twelve months. That is, the first step in the process, whether by agreement of the parties or by arbitration by the Commission, requires a determination as to whether or not the limitation on power found in Regulation 6(b) has any work to do at all. If it does not that (sic) to the extent that the proposed awarded increases do not exceed 2.5% of employee related costs the Commission may proceed unconstrained by the relevant limitations. In the event that issue is determined affirmatively, in whole or in part, (that is that there has been such an increase or would be an increase partially in excess of 2.5% of employee related costs) the Commission should inform the parties that it will be necessary, in the event that there is any increase to be awarded as a result of the application for cost savings to be achieved to fully offset any further increase before any increase can be made payable. The question of who the relevant 'employees' are for this purpose should be answered by reference to the employees covered by the Award or the Application; (ii) Next, the Commission should determine the work value claim in accordance with the relevant principles. This part of the process need not await the achievement of any employee related costs savings (or for that matter even the identification of what they are or may be). Once that is determined the parties (and presumably in particular the FBEU) will be in a position to know (in the event an increase is awarded) what the value of any costs saving that are necessary in order to offset any increase will be. Even though at the end of this part of the process the Commission will have determined the amount of any increase (if one is awarded) it must not make an award or order that will have the effect of making the increase payable because of the statutory proscription found in Regulation 6(b)(ii); (iii) Next, should any increase be awarded the Commission will need to determine whether cost savings have been achieved by agreement of the parties. If they are not the Commission will need to arbitrate upon whether they have been achieved. A serious issue arises as to how any costs savings are to be identified and or implemented. The Regulation does not cast any light upon that issue - the Regulation simply refers to the parties agreeing. The Regulation permits the Commission to arbitrate upon the issue of whether the cost savings have been achieved and not upon the issue of what form those savings take. There is a serious issue as to the role of the Commission in determining what form the cost saving will take. At least initially it might be presumed that this issue could be addressed by directing the parties to confer or by convening conferences of the parties. The Regulation does not deal with the question of any arbitral role for the Commission in determining the nature of any cost savings - the express reference to the Commission arbitrating whether or not the savings have been achieved, perhaps suggests the Commission has no arbitral function in respect of that question; and (iv) Finally, the Commission will need (in all likelihood) to adjourn any matter pending the achievement of any cost savings and the Commission being satisfied that those savings have in fact been achieved before any increase is to be paid. The matter cannot be determined by recourse to a leave reserved provision (see Regulation 6(d)).

Whether s 146C and Regulation apply to application 14As we have recorded, the FBEU contended that neither s 146C nor the Regulation apply to its application to vary the Award to introduce an allowance for CFRs. Accordingly, it followed from the FBEU's submissions, it was open to the Commission to apply the relevant wage fixing principles to the application, in particular the principle relating to changes in work value, unfettered by s 146C or the Regulation. 15The rationale for this contention was that the claim by the FBEU was for an allowance to compensate firefighters for new work they had been called upon to perform, work not contemplated by their existing contracts of employment. The legislation was to be construed as referring to existing levels of remuneration and not what should be remuneration for new work. Under the legislation, increases beyond 2.5 per cent per annum must be funded by employee-related cost savings to be derived from changes to industrial instruments, work practices or other conditions of employment. No offsetting cost savings can be achieved from the introduction of new work. So it must follow that new work cannot be introduced. This could not have been the intention of the legislation. 16It was further contended, as we understand it, that if the legislation were to be construed as applying to claims for an allowance for new work and new work was introduced, in the absence of being able to achieve employee-related cost savings to fund any allowance for the new work, employees were unlikely to perform the new work where it was not already contemplated by their contract of employment. Again, it was submitted this could not have been the intention of the legislation. 17We are unable to agree with the FBEU's contentions. The purpose underlying s 146C and the Regulation was discussed in two Full Bench decisions: Re Crown Employees (Public Sector - Salaries 2011) Award (No 3) [2011] NSWIRComm 104; (2011) 210 IR 458 and Health Employees Conditions of Employment (State) Award and other Awards [2011] NSWIRComm 129; (2011) 208 IR 201. Those decisions were considered recently in HSU east and Director-General, Department of Finance and Services [2012] NSWIRComm 112, a decision of the Full Bench dealing with four "threshold issues", one of them being whether, "on a proper interpretation of the Regulation made pursuant to s 146C, 'employee-related cost savings' can only be savings achieved after the advent of that Regulation." 