Fair Work Act 2009

s.318 - Application for an order relating to instruments covering new employer and transferring employees

Application for an order relating to transferrable instruments.

[1] This decision concerns an application by Silver Chain Group Limited (Silver Chain) for an order under s.318 of the Fair Work Act 2009 (Cth) (the Act).

[2] The application is made in respect of the employment of 13 employees (the Employees) who on 1 December 2017 commenced employment with of Silver Chain having previously been employed by the City of Canning to provide respite services in day centres.

[3] For various reasons the City of Canning decided that it would no longer deliver respite services in day centres and issued a request for proposal to identify not-for-profit providers who could deliver such services.

[4] Silver Chain runs social centres equivalent to that of the City of Canning's day centres. It provides respite services in four locations within the metropolitan area and seven regional towns. Silver Chain responded to the request for proposal and subsequently became the new provider of the respite services.

[5] Silver Chain employs 3,800 employees of which 2,300 are covered by the Silver Chain Group Limited National (Non Nursing) Enterprise Agreement 2017 (AE 426556) (Silver Chain Agreement)[1]. The remaining employees are covered by nursing agreements or common law contract[2]. The Employees make up less than 0.003% of the Silver Chain workforce[3].

[6] In order to provide the respite services the City of Canning will sublease three properties to Silver Chain (day centres), and furniture and other moveable assets will be available at those properties for Silver Chain to use[4]. Further, the City of Canning will sell to Silver Chain two buses[5].

[7] In their employment with the City of Canning, the Employees were covered by the City of Canning All of Staff Enterprise Agreement 2015 (AE 420092) (City Agreement). The Applicant is of the view that were it not for s.311 of the Act the Silver Chain Agreement would cover the Employees.

[8] Silver Chain now applies for the following orders:

1. The City of Canning All of Staff Enterprise Agreement 2015 will not cover those employees (the transferring employees) who:

   1. until 30 November 2017 were employed by the City of Canning in the role of Transport Officer and Transport and Activities Officer;

   2. on 1 December 2017 commenced employment with Silver Chain in the role of Transport Officer and Transport and Activities Officer; and

   3. who will perform the same, or substantially the same work for Silver Chain as they performed for the City of Canning (the transferring work).

2. The Silver Chain Group Limited National (Non Nursing) Enterprise Agreement 2017 will cover the transferring employees in their employment with Silver Chain.

[9] The application is not opposed by the Australian Municipal, Administrative, Clerical and Services Union West Australian Branch (ASU), being an employee organisation that is covered by the City Agreement.

[10] On 19 January 2017, Ms Elaine Kerr Meighan, Group Manager HR Services (Ms Meighan), instructed Silver Chain's solicitors, to serve a copy of the application and the documents referred to in the application by email on the Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (AMWU) and the Local Government Racing and Cemeteries Union (LGRCEU) both of whom are covered by the City Agreement[6]. No correspondence was received by the Fair Work Commission (Commission) from the AMWU or LGRCEU.

[11] In the circumstances, I have decided to deal with the application on the papers without conducting a hearing.

[12] Section 317 of the Act enables the Commission to make certain orders if there is, or is likely to be, a transfer of business from an old employer to a new employer.

[13] The discretion to make the order sought by Silver Chain under ss.318(1) of the Act will only be exercised after taking into account the matters set out in ss.318(3) of the Act[7]. These factors, which must be read having regard to the objects of the Part, 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[8].

[14] Section 318 provides as follows:

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) FWA 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, FWA 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;

[15] The exercise of the discretion given to the Commission in this regard is undertaken within the objects of this Part of the Act, which state as follows:

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.

[16] Silver Chain is the new employer for the purposes of ss.318(2)(a) of the Act. I find that the application is validly before the Commission.

[17] This application was filed on 18 December 2018, being some weeks after the transfer of business took place. However, I have considered whether the terms of s.318 of the Act are intended to only apply where the application is made prior to the transfer and consider that is not the case.

[18] Where the matter is considered after the transfer has taken place, the considerations cited in ss.318(3) of the Act must be approached having regard to the fact the transferrable instrument (in this case the City Agreement) is already applying to the parties concerned[9].

Subsection 318(3)(a)(i): the views of Silver Chain as the likely new employer

[19] Silver Chain has made the application for orders on a number of grounds that are as follows:

1. allow the transferring employees to fully integrate into Silver Chain's business so that Silver Chain can maintain its standard of service and to ensure workplace harmony;

2. ensure productivity of Silver Chain's existing workforce (particularly those working alongside the transferring employees in the day centres) can be maintained in circumstances where, absent the orders, employees working alongside each other and performing the same work would be on different terms and conditions of employment;

3. to ensure that Silver Chain is not required to divert resources unnecessarily to administrative functions that provide little substantive value; and

d) reduce the cost base of the transferring employees, particularly in circumstances where, through no action on the part of Silver Chain, each of the transferring employees has been wrongly classified under the City EA and is receiving remuneration significantly higher than that which they would otherwise be entitled[10].

