Construction, Forestry, Mining and Energy Union v Coal & Allied Operations Pty Ltd [1998] FCA 1389 (29 October 1998)

Last Updated: 4 November 1998

FEDERAL COURT OF AUSTRALIA

INDUSTRIAL LAW - interpretation of award - award provided for a "reduction of hands" by applying "last-on, first-off" principle - provision operative while employer made decision to reduce number of employees but ceased to operate before actual terminations of employment - employer intended throughout to implement reduction of hands by "merit" principle - whether employer required to implement reduction of hands according to principle in award

Kucks v CSR Ltd (1996) 66 IR 182, referred

CFMEU v Mount Thorley Operations (1997) 76 IR 364, referred

CONSTRUCTION, FORESTRY, MINING AND ENERGY UNION V COAL & ALLIED OPERATIONS PTY LIMITED

NG 881 of 1998

MADGWICK J

29 OCTOBER 1998

PERTH (heard in SYDNEY)

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 881 of 1998

BETWEEN:	CONSTRUCTION, FORESTRY, MINING AND ENERGY UNION Applicant
AND:	COAL & ALLIED OPERATIONS PTY LIMITED Respondent
JUDGE(S):	MADGWICK
DATE OF ORDER:	29 OCTOBER 1998
WHERE MADE:	PERTH (HEARD IN SYDNEY)

SHORT MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The relief sought in the application is refused.

2. No order as to costs.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 7174 of 1998

BETWEEN:	CONSTRUCTION, FORESTRY, MINING AND ENERGY UNION Applicant
AND:	COAL & ALLIED OPERATIONS PTY LIMITED Respondent

JUDGE(S):	MADGWICK
DATE:	29 OCTOBER 1998
PLACE:	PERTH (HEARD IN SYDNEY)

REASONS FOR JUDGMENT

HIS HONOUR:

Introduction

This is an application for the interpretation of an award. The case raises the question whether an award provision that a "reduction of hands" should be regulated by the "last-on, first-off" principle, which provision ceased to operate after a decision by the employer to reduce staff numbers but before the termination of any employee's service, nevertheless required either that the proposed terminations should be so regulated or that, at least during the period of operation of the award, what was done to implement the decision to reduce hands should have been regulated by that principle. The matter is urgent and these reasons are less detailed than might otherwise have been the case.

The award and its legislative background

The applicant ("the union") had and has as members most of the production and engineering employees employed by the respondent ("the company") at its Hunter Valley No.1 Coal Mine at Lemington in New South Wales. The parties were bound by the Coal Mining (Production and Engineering) Consolidated Award 1997 ("the award") in respect of such employment.

Prior to 1 July 1998 the award contained subcl 16.2 - "Reduction of Hands" - which provided:

"When a reduction of hands is decided upon by the employer it shall be regulated by the principle `the last to come the first to go' in the respective classes of work according to length of service at the mine. Provided that if with regard to any mine an agreement is arrived at between the employer and the appropriate union, such agreement will bind such members notwithstanding that it may be inconsistent with the foregoing provisions of this clause."

On 1 July 1998 Boulton J of the Australian Industrial Relations Commission varied the award so as to remove subcl 16.2 with effect from that day (Print Q2125). Such removal was required as part of the legislative scheme of the wholesale amendment of the Workplace Relations Act 1996 (Cth) ("the Act") so as, among other things, to confine award-making by the Commission to "allowable matters" (s 89A). Such matters did not include the rule or principle to apply in the selection of employees to go in a workforce reduction. Nothing presently turns on it, but the better view seems to be that subcl 16.2 ceased, by operation of law, "to have effect" on the previous day, 30 June 1998: see cl 50, Schedule 5 of the amending Act (No. 60 of 1996). Section 89A commenced operation on 1 January 1997 and thereafter it was available to be known to the company that, by mid 1998, because of Part 2 of the said Schedule, subcl 16.2 would cease to have effect.

