The arbitral power of the Fair Work Commission: Dispute resolution provisions under inherited enterprise agreements

One Tree Community Service Inc v United Workers’ Union [2021] FCAFC 15

The Federal Court of Australia recently decided that the Fair Work Commission has the power to arbitrate disputes under enterprise agreements inherited by new employers following a transfer of business.

The decision may have far reaching consequences for employers who have inherited an enterprise agreement, which can happen when businesses are acquired, merged or restructured.

Background

In 2018, One Tree made a successful bid for a tender to acquire childcare facilities from the Commonwealth Department of Defence. Prior to the acquisition, the childcare facilities had been operated by Mission Australian Early Learning (Mission Australia) whose employees were covered by the Mission Australia Early Learning Services Enterprise Agreement, 2013 -2016 (Enterprise Agreement). The parties to the original Enterprise Agreement were Mission Australia and all relevant Mission Australia employees. 

During the acquisition process, One Tree offered employment to Mission Australia’s employees (Transferring Employees).  The employment agreements relevantly provided that:

• prior service with Mission Australia would be recognised for all purposes except for redundancy entitlements;
• their employment would be governed by the Enterprise Agreement;
• the Enterprise Agreement did not form part of the Employment Agreements; and
• to the extent of any inconsistency between the Enterprise Agreement and the Employment Agreements, the provisions of the Enterprise Agreement would apply without affecting the other provisions of the Employment Agreements.

It was not in dispute that by offering to acquire the business of Mission Australia and the employment of its employees, One Tree had engaged in a transfer of business for the purposes of the Fair Work Act 2009 (Cth).  Part 2-8 of the Act, in effect, provides for the transfer of enterprise agreements when a transfer of business occurs from one national system employer to another. As a result, the Enterprise Agreement applied to the Transferring Employees because of the usual operation the Act.

In 2019, a dispute arose between One Tree and the United Workers’ Union whereby the union claimed that One Tree was obliged to recognise the Transferring Employees’ prior service for the purposes of calculating redundancy pay. The union subsequently lodged an application with the Fair Work Commission to determine the dispute in accordance with the dispute resolution provision provided for in the Enterprise Agreement. One Tree opposed the Application on the basis that the Commission did not have jurisdiction to determine the dispute.   

What jurisdiction does the Commission have to arbitrate disputes?

 At first instance, a single judge of the Federal Court held that the Commission did have jurisdiction to hear the dispute. This was upheld on appeal by Justices Bromberg and Kerr sitting on the Full Bench of the Federal Court. Justice Flick was in dissent. 

At the heart of the dispute was the distinction between judicial power, which is exercised by Courts of law, and the power of private arbitration, which requires the parties to consent or agree to have their dispute conclusively determined by a third party. As the Commission exercises the power of private arbitration, parties must agree to submit to its jurisdiction. The question in this case was whether the facts demonstrated consent or not; that is, whether One Tree had submitted to the jurisdiction of the Commission for the purposes of arbitration.

Justices Bromberg and Kerr disagreed with One Tree’s argument that they did not consent to the Commission’s jurisdiction, on the basis that they were not an original party to the Enterprise Agreement containing the dispute resolution clause. The majority found that the authorities demonstrated that an express agreement between the parties is not ‘the only available mechanism for establishing the requisite consensual foundation’. 

On that basis, the majority held that One Tree did voluntarily consent. Specifically, they concluded;

• although One Tree was not involved in the making of the Enterprise Agreement, in the event of a transfer of business, the Act transfers the rights and obligations under an enterprise agreement from the former employer to the new employer. By engaging in this process, One Tree assumed all the rights and obligations under the Enterprise Agreement, which includes the dispute resolution procedure;
• by choosing to tender for the acquisition of the childcare businesses, and carry out the transfer of employees from the old business to employment with One Tree, the company had voluntarily and knowingly structured its business in a manner which subjected it to all of the obligations under the Enterprise Agreement;
• the employment agreements entered into with the transferring employees confirmed that One Tree had elected to submit to the full force of the Enterprise Agreement; and
• the legislative requirement that the parties must ‘agree’ to arbitration by the Commission is not so limiting as to only apply to agreements embodied in a common law contract.

As such, although there was no express consent, the voluntary actions of One Tree were deemed sufficient to demonstrate consent to the jurisdiction of the arbitration power of the Commission. 

A compelling dissent

 In his dissenting judgment, Justice Flick strongly maintained that the application of private arbitral power requires actual consent or agreement. On the present facts, Justice Flick claimed:

• the offer made by One Tree, and acceptance of that offer by the Transferring Employees, did not contain an agreement by One Tree to have disputes arbitrated by the Commission;
• there is no room for the concept of ‘deemed consent’ in the context of submitting to the exercise of arbitral power by a third party, even where the ‘deemed consent’ would provide clarity and certainty with respect to the rights and obligations of the parties;
• the identification of the Enterprise Agreement in the Employment Agreements showed which agreement would regulate the rights and entitlements of the Transferring Employees, however, this does not convert into a contractual obligation on One Tree. Indeed, the case law demonstrates that the terms of an industrial agreement arise under statute, and not contract;
• there is a distinction between those clauses of an enterprise agreement which apply irrespective of consent (for example, an obligation to pay a particular wage) and those which depend on actual agreement for their efficacy (for example, an agreement to submit to the jurisdiction of the Commission).

In addition, in their majority judgment Justices Bromberg and Kerr considered that it would have been open to One Tree to have applied to the Commission to have the dispute resolution provisions of the Enterprise Agreement varied. The fact that One Tree did not do this strengthened the argument that they had consented to be bound by the terms of the Enterprise Agreement. Justice Flick disagreed, finding that consent cannot be gleaned from One Tree’s failure to seek a variation and, in any event, it would be counterintuitive to require a party to seek a variation to an enterprise agreement for which they did not consider themselves bound.

 Key takeaways

 The decision of the majority in One Tree Community Service Inc v United Workers’ Union may disrupt some transfer of business arrangements, and could have far reaching commercial ramifications unless it is appealed. In effect, employers who inherit enterprise agreements through a transfer of business will be deemed to have consented to the power of the Commission to arbitrate disputes, despite the absence of an express agreement. Employers who apply inherited enterprise agreements will need to carefully consider their options should a dispute arise, and businesses who assume responsibilities under enterprise agreements will need to carefully consider the full extent of the obligations that they will be considered to hold under those enterprise agreements when structuring any business acquisition.

Special thanks to Kerry O’Brien, Senior Associate and Emily Capener, Lawyer for their assistance for putting this article together.