[20] With regard to the point that Silver Chain has been administering the City Agreement since the commencement of the Employees' employment (pending the making and determination of this application), Silver Chain submits that this is not efficient due to the additional wage costs for the Employees[11], the requirement to make available a payroll staff member for the equivalent 0.3 FTE per year[12] and a human resources staff member for the equivalent of 0.25 FTE per year[13].

[21] The views put forward by Silver Chain regarding the integration of the Employees within the business, the maintenance of productivity and parity in terms and conditions, in addition to limiting unnecessary administrative costs, have, in my view, a legitimate basis and accordingly are factors that weigh significantly in favour of granting the application.

[22] The Commission has previously accepted that continuing to apply an enterprise agreement that applied to an old employer's business is likely to have a negative impact on productivity in the workplace because of the disparity in the terms and conditions of employment applying to employee performing the same work[14]. To require employees to work alongside each other performing the same work, but attributing to it a different value, inevitably will lead to discord between these workers. It would be naïve to think otherwise.

[23] The requirement to then administer payroll and provide human resource services to a sub-group of 13 Employees whose terms and conditions of employment differ to the 2,300 employees to which the Silver Chain Agreement applies is particularly onerous in the circumstances of this case.

[24] Silver Chain is a not for profit organisation that is predominately funded through Commonwealth and State government departments. The delivery of the respite services is funded by the Commonwealth. It is apparent that Silver Chain has deliberately adopted a business model, which streamlines administration and resource coordination to minimise unnecessary administrative burden[15]. To incur estimated costs of $91,987.79 to apply the City Agreement[16] is not only at odds with Silver Chain's business model but is counterintuitive to the object of running their enterprise efficiently an 'Object of this Part'[17].

Subsection 318(3)(a)(ii): the views of the employees who would be affected by any order

[25] Silver Chain held a meeting with the Employees and distributed an expression of interest form on 19 September 2017, and subsequent to that form, a letter of intent[18].

[26] The letter of intent clearly set out, as did the contract of employment[19], that Silver Chain would be applying to the Commission for an order that the City Agreement no longer cover the Employees and that they would be covered by the Silver Chain Agreement. Further, the contract of employment outlined the classification that the Employee would fall within regarding the City Agreement and the hourly rate that would apply[20].

[27] On 21 December 2017 this Commission issued directions requiring Silver Chain to obtain any feedback from the Employees regarding the application. It was requested that Silver Chain facilitate a process whereby the anonymity of the Employees could be assured. Feedback forms were provided to this Commission from those employees that preferred to provide feedback. All responses were supportive of the proposed orders.

[28] Silver Chain's solicitors served on the ASU, AMWU and LGRCEU the application and the documents referred to in the application. The ASU did not oppose the application and as noted, no correspondence was received from the AMWU and LGRCEU.

[29] Given the evidence of the process undertaken regarding consultation with the Employees, provision of documentary information and advice to the Employees that an application would subsequently be made to the Commission to seek orders, I am satisfied that the feedback forms represent the genuine views of those that completed them. Regarding those Employees who opted not to provide feedback, I am satisfied that those Employees had no objection to the proposed orders.

[30] Neither the ASU, AMWU nor LGRCEU have opposed the application.

Subsection 318(3)(b): any disadvantage to the employees in relation of their terms and conditions of employment

[31]

[32] Silver Chain has provided evidence that the City of Canning classified the Employees as Salaried Officers notwithstanding their work being aged care services. Ms Meighan has stated to the effect that she considers the classification of the Employees misplaced and as a consequence while working for the City of Canning the Employees were paid at a rate higher than that provided for under their correct classification in the City Agreement[21].

[33] Further Ms Meighan has provided detail on the work undertaken by the Employees and what she considers to be the applicable rates under the City Agreement[22]:

From my experience in the industry and based on my knowledge of the classifications used at Silver Chain's day centres, the transferring employees are all performing aged care work. From reviewing Appendix 2.5 of the City EA and based on my own experience, these employees should be classified as either an:

(a) aged care employee band 2 which includes drivers of vehicles less than 3 ton. As at July 2017, the applicable hourly rate of pay for this classification is $21.52;

(b) aged care employee band 3 which includes drivers of vehicles less than 3 ton who are required to hold a St John Ambulance first aid certificate and unqualified recreational/lifestyle activities officers. As at July 2017, the applicable hourly rate of pay for his classification is $22.35; and

(c) aged care employee band 4 which includes drivers of vehicles over 3 ton and senior clerks. As at July 2017, the applicable hourly rate of pay for this classification is $22.68.