The employer's decision and its aftermath

In August 1997 the company took the view that the mine was trading uneconomically, announced a review of its operations and foreshadowed that "up to 200 positions could be lost". Following completion of the review, the company announced in February 1998 that the mine's operations would be "restructured", and that:

"Following the restructure the permanent workforce will be 269, a reduction of 192 employees from current levels. This is in line with forecasts . . . last August that up to 200 positions could be lost . . .

Retrenchments will not be finalised until July. In the months ahead we will undertake an extensive consultation and counselling process with all employees."

At the same time the company made it clear to the relevant employees that the principle governing the selection of those to go would be "merit" and not "seniority" unless "all other things determining selection [were] equal".

The actual decisions notified by the Press Release which contains the passages just quoted had been made at a meeting of the company's board on 10 February 1998. The mine's general manager, Mr Davies, then presented a report on the review. The report proposed a plan which, among other things, would result in "a reduction of 193 employees". Under the heading "Implementation", the report stated:

"Clearly the key action in implementing the Review outcomes is the reduction in manning. A retrenchment program is proposed involving both voluntary and forced retrenchments.

Fundamental to the achievement of the Review outcomes and ongoing improvement in competitiveness at Hunter Valley No. 1 is the ability of the Company to retain its highest performing employees and retrench the poorer performers. Currently, forced retrenchments are governed by Award requirements to retrench on seniority. A significant industrial dispute with unions on the site has revolved substantially about this issue. However, it is intended that forced retrenchment in 1998 will be based on `merit'.

Running in parallel with the Review studies has been the development of the Work Performance Report (WPR) system. This assessment of an employee's performance is the basic building block for determining `merit'. Completion of an employee's WPR involves the employee getting feedback from his Supervisor including how their performance rates relative to other employees. The poorer performing employees will be counseled (sic) to take voluntary separation packages prior to the scheduled July 1, 1998 Award changes to retrenchment on seniority. Various contingency plans have been identified to minimise the business impact of a delay in resolving these industrial issues."

The directors, according to the minutes of their meeting dealt with the report in this way:

"The Board . . . recognised the need to progress the industrial and manning issues contained within the recommendations of the review and approved implementation of the mine review as outlined in [the report]."

The reference to the "Work Performance Report (WPR) system" was to an employee performance assessment scheme implemented in late 1997. Its purposes were both to form the foundation for what the company regarded as a fair judgment of the comparative merit of employees as a basis for the then foreshadowed retrenchments and also, on an ongoing basis, to aid in the development of what the company regarded as a more productive workforce.

On 20 October 1998, notice of termination of their service was given to 115 employees. A press statement on behalf of the company indicated that in "recent months more than 60 people have taken voluntary retrenchment while others have moved to different roles in the mine or the coal preparation plant". Seniority was not a factor in the selection of any of the 115. They were selected on the company's view of their comparative merit. It is unlikely that those two tests would have produced identical results. In view of the recency of the terminations, it was not known at the hearing of the matter just how much or little overlap there was.

Between February and October 1998 there was an elaborate, company-instituted merit-selection process largely but not entirely having regard to the WPR reports. The company also, among other things, arranged the availability of counselling of various kinds for all employees nominally at risk of retrenchment. Over the same period there were two sets of negotiations between the company and the union. One set concerned aspects of the details of the mine restructuring process, apart from the principles of merit and seniority. The other concerned negotiations for a possible certified agreement to displace the award's operation and included scope for agreement on a merit rather than a seniority principle, so that the retrenchments in question (and presumably any other "reductions of hands") would not be caught by the seniority principle prescribed by subcl 16.2.

The company argued that there was no decision, before subcl 16.2 ceased to have effect, which could meet the description "a reduction of hands . . . decided upon by the employer", and therefore no room, even before 30 June 1998, for the application of subcl 16.2. It was said that there was no more than a decision to attempt to implement a scheme for restructuring the mine's operation and the reduction of its workforce. This seems to me to be artificial. A definite decision was made to retrench 192 employees (on one document 193, but it was not argued that this was a material difference; nor was it). That number was never deviated from. All that was done was in the implementation of that decision.

