Employment Law Update - CFMEU v State of Victoria ; CFMEU v McCorkell Constructions

The Code and the Guidelines is State Government policy. They require Government departments and agencies that procure building and construction services from the private sector to assess these procurements against specified industrial relations criteria. The private sector providers were also required to agree to terms in the construction contracts executed with the public entity that required that they adhere to and enforce against sub-contractors they might engage the State Government’s industrial relations principles. It was this latter aspect that was the issue in controversy in the Court. The Code and the Guidelines identified particular terms and conditions that building and construction companies that wanted to tender for government construction could not have in an enterprise agreement with its employees made under the Commonwealth Fair Work Act 2009. The terms and conditions that would fall foul of the Code and the Guidelines were lawful. However, if an enterprise agreement had them, the building and construction company was deemed ‘non-compliant’ and was not eligible to contract for government construction work. To be compliant, it was not enough that the company itself be compliant, all its related entities had to be so too. Also, companies were required by the Code and the Guidelines to adhere to them even for private sector construction work that had no public sector involvement.

The debate before the Court was whether in the factual circumstances raised in the proceeedings the State of Victoria and a third party construction company, McCorkell, that had signed up to the Code and Guidelines and enforced them against a sub-contractor had contravened the general protections provisions of the Fair Work Act. There were two cases that were heard together. The first concerning the tender for the construction and servicing of the New Bendigo Hospital, and the second concerning the development of the new Circus Oz premises.

The New Bendigo Hospital Development

The State of Victoria sought tenders for the construction and maintenance of the proposed New Bendigo Hospital (the project), to be completed by way of a public-private partnership (the PPP).

The project required various kinds of entities to perform all of the work (including a construction company). There were two principal bidders, the “Exemplar” consortium and the “InteCare” consortium. Each involved diverse entities, given the different kinds of works required to be undertaken for the project. The idea was that the State would contract with the bid entity and it in turn would engage as sub-contractors the entities that form part of its consortia. Each consortia was required to have what was termed a builder, a company that would actually construct the Hospital. In the case of Exemplar the builder was Lend Lease Project Management & Construction (Australia) Pty Ltd (Lend Lease). The State also intended to enter into a direct agreement with the builder. The purpose of this direct agreement was to be provide a fail-safe that could be called upon by the State upon the happening of defined events concerning the principal contractor that might impede construction of the hospital. This was called the Builder Direct Deed.

Lend Lease had enterprise agreement with its employees. However, the agreement contained content that was assessed by the State as ‘non-compliant’ with the Code and the Guidelines. Hence, Exemplar’s bid was deemed non-complaint.

Prior to the final determination of the successful bidder, the State publicly stated that its preferred bidder was the Exemplar consortium.  At this stage, the State authority responsible for administering the Code and the Guidelines, the Construction Code Compliance Unit (the CCCU), informed Lend Lease that the Lend Lease EA was not compliant with the Code and the Guidelines, and that this would preclude the Exemplar consortium from being awarded the contract.

The CFMEU commenced proceedings in the Federal Court, seeking Declaratory relief and injunctions. The CFMEU had alleged that the State of Victoria had contravened the Fair Work Act and threatened to so. The Act deems a threat to be a contravention. After the trial but before judgment, the State awarded the tender to the Exemplar despite its non-compliance various kinds of relief. However, prior to these proceedings being determined, the State effectively abandoned its insistence that Lend Lease comply with the Code and the Guidelines for the purposes of the project.

The CFMEU amended its application, and alleged that for the period prior to abandoning insistence on compliance with the Code, the State of Victoria had “threated” to take adverse action against employees of Lend Lease contrary to s 340 of the FW Act. This was said to be because, the State was “proposing to enter into a contract for services with an independent contractor”, but had (for a time) refused to engage an independent contractor because persons employed or engaged by the independent contractor had a workplace right, being the benefit of the Lend Lease EA. This kind of adverse action is prohibited by item 4 of the Table in s 342(1) of the FW Act.

The CFMEU also alleged that the Code and the Guidelines were invalid, being beyond the constitutional (executive) power of the State.

