Public Service Association and Professional Officers' Association Amalgamated Union of NSW v Director General, Department of Premier and Cabinet [2010] NSWIRComm 59 (7 May 2010)

Last Updated: 14 May 2010

NEW SOUTH WALES INDUSTRIAL RELATIONS COMMISSION

CITATION :
Public Service Association and Professional Officers' Association Amalgamated Union of NSW v Director General, Department of Premier and Cabinet [2010] NSWIRComm 59



FILE NUMBER(S):
IRC 591

HEARING DATE(S):
1, 2, 24 March 2010, and 15 April 2010

DATE OF JUDGMENT:
7 May 2010

PARTIES:
Public Service Association and Professional Officers' Association Amalgamated Union of NSW (Notifier)
Director General, Department of Premier and Cabinet (Respondent)

CORAM:
Boland J President


CATCHWORDS: INDUSTRIAL DISPUTE - Public sector - Interpretation of Memorandum of Understanding between public sector union and government department - Eight questions of interpretation submitted to Industrial Relations Commission - Questions related to scope of negotiations to be undertaken at agency or department level and amount of employee related cost savings to be achieved at agency or department level in order to fund salary increases - Government Wages Policy - Questions answered.

LEGAL REPRESENTATIVES
Mr A Hatcher of counsel with Mr M Gibian of counsel
W G McNally Jones Staff Lawyers
Mr R Kenzie QC with Mr A Britt of counsel
Crown Solicitor

CASES CITED:
Amcor Ltd v Construction, Forestry, Mining and Energy Union [2003] FCAFC 57
Amcor Ltd v Construction, Forestry, Mining and Energy Union [2005] HCA 10; (2005) 222 CLR 241
Australian Workers Union v Pasminco Australia Ltd [2003] NSWIRComm 365; (2003) 131 IR 1
BHP Steel (AIS) Pty Ltd v Australian Workers' Union, New South Wales [2003] NSWIRComm 124; (2003) 125 IR 207
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153
City of Wanneroo v Holmes [1989] FCA 369; (1989) 30 IR 362
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
Construction, Forestry, Mining and Energy Union (New South Wales Branch) v Delta Electricity [2003] NSWIRComm 135; (2003) 146 IR 360
Crown Employees (Police Officers - 2009) Award [2009] NSWIRComm 190
Director of Public Employment (by her Agent the Commissioner of NSW Fire Brigades) v New South Wales Fire Brigades Employees' Union [2008] NSWIRComm 158; (2008) 180 IR 170
George A Bond & Co Ltd (in liq) v McKenzie [1929] AR (NSW) 498
Kingmill Australia Pty Ltd t/a Thrifty Car Rental v Federated Clerks’ Union of Australia, New South Wales Branch [2001] NSWIRComm 141; (2001) 106 IR 217
Kucks v CSR Ltd (1996) 66 IR 182
Media Entertainment & Arts Alliance, Re; Ex parte Hoyts Corporation Pty Ltd [1993] HCA 40; (1993) 178 CLR 379
Operational Ambulance Officers (State) Award [2008] NSWIRComm 156
Perisher Blue Pty Ltd v Australian Workers Union (1999) 91 IR 274
Printing & Kindred Industries Union v Davies Bros Ltd (1986) 18 IR 444
Public Service Association and Professional Officers' Association Amalgamated Union of New South Wales and Director-General, Department of Premier and Cabinet [2009] NSWIRComm 131
Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235; (1996) 66 IR 258
Seamen's Union of Australia v Adelaide Steamship Co Ltd (1976) 46 FLR 444
Short v FW Hercus Pty Ltd [1993] FCA 51; (1993) 40 FCR 511
Spargo v Repatriation Commission [2001] FCA 1763; (2001) 116 FCR 304
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Union of Postal Clerks and Telegraphists, Re; Ex parte ATPOA [1986] HCA 45; (1986) 66 ALR 227
United Firefighters' Union of Australia v Metropolitan Fire and Emergency Services Board [2006] FCAFC 84; (2006) 152 FCR 18