18Subject to what was said in Public Service Association and Professional Officers' Association Amalgamated Union of New South Wales v NSW Department of Education and Communities [2012] NSWIRComm 96 at [64]-[76], it is abundantly clear from the Full Bench decisions identified in the preceding paragraph that any increase in remuneration (including allowances) or other conditions of employment in excess of 2.5 per cent will only be awarded by the Commission where employee-related savings sufficient to fund such an increase have been identified either by agreement or consequent upon a process of arbitration and will not be payable until savings have been achieved. 19As the Full Bench observed in Health Employees Conditions of Employment (State) Award at [49]: [49] The approach encapsulated in these decisions necessarily leads to a consideration of the policy and purpose of the amendment and how that may assist in the determination of the operation of cl 6(1)(d) of the Regulation. Reference to the Minister's second reading speech demonstrates a Government concern, in the prevailing economic conditions, for the level of its public sector wages bill and how a "highly skilled and effective public sector" can be built with wage increases made available each year to "hard-working public sector employees" while maintaining "fiscal restraint" via the Government's wages policy. At the heart of the provisions to give effect to that policy is the availability of 2.5 per cent per annum as a reflection of the median point of expected cost of living increases and the requirement that anything over 2.5 per cent requires costs off-sets equal to the increases sought before any increase can be granted by the Commission in salaries, wages, allowances and conditions involving employee-related costs. 20Further, in HSU east and Director-General, Department of Finance and Services the Full Bench stated at [50] and [52]: The Amendment Act was enacted and the Regulation made as a component of economic reform introduced by the New South Wales Government, central to which was the concept of fiscal restraint. The Regulation achieves that aim by creating mechanisms which control employee-related costs; restricting those costs to the equivalent of the mid point of the Reserve Bank's target range for inflation for each yearly period. The mechanisms adopted, in this respect, were the imposition of limits upon the Commission's discretion under s 10 of the IR Act to make or vary awards in relation to the wages and conditions of public sector employees beyond the designated limit for such adjustments of 2.5 per cent. Variations above that level were made conditional upon the adjustment effectively being made cost neutral by means of offsets in the form of employee-related cost savings. ... ...The objective of fiscal control is maintained by the regulation of the cost of wages and conditions around an axis of a 2.5 per cent adjustment in wages and conditions in a 12 month period. 21There is nothing in the extrinsic materials referred to in the Full Bench decisions, or in the Amendment Act or Regulation, that suggests that increases in employee-related costs in the form of increased remuneration to compensate for changes in work value (for example, because of new work) should be exempt from the application of the legislation. 22It may be that where employees were not renumerated for new work, they could decline to perform that work if it fell outside the scope of their contract of employment and was not otherwise required to be performed by any relevant industrial instrument or legislation. Whether such new work fell within the contract, or was otherwise required to be performed, might be the subject of factual and legal argument. 23This would seem to represent something of an anomaly. That is to say, if an agency wished to introduce new work to be performed by employees, the employees might be expected to claim additional remuneration if the new work was beyond the scope of their current contractual obligations and beyond what was required under relevant industrial instruments and legislation. If the necessary savings could not be found to offset the cost of any additional remuneration it may be that the agency would be unable to have the new work carried out. 24However, it seems to us that issue does not prevent an application being made to vary an award to provide for an allowance to compensate for new work in accordance with the Commission's Wage Fixing principles. Provided that if any proposed allowance were to increase employee-related costs by more than 2.5 per cent per annum there will be an obligation on the parties, or one of them, to show the cost of the increase above 2.5 per cent is offset by employee-related cost savings. If there is an issue about whether the cost has been offset it may be resolved through the available processes of conciliation and/or arbitration. 25As for the FBEU's proposition that the introduction of new work cannot produce "productivity dividends" to fund allowances to compensate for that work, we note that in the Public Sector Wages Policy, it provides an example of employee-related cost savings in the following terms: 7.1.3 the expansion of the scope of work public sector employees perform in ways that enhance their productivity and realise savings 26We express no concluded view about this, but if the use of retained firefighters as CFRs enhances their productivity and realizes savings by relieving the workload on the Ambulance Service, it may be arguable that this is a cost-offsetting factor. 27Our conclusion in answer to the FBEU's question is this: Yes, but the application of the Commission's Wage Fixing Principles is subject to the Act and the Regulation.