The State denied the allegations, arguing that:

• The State had not “threatened” to take adverse action because Lend Lease voluntarily agreed to the tender process, knowing of the industrial relations conditions.

• Lend Lease was not an “independent contractor”, as this was a narrow concept limited to only those persons and entities having the functional equivalence of employees.

• The State was not “proposing” to enter into a “contract for services” with Lend Lease because the State would only contract with Project Co.; the Builder Direct Deed was not a contract for services.

The State also argued that if the FW Act purported to effectively preclude the State from promulgating and applying the Code and the Guidelines, then the FW Act was beyond the legislative power of the Commonwealth by reason of the Melbourne Corporation principle.

Judgement at First Instance

Justice Bromberg held that:

• The term “independent contractor” included persons or corporate entities that had a functional equivalence with employees, but was not limited to those persons or entities. The term applied to any contractor that provided services pursuant to a contract that included the provision of labour in a material extent.

• The State was “proposing” to enter into a relevant agreement because at all relevant times, the State had contemplated entry into a deed like the Builder Direct Deed with the constituent construction company of the successful bidder.

• The Builder Direct Deed was a “contract for services” because it contained provisions pursuant to which the State was entitled to require the provision of services that included labour services in a material extent.

• The State’s action (through the CCCU) in communicating with Lend Lease as to the non-compliance with the Code and the Guidelines and stating that compliance was necessary to receive State government construction work, amounted to a “threat” to take adverse action.

Justice Bromberg rejected the State’s Melbourne Corporation challenge, and considered that it was unnecessary to consider whether the Code and the Guidelines were invalid.

Following a separate hearing, Bromberg J made declarations to this effect, and imposed a pecuniary penalty against the State.

Appeal in the New Bendigo Hospital Case

The State appealed the finding that it had threatened to take adverse action, and the CFMEU cross-appealed on the question of the validity of the Code and the Guidelines.

On appeal, Buchanan and Griffith JJ, with whom Kenny J agreed, held that there was no relevant “contract for services” between the State and Lend Lease. The State proposed to contract only with Project Co., and the Builder Direct Deed did no more than create collateral restraints on the performance of other contracts, and could not itself be characterized as a contract for services. This was sufficient for their Honours to allow the appeal against the finding that the State had threatened to take adverse action.

On the cross-appeal, Buchanan and Griffiths JJ considered that the Code and the Guidelines were within constitutional executive power because they formed a part of the ordinary course of the administration of a recognised part of the government of the State. Moreover, their Honours held that the Code and the Guidelines did not in themselves have an effect on any rights or liabilities sufficient to enable relief from the Court. Kenny J delivered separate reasons for dismissing the cross-appeal, agreeing in substance that there was no justiciable controversy in relation to the validity of the Code and the Guidelines. However, her Honour also undertook a closer examination of the constitutional underpinnings of the power of a State or regulate by the promulgation of “policy documents” such as the Code and the Guidelines, observing that the State may not have unlimited power in this regard.

The Circus Oz Development

The State of Victoria invited tenders for the development of the new Circus Oz premises. The successful bidder was McCorkell Constructions Pty Ltd, although the execution of a contract was subject to McCorkell’s industrial relations arrangements – including with any sub-contractors – being assessed as compliant with the Code and the Guidelines.

The McCorkell bid included a proposal to utilise several sub-contractors. One of the potential sub-contractors was Eco Recyclers Pty Ltd. Prior to McCorkell making a final decision about sub-contractors, the Fair Work Commission gave force to an enterprise agreement between Eco and the CFMEU (the Eco EA). The Eco EA was not compliant with the Code and the Guidelines.

At this stage, the CCCU advised McCorkell that the Eco EA was not complaint, and McCorkell could not receive the contract if Eco was a sub-contractor. The CCCU and Eco then met to discuss the extent of the non-compliance, following which, Eco contacted the CFMEU to seek a variation of the Eco EA so that it would become compliant.