[34] As a result of their classification as a Salaried Officer under the City Agreement the Employees are paid hourly rates of pay within a range of Level 1B $31.63 per hour, and Level 1G $34.10 per hour[23].

[35] Silver Chain has given evidence that to minimise the impact on the Employees, Silver Chain will pay the transferring employees in line with its Business Support Level 3 classification, which has a pay rate of $31.69 per hour. In terms of the gross salary deferential between the City Agreement pay rate at Level 1G and that of the Business Level 3 Classification pay rate there is a $4,771.81 per annum difference.

[36] However, Silver Chain has submitted that with the exception of two of the Employees who were engaged on a casual basis and hence received a 25% loading the remainder will be better off on a net income basis. This, it is said, is because Silver Chain is a 'public benevolent institution' and is able to offer its employees the ability to salary sacrifice up to $15,900 of the Employee's gross taxable income in order to reduce their taxable income and therefore tax liability[24].

[37] Regarding the two casual Employees while there is a financial disadvantage with regard to the hourly rate of pay, these Employees have been converted to a permanent position which in turn sees them accrue paid leave benefits, an entitlement to redundancy pay in relevant circumstances and an increased amount of notice regarding termination of employment. Job security and permanent status are not insignificant factors and must be duly taken into account.

[38] Silver Chain has listed a number of benefits under its Silver Chain Agreement[25] and has highlighted where the City Agreement may be considered to include benefits not provided for in the Silver Chain Agreement[26].

[39] Considerable material has been provided the Commission analysing the differences between the City Agreement and the Silver Chain Agreement and other terms and conditions of employment that Silver Chain have offered. Whether overall any of the Employees would be disadvantaged if covered by the Silver Chain Agreement is a matter that must be taken into account[27].

[40] While a disadvantage to the Employees may not prevent the granting of the application, in my view it may represent a significant hurdle as part of the wider considerations which must be taken into account for the purposes of ss.318(3) of the Act.

[41] One of the primary considerations regarding disadvantage is, in my view, the pay rates that will be afforded to the Employees. The evidence before the Commission is that there will be not an insubstantial difference between the pay rates provided for under the City Agreement and those provided for under the Silver Chain Agreement.

[42] The Act requires that the Commission take into account whether any employees would be disadvantaged by the order in relation to the employees' terms and conditions of employment[28]. While the making of the order will incur a reduction in gross pay, Silver Chain has raised some salient points that cannot simply be discounted when considering disadvantage from an overall perspective[29].

[43] For whatever reason the City of Canning appears to have misclassified the Employees under the City Agreement. Notwithstanding, the Employees received a particular rate of pay under the City Agreement from the City of Canning, and I am satisfied, for current purposes, that is the relevant comparator for the rate of pay.

[44] However, in this case there is evidence that the impact on net income will be minimised through not only the provision of rate of pay at the Business Support Level 3 but in addition that the Employees have access to salary sacrificing arrangements. While the salary sacrificing arrangement may not derive from the Silver Chain Agreement, I do not consider the provision of such benefit an immaterial consideration and as such am satisfied that I can take it into account. It is submitted, that the salary sacrifice arrangement provided by Silver Chain will benefit the Employees to the extent that they be financially better off, on a net income basis, under their terms of employment with Silver Chain. I find this to be correct.

[45] Silver Chain have submitted that should the orders not be made then the Employees will not be able to access the salary sacrificing entitlement due to the increased costs that will be incurred by Silver Chain in applying the City Agreement.

[46] Having regarded the operation of both the City Agreement and the Silver Chain Agreement, it is my view that there would not be a considerable reduction in the entitlements of the Employees if the order was granted, and further I am unpersuaded that overall the Employees would be disadvantaged.

Subsection 318(3)(c): the nominal expiry date of the enterprise agreement

[47] The City Agreement nominally expires on 30 June 2019. This will mean that Silver Chain will be required to administer it for a least an 18 month period. The Silver Chain Agreement expires on 30 June 2020.

[48] Given the administrative burden associated with the City Agreement, I consider this a factor to be regarded.

Subsection 318(3)(d): any negative impact on productivity in the workplace

[49] These considerations have been broadly outlined in discussing the employer's position under ss.318(3)(a)(i) above.

[50] Silver Chain have submitted that if the orders are not granted that in addition to payroll and human resources burdens, Silver Chain will be required to quarantine the Employees to ensure that they work alongside each other and not amongst those with differing terms and conditions of employment. This, it is submitted, would be wholly inconsistent with Silver Chain's desire to integrate the Employees into the Silver Chain workforce which is vital to ensure the ongoing provision of aged care at a high level.