The process 28FRNSW's question raises the process required to be followed in arriving at an arbitrated award or order in relation to the FBEU's application having regard to s 146C of the Act and the Regulation. 29There was disagreement about the process. FRNSW submitted that the Commission should first determine whether or not there has been an increase in employee related costs of 2.5 per cent per annum or more. Next, it should determine the work value claim in accordance with the relevant principles. Next, should any increase be awarded, the Commission would need to determine whether cost savings have been achieved by agreement of the parties. If they are not the Commission will need to arbitrate upon whether they have been achieved. And, finally, the Commission would need to adjourn any matter pending the achievement of any cost savings and the Commission being satisfied that those savings have in fact been achieved before any increase is to be paid. 30The FBEU submitted the Commission should first examine and value the work that is the subject of the application. The second step was that the Commission should make an award reflecting the change in work value and determine the appropriate level of any new allowance that was warranted. Thirdly, that the award so made would be expressed to operate on or after the date of the Commission's decision. Fourthly, the Commission should invite the parties to address it upon the costs savings intended to be identified to 'fund' the new allowance. Next, the Commission should indicate whether it accepts the costings advanced. Next, the Commission should invite the parties to address it upon the timetable and program designed to realise the savings that underpin the proposed award. Seventhly, the Commission should hear the parties at the time when the savings proposals in steps 4, 5 and 6 have been realised. Eighthly, the Commission should stipulate its satisfaction that the requisite savings have been achieved and as a final step the award should come into effect on the date so specified and operate on and from the date of operation specified in Step 3. 31We have considered the respective processes proposed by the parties. However, we consider the process outlined below is the more efficient way of dealing with claims that require a consideration by the Commission of s 146C of the Act and the Regulation. 32Subject to the requirements of the Act and the Regulation, the process that should be followed in respect of any claim to increase the remuneration of public sector employees (as defined in s 146C of the Act) or to alter their conditions of employment and which requires the application of Principle 8 - Arbitrated Case of the Commission's Wage Fixing Principles (State Wage Case 2010 (No 2) [2011] NSWIRComm 29), shall be as follows: (1) The claim shall be supported by grounds and reasons. The grounds and reasons shall identify whether the claim involves or is likely to involve an increase in remuneration or other conditions of employment of more than 2.5 per cent per annum in employee-related costs. In the event of disagreement about this matter the Commission will determine it. (2) Where the claim does not involve an increase in remuneration or other conditions of employment of more than 2.5 per cent per annum in employee-related costs, the Commission will proceed to determine the matter in accordance with the relevant Principle. (3) Where the claim involves or is likely to involve an increase in remuneration or other conditions of employment of more than 2.5 per cent per annum in employee-related costs, the grounds and reasons shall identify whether any agreement has been reached by the parties that sufficient employee-related cost savings have been or will be achieved to fully offset the increased employee-related costs. If so, the claim shall particularise the agreement. The Commission shall determine whether the agreement satisfies the requirements of the Regulation. (4) In the event there is no agreement regarding sufficient employee-related cost savings having been achieved to fully offset the increased employee-related costs, the claim shall identify what the applicant contends constitutes the relevant cost savings. (5) The Commission will proceed to determine the claim in accordance with the relevant Principle. In the event the applicant is successful in satisfying the Commission there should be an increase in remuneration or other condition of employment, in the absence of agreement the applicant will also need to satisfy the Commission the necessary cost savings have been or will be achieved to fully offset the increased employee-related costs. This may require a two-stage approach to the hearing, the first stage involving the merits of the claim under the relevant Principle and the second stage providing the parties with an opportunity to address the question of cost savings. (6) Where the Commission is satisfied the relevant savings have been achieved, subject to the Regulation (see cl 6(1)(e) and cl 6(2)) the Commission may approve payment of any increase from a date the Commission considers appropriate. (7) In circumstances where the Commission is satisfied there should be an increase in remuneration or other condition of employment, but the relevant savings have not been achieved, the Commission may award the increase, but it shall not become payable until the Commission is satisfied the relevant savings have been achieved. This may require an adjournment of the proceedings. No leave reserved provision is permitted. 33The matter is referred back to Staff J to be dealt with in accordance with this decision.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 November 2012