At this stage, the CFMEU commenced proceedings in the Federal Court alleging that McCorkell had taken adverse action against employees of Eco contrary to s 340 of the FW Act, because McCorkell had proposed to enter into a contract for service with Eco, but then refused to engage or make use of the services provided by Eco, because Eco employees were entitled to the benefit of the Eco EA.   The CFMEU alleged that the State was “involved in” this adverse action which is itself a breach of s 550 of the FW Act (that is, liability as an accessory).

Judgement at First Instance

Applying the same construction of item 4 of the Table in s 342(1) of the FW Act, Bromberg J accepted that McCorkell had taken adverse action against Eco employees by proposing to enter into a contract for service with Eco, but then refusing to engage or make use of the services provided by Eco. Bromberg J held that:

• Eco was relevantly an independent contractor; that term is not limited merely to those with the functional equivalence of employees.

• The tendered work would plainly have involved a “contract for services” between McCorkell and Eco involving labour in a material extent. By receiving Eco’s bid and treating Eco as a potential sub-contractor, McCorkell was “proposing to enter” into a contract for services with Eco. Although the commercial relationship between McCorkell and Eco was only at an early and contingent stage, the FW Act protects industrial rights at all stages (even if no contract is ultimately awarded).

• Although the Eco EA only came into force after the Eco bid was made, the Eco EA was current at a time when McCorkell were still treating Eco as a potential sub-contractor. The evidence showed that once McCorkell was advised by the CCCU that the Eco EA was non-compliant, Eco were then excluded from consideration. Although other factors may have also been at play, this did not lessen or eradicate the significance of the Eco EA in the exclusion of Eco.

Bromberg J held that the State was not liable as an accessory as it did not know of McCorkell’s actions vis-à-vis Eco. The CFMEU also alleged that each of the State and McCorkell had taken action with the intent of coercing another to exercise a workplace right, being to vary the Eco EA, contrary to s 343 of the FW Act. An intention to coerce is established where pressure is exerted on a party that in a practical sense negates its (industrial) choices, and where any such conduct is unlawful or illegitimate.

The CFMEU argued that there was economic pressure applied to Eco employees to vote in favour of varying the Eco EA. The relevant illegitimate intention was established through the CCCU officer that conducted the meetings with McCorkell and Eco, having regard to the purpose and role of the CCCU, being to procure the variation of the Eco EA (and enterprise agreements more generally) so that it would comply with the Code and the Guidelines. Bromberg J accepted that Eco employees considered that they had no practical choice but to vote in favour of varying the Eco EA so that Eco would not be made ineligible for State government work.

Bromberg J found that:

• The purpose and role of the CCCU, including to procure the variation of non-compliant enterprise agreements, was illegitimate because it undermined the scheme established by the FW Act for collective bargaining and the making of enterprise agreements by effectively excluding items from the scope of allowable content. The FW Act established a regime that presumed such bargaining would be free of external pressure as to the allowable content of such agreements, at least insofar as the FW Act made explicit allowance for the inclusion of such content.

• Where an allegation of adverse action is made, the onus is on the employer to establish that no adverse action was in fact taken. The evidence of the relevant officer of the CCCU was not sufficient to discharge the onus on the State of establishing that there was no illegitimate purpose.

Bromberg J found that McCorkell had not applied any pressure to Eco or its employees to vary the Eco EA, and therefore, did not contravene s 343 of the FW Act. Bromberg J made declarations to the effect of the above, and ordered that the State pay a pecuniary penalty for the contravention of s 343 of the FW Act.

Appeal in the Circus Oz Case

The State appealed the finding that it had taken action with the intent of coercing another to exercise a workplace right contrary to s 343 of the FW Act.McCorkell did not appeal.

On appeal, Buchanan and Griffiths JJ, with whom Kenny J agreed, set aside the finding that the economic pressure being applied by the State was “illegitimate”. Their Honours considered that the correct source of any “intention” of the State was that of the CCCU officer, who in truth, had no position about the prospect of the Eco EA being varied. Moreover, their Honours held that Bromberg J appeared to have incorporated values thought to underpin the policy of the FW Act, but not drawn from the terms of the FW Act itself, and there was no warrant to apply such a gloss so as to embrace those values. Accordingly, the appeal was allowed, and the civil penalties were consequently set aside.