LEGISLATION CITED:
Industrial Relations Act 1996


TEXTS CITED:




JUDGMENT:

INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES

CORAM: BOLAND J, President

Friday 7 May 2010

Matter No IRC 591 of 2009

NOTIFICATION UNDER SECTION 130 BY THE PUBLIC SERVICE ASSOCIATION AND PROFESSIONAL OFFICERS' ASSOCIATION AMALGAMATED UNION OF NEW SOUTH WALES OF A DISPUTE WITH THE DIRECTOR GENERAL - DEPARTMENT OF PREMIER AND CABINET RE CLAIM FOR SALARY INCREASES

DECISION

[2010] NSWIRComm 59

1 This matter involves a dispute between the Public Service Association and Professional Officers' Association Amalgamated Union of New South Wales ('the PSA') and Director-General, Department of Premier and Cabinet ('the DPC'). The dispute has been the subject of earlier proceedings before the Commission. Much of the background to it is explained in a Statement by the Vice-President, Walton J, made on 6 August 2009: Public Service Association and Professional Officers' Association Amalgamated Union of New South Wales and Director-General, Department of Premier and Cabinet [2009] NSWIRComm 131 at [1]- [10]:

[1] In April 2008, the Public Service Association and Professional Officers' Association Amalgamated Union of New South Wales ('the PSA') made an application for a new Crown Employees (Public Sector – Salaries) Award (Matter No IRC 445 of 2008). That application sought an increase in salaries and allowances for employees covered by the Crown Employees (Public Sector – Salaries 2007) Award in the amount of 6.5 per cent per annum for three years.

[2] The matter proceeded as a Major Industrial Case and was listed for arbitration in September 2008.

[3] Shortly before the arbitration commenced, the parties sought and were granted the assistance of the Commission in conciliation. Conciliation conferences conducted by Justice Boland, President, took place over approximately seven days in September 2008. However, there remained some significant matters that did not resolve at conciliation.

[4] On 17 September 2008, the President issued an extensive Recommendation to the parties in Matter No IRC 445 of 2008 (as well as in the related matter, Matter No IRC 879 of 2008, which was an application by the Roads and Traffic Authority of New South Wales ('the RTA') for a new award). The Recommendation included a settlement of the PSA’s claim for salary increases as well as addressing the reforms put forward by the respondents during the conciliation process consistently with the Wages Policy of the New South Wales Government.

[5] The parties accepted his Honour’s Recommendation and entered into a corresponding Memorandum of Understanding on 2 October 2008 ('the MOU').

[6] In the result, the application by the PSA proceeded, by consent, before a Full Bench on 2 October 2008 and an award entitled the 'Crown Employees (Public Sector – Salaries 2008) Award' ('the award') was made: Crown Employees (Public Sector - Salaries 2008) Award [2008] NSWIRComm 193 ('Crown Employees Award 2008 Case'). The award operated for three years and provided a 4 per cent per annum increase in salaries and allowances for those employees covered by it. A separate award was made for certain employees of the RTA at the same time.

[7] The MOU set out the reforms, changes to conditions and other initiatives which were agreed by the parties. These included reforms in areas such as human resources and recruitment practices, sick leave, family and community service leave, maternity leave, annual leave, managing excess employees, travelling compensation and transferred employees' compensation. Matters of this nature have been referred to by the parties as 'central reforms'.

[8] The MOU also provided for "agency level improvement initiatives" during the life of the MOU. In his Recommendation, Justice Boland considered it open to the parties to negotiate outcomes at the agency level that would produce cost savings for the agencies to fund the difference between the central reform matters and the recommended salary increase.

[9] Accordingly, the MOU envisaged discussions on reform matters at two levels:

1. between representatives of the Government (the Department of Premier and Cabinet) and the PSA on the central reforms;

2. at a departmental level, between individual agencies and the PSA in relation to agency level improvement initiatives.