The question remains, however, whether, as argued by the union, upon such a decision the award immediately required that everything done in implementation of that decision, including the planning for the actual terminations of service, be governed by the seniority principle of subcl 16.2. As counsel put it, the application of subcl 16.2 is "triggered" by an employer deciding upon a reduction of hands and, once triggered, the implementation of the decision must not be regulated by an alien principle, that is, one not authorised by subcl 16.2.

The award setting

Subclause 16.2 occurs in cl 16 - "Redundancy". Subclause 16.1 - "Discussions before Terminations" - requires that "[w]here an employer has made a definite decision that the employer no longer wishes the job the employee has been doing done by anyone", then in certain circumstances the employer must hold discussions with directly affected employees and their unions. The discussions are to include possible measures to minimise the terminations of employment and to mitigate any adverse effects of such terminations on employees. The employer is obliged to provide all relevant non-confidential information.

Subclause 16.1 is in a common form derived from a general standard and a common form of an award provision set by the predecessor of the Australian Industrial Relations Commission. Subclause 16.2 does not have the same origin. It has evidently been penned by a different hand and appears to lack the same relative precision of draftsmanship. While some effort ought be made to read subcl 16.2 consonantly with subcl 16.1, it is more important to try to understand what the framers, practical people I should think, of subcl 16.2 had in mind, so far as that is evidenced by their words: I explained this view more fully in Kucks v CSR Ltd (1996) 66 IR 182 at 184, followed in Ambulance Service Victoria (South Western Region) v Australian Liquor Hospitality & Miscellaneous Workers Union (unreported, Federal Court of Australia, Northrop J, 10 March 1998) and Australasian Meat Industry Employees Union v Coles Supermarkets Australia Pty Ltd (unreported, Federal Court of Australia, Northrop J, 2 March 1998).

Conclusions

With such an approach in mind, firstly, it seems quite clear, both textually and conceptually, that it is the "reduction of hands" that is to be regulated by the last-on, first-off principle.

Secondly, "regulated" means neither more nor less than "controlled", "governed" or "ruled". I mean by this that the seniority principle is to be pre-eminent: there is minor scope for the possible introduction of some other principle but only in an ancillary way and provided that the pre-eminence of the subcl 16.2 seniority principle is not challenged. For example, where two employees were engaged simultaneously or it is not known which of them was engaged first, some principle other than seniority must come into play, but it would not challenge the controlling quality of the seniority principle.

Thirdly, without some actual termination of the service of one or more employees, it is not sensible to speak of a "reduction of hands", and what is to be regulated by the subcl 16.2 principle must include such termination. Without such termination, there is no "reduction of hands" and nothing to be regulated by the principle.

Fourthly, a "reduction of hands" that is able to be "regulated by" such a principle would include a reduction by one of the number of employees in a particular "[class] of work". In such a case, it would usually be a simple and short matter to identify the least senior employee. Where the reduction is of a larger number of employees, there is no warrant for assuming that a significantly more complex process must be entailed. In other words, there is no implicit requirement that the "reduction of hands" be other than the sum of individual terminations of service.

Accordingly, the meaning of the subclause would not have been different, had it provided: "Where a termination of service, by way of a reduction of hands, is decided upon by the employer it shall be regulated by the principle ...". That, in my view, is what the subclause means. It is directed to the ultimate selection of those to go.

It is true that a process rather than an immediately operative decision that one or more particular employees go is likely to be involved after a decision that there is to be a reduction of hands. Among other things, the requirement for discussions under subcl 16.1 sees to that. Also where, as here, two in five of several hundred employees are to go, the prospects for industrial conflict and the expression in various ways of personal and social pain are such that almost any employer would wish there to be a process whereby such matters can be managed. It is also in the interests of employees and unions that that be so.