[51] Management of costs within Silver Chain are said to be critical. Funding for the provision of respite services is received from the government and the Silver Chain Agreement has been negotiated to reflect known costs within the Silver Chain business.

[52] The consideration outlined under ss.318(3)(a)(i) remains pertinent in taking account this matter under ss.318(3)(d).

Subsection 318(3)(e): any significant economic disadvantage to Silver Chain

[53] I have traversed that Silver Chain has submitted that it is a not for profit organisation that is predominately funded through Commonwealth and State government departments. The delivery of the respite services is funded by the Commonwealth. Silver Chain state that it has deliberately adopted a business model, which streamlines administration and resource coordination to minimise unnecessary administrative burden[30].

[54] Silver Chain estimates it will incur costs of $91,987.79 to apply the City Agreement[31].

[55] As observed earlier, Silver Chain's business model is one that has adopted streamlined administration and resource coordination. The administration of separate payroll and human resource allocation for a small number of employees is counterintuitive to the object of running an enterprise efficiently, an 'Object of this Part'[32].

[56] This is not an insignificant consideration given the City Agreement and Silver Chain Agreement. There are higher administrative costs associated with the Silver Chain Agreement.

Subsection 318(3)(f): business synergy between the Silver Chain Agreement and the City Agreement

[57]

[58] Silver Chain has submitted there is little business synergy between the Silver Chain Agreement and the City Agreement. This can be quite easily deduced given the substantial difference in scope of the two enterprise agreements and the different industries of the employers.

[59] It is said that the City of Canning provides services associated with a local council whereby in contrast Silver Chain is a dedicated health and aged care provider. It follows that a significant part of the City Agreement, does not, and can never, apply to the Employees. Silver Chain holds the view that it would be a highly inefficient outcome were it required to assume an enterprise agreement which is largely irrelevant to the small number of employees it applies to.

[60] There is limited business synergy between the Silver Chain Agreement and the City Agreement which appears to be the only other relevant workplace instrument likely to cover the Employees.

[61] Silver Chain has submitted that as a largely funded not-for-profit organisation, Silver Chain uses government funds to resource the delivery of its services. Silver Chain have further submitted that additional wage costs for the Employees, and the requirement for a payroll staff member and human resources staff member would result in additional costs of $91,897.97 per year.

[62] As the level of government funding that Silver Chain receives to provide its services would not increase to cover this increased cost burden, Silver Chain would be required to meet the costs itself[33]. The cost is said to be inordinate in circumstances where it arises from 0.003% of Silver Chain's 3800 workforce[34].

[63] Requiring a not-for-profit organisation that provides respite services to the community to incur additional cost to administer another organisation's enterprise agreement would be uneconomic. Further, the Employees are said to be worse off financially were the City Agreement to continue to apply.

[64] The public interest in this context is influenced by the objects of this Part of the Act in s.309 and those adopted by the Act more broadly.

[65] There is public interest in ensuring that agreed and statutorily approved arrangements are not put aside lightly and where they are to no longer apply, the interests of the employees concerned are safeguarded[35]. The absence of an overall disadvantage in the terms and conditions of employment of the Employees, and the evident Employee support and lack of objection from Employees or relevant registered organisations for the change in this case, are important considerations.

[66] Further, and particularly given the above context, there is also public interest in ensuring that the business of Silver Chain is able to efficiently operate without unnecessary complications in its employment arrangements.

[67] It is also the case that the public interest in this matter is served by facilitating arrangements that permit and encourage the maintenance of employment for the employees through the transfer of business process.

[35] Having regard to all of the matters raised by s.318 of the Act, I am satisfied that I should exercise my discretion to grant the application and to make an order.

[36] An order[36] will be issued in conjunction with the decision and operate in accordance with ss.318(4) of the Act.

[1] Witness statement of Elaine Kerr Meighan dated 15 January 2018 (Meighan Statement) [40].

[7] Fair Work Bill 2008 Explanatory Memorandum [1259].

[9] Linfox Australia Pty Ltd [2013] FWC 3384.

[10] Applicant's Outline of Submissions [16].

[11] Meighan Statement [38] Cell E78 of EM-10.

[14] Bluescope Steel Limited [2017] FWC 4140 [18].

[25] Applicant Outline of Submissions [25] and [32].

[27] Subsection 318(3)(b) of the Act; Linfox Australia Pty Ltd [2013] FWC 3384 [19].

[29] Linfox Australia Pty Ltd [2013] FWC 3384 [19].

[33] Applicant Outline of Submissions [56].

[35] Linfox Australia Pty Ltd [2013] FWC 3384 [29].

[36] PR600408

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