[10] The MOU reflected the Recommendation by requiring that any disputes arising during the process of the agency level improvement initiatives would be dealt with under the 'BlueScope' model of dispute resolution in the Commission: see Operational Ambulance Officers (State) Award [2008] NSWIRComm 168.

2 In that Statement his Honour referred to an 'agreed process' to resolve differences between the parties over the implementation of the MOU. The process involved seeking my assistance in relation to any disputes concerning 'central/MOU matters' by way of conciliation and/or arbitration. In relation to conciliation, some eight questions were raised concerning the interpretation of the MOU and the 'underlying agreement between the parties entered into in 2008' in respect of four groups of employees at the Department of Education and Training ('the DET').

3 The parties were unable to settle their differences by conciliation. Accordingly, the issues in dispute were set down for arbitration during March and April 2010 before me.

4 As to the questions, the PSA submitted:

The questions arise primarily from proposals advanced by the DET which purport to be "agency level improvement initiatives" under clause 6 of the MOU. A number of additional questions have arisen in relation to proposals made by other Departments and agencies. The answers to those questions will inform further negotiations or consideration by the Commission as to outstanding processes under clause 6 of the MOU.

Memorandum of Understanding

5 The MOU applies for the period 1 July 2008 to 30 June 2011. It consists of 11 clauses and five attachments. Clause 1 cites the objectives of the MOU. The clause notes that:

The parties agree that the change of conditions and agency improvement initiatives outlined in this Memorandum underpin the agreement regarding the quantum of wage increases (above 2.5%) for the period covered by this Memorandum.

...

The parties will make consent applications for new awards as soon as practicable after the signing of this Memorandum and such awards will remain in force until 30 June 2011. Unless specified otherwise in this MoU the parties agree that the changes to the Conditions Awards will be finalised by consent application by 31 October 2008. The parties agree that award matters in the MoU will be addressed through amendment to awards and that policy matters will be addressed by changes to policy.

6 Clause 2 contains the definitions and defines 'Conditions Award' as meaning:

the Crown Employees (Public Service Conditions of Employment) Reviewed Award 2006 or the relevant conditions instrument(s) as pertaining to the employee group.

7 Clause 3 refers to the parties' intentions regarding the making of new awards by consent where necessary. Clause 4 identifies the amount of wage increases and the operative date of such increases. Clause 5 is headed 'Conditions Agreement' and records the parties' agreement in respect of 'Managing Excess Employees', 'Modernising Human Resource Practices', 'Transferred Employees Compensation', 'Sickness related absences', 'Promotion appeals', 'Modernising the recruitment process', 'Flexible Working Hours', 'Flexible Work Practices', 'Removing the Clerical Officer classification', 'Maternity Leave', 'Travelling compensation', 'Annual Leave Liability Reduction', and 'Better Management of Workers Compensation Rehabilitation'.

8 Clause 6 of the MOU is in the following terms:

6. Agency level improvement initiatives

The parties commit to the implementation of further agency level improvement initiatives during the life of the Memorandum. As soon as practicable, agencies will identify these initiatives and then consult with the PSA.

This is to include consideration of:

6.1 Agency specific initiatives to deliver further efficiencies in the Conditions areas identified in this Memorandum;

6.2 Initiatives to reduce excessive accrued leave liabilities;

6.3 Initiatives to reduce workers compensation liabilities including future premiums; and

6.4 Agency reduction in the use of labour hire agencies through more efficient use of initiatives arising from this Memorandum;

6.5 Any other initiatives as relevant.

The Government will pursue stream lining and reorganisation of services and functions at an agency level to achieve further efficiencies in operations if the above process does not meet the objectives of the Memorandum.

Where agency level restructuring is required, the parties agreed that it will be dealt with in accordance with the consultative mechanisms and dispute resolution provisions of the relevant award of each agency and other relevant policies.

Consistent with the IRC recommendation in matter 445 of 2008, of 17 September 2008 the parties commit to this process of agency level negotiations. Should any dispute arise during this process the parties recognise the process laid out by the Full Bench in Operational Ambulance Officers (State) and others [2008] NSWIRComm 156 and commit to addressing any disputes or difficulties that arise at the agency level in such a way.

9 Clause 7 deals with the particular position of the Roads and Traffic Authority. Clause 8 contains the no extra claims commitment in relation to the Crown Employees (Public Service Conditions of Employment) Reviewed Award 2006 ('the Conditions Award'). Clause 9 identifies the agreed alterations to the Conditions Award. Clause 10 refers to the PSA's discontinuation of its claim. Clause 11 notes that the MOU expires on 30 June 2011.

Recommendation of 17 September 2008

10 In its Recommendation of 17 September 2008 the Commission observed at [3] that:

[O]n 16 September the Commission registered its concern with the government parties that there had been a shift in their position in the conciliation proceedings that widened the differences between the parties. The Commission asked why it should not make a direction pursuant to s 134(4) of the Industrial Relations Act 1996 that the parties are to bargain in good faith and to that end they should return to the position that the Commission had understood it to be on 11 September.

11 The government parties opposed the making of the direction; the PSA supported such a direction. In the result, however, the Commission decided to make a recommendation pursuant to s 134(2) of the Industrial Relations Act 1996 aimed at providing the parties with a possible basis for settlement. That decision was made in the face of imminent arbitration proceedings.

12 At [5] the Commission related some relevant background:

[5] ... The Government's wages policy provides that in the absence of cost savings only 2.5 per cent is available for salary increases. Increases in addition to 2.5 per cent, however, remain available through negotiated employee related cost saving and reforms. In relation to the Government's offer of 4.0 per cent in the MOU it was based on the 2.5 per cent unfunded portion plus 1.5 per cent to be negotiated in the central forum of negotiations that had been proceeding in the Commission, with a part of that 1.5 per cent being reserved for negotiations at agency level. The parties had reached agreement as to the scope of matters that would be the subject of agency level bargaining during the life of the MOU, except that there was no agreement on how much of the 1.5 per cent was to be reserved for agency level bargaining.

13 At [6]-[8] the Commission explained the core of what was proposed:

[6] If the parties were to accept the Commission's recommendation it will mean the government will have achieved cost savings to fund, in part, the increase above 2.5 per cent. The Commission is not at liberty to disclose the amount of cost savings because of the government's insistence on confidentiality. The government in its offer did not make it a condition for payment of the 4.0 per cent increase that agency level improvement initiatives were first to be negotiated and costed. It seems to me, therefore, that it is open to the parties to negotiate outcomes at the agency level that will produce cost savings to fund the difference between what has been achieved under the Commission's recommendation and what is necessary to fund the remainder of the 4.0 per cent increase.

[7] The agency level negotiations that have been agreed will obviously be an important vehicle for the government to achieve ongoing reform. The Commission will make resources available to monitor those negotiations and would propose the process set out by the Full Bench in Operational Ambulance Officers (State) Award and others [2008] NSWIRComm 156 for addressing any disputes or difficulties that arise at the agency level. Such a process, suitably tailored, should be incorporated in any MOU if the Commission's recommendation is accepted. At the heart of that process will be a requirement to satisfy the Commission that an appropriate level of cost savings have been achieved or are achievable at the agency level. The PSA will be required to cooperate in that process. In other words, as far as the Commission is concerned agencies will be entitled to negotiate and implement improvement initiatives that, at a minimum, will produce cost savings to fund the difference between what has been achieved under the Commission's recommendation and what is necessary to fund the remainder of the 4.0 per cent increase. The availability of a dedicated process under the auspices of the Commission will facilitate the achievement of the necessary cost savings.

[8] Using the clauses in the MOU as the checklist for the recommendation, in addition to what has already been stated the Commission makes specific recommendations in accordance with the attached table. Provided the parties accept the thrust of the recommendations it is open to the parties to refine the language used.

14 The parties were requested to advise the Commission of their respective attitudes to the Recommendation at 9.30 am on Thursday 18 September 2008. The parties each advised that the Recommendation was accepted. No qualifications were placed on that acceptance.

15 Attached to the Recommendation was a