In favour of the union's position, it might be said that it would be undesirable for the employer's management of such matters, as well as for the well-being of employees and their families, that the process of effectuating a reduction of hands be made more difficult by uncertainty, after a decision that some must go, as to the method of selecting those to go. However, the proviso constituted by the second sentence of subcl 16.2 contemplates that the seniority principle may be overriden at "any mine" by agreement with the appropriate union and there is no limitation upon when any such overriding agreement may be reached; there is nothing to prevent it being reached during the process immediately preceding the actual termination of the service of those to go. Indeed the notion of a process to which I have referred is apt and only apt, on analysis, to refer to the period immediately preceding the terminations of service. It is the terminations of service which constitute the reduction of hands.

While subcl 16.2 had effect there was, at Hunter Valley No. 1, no "reduction of hands" within the meaning of that provision. The company in my view did no more than:

(1) decide in February 1998 that its firm intention was to reduce its workforce by 192 employees;

(2) decide that, except where it would abide voluntary retrenchments, it would delay terminations of service until it was legally free to choose, upon its view of their merits, those who would go - either by agreement with the union that would override the seniority provision in subcl 16.2 or by the passage of time until subcl 16.2 no longer had effect;

(3) proceed to plan and implement a "merit" selection process such that its effects having legal significance would only occur when actual terminations of service were made.

In so doing, the company did not, in my opinion, contravene the award.

It will be apparent that I have sought to approach this question, in view of its crucial importance for some of the employees, by my own independent examination of it. In the end, the conclusion I have come to accords with the approach to the meaning of the subclause taken both by Moore J in Construction, Forestry, Mining and Energy Union v Mount Thorley Operations (1997) 76 IR 364 and Merkel J in Curragh Queensland Mining Ltd v Construction, Forestry, Mining and Energy Union (1997) 77 IR 232 to a clause in the same terms, even though the questions for decision were somewhat different. As Moore J put it (at 377-8):

"The first question that arises in relation to the operation of cl 24 [an identical provision to subcl 16.2] is when the clause, properly construed, is intended to operate. It is to be recalled that the opening words of the clause read `when a reduction of hands is decided upon by the employer it shall be regulated ...'. It seems comparatively clear, in my opinion, that the notion of `reduction of hands' involves a decision of the employer to reduce the size of the workforce that is made prior to the implementation of the decision. Its implementation may or may not be achieved by retrenchments if retrenchment in the 1990 Award means the compulsory termination of the employment of an employee. In my opinion, it does have that meaning. ...

As I noted earlier, the expression `a decision to reduce hands' refers, in my opinion, to a decision that precedes any compulsory termination of an employee's employment. So much is apparent from cl 26(b) which contemplates a sequence of, first, a decision to reduce hands and, second, the giving of notice of retrenchment to an affected employee. However, cl 24 is directed to the manner in which a reduction of hands is to be `regulated'. In my opinion, it is intended to operate only in circumstances where a decision to reduce hands ultimately results in the retrenchment of employees. It is unlikely that the principle of `the last to come the first to go' could have any sensible application when an employer might decide to reduce hands and might decide to give effect to that decision by calling for employees to volunteer to leave their employment. The employees may be invited to leave on terms involving the payment of a sum equivalent to the sums they would be paid if they were retrenched. The word `regulated' implies, in my opinion, a regime that the employer must give effect to in certain circumstances."

It seems to me that the logic of this is inescapable.

I refuse the relief sought and make no order as to costs. It presently seems to me that nothing is to be served by my expounding some formula to serve as an "interpretation" alternative to one of those sought by the union, but the parties may seek to convince me otherwise by short written submissions, proposing any actual order sought, within 48 hours.

I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Madgwick

Associate:

Dated: 29 October 1998

Counsel for the Applicant:	B Hinkley & I Taylor
Solicitor for the Applicant	R L Whyburn & Associates
Counsel for the Respondent:	J West QC & G Hatcher
Solicitor for the Respondent:	Freehill Hollingdale & Page
Date of Hearing:	21 October 1998
Date of Judgment:	29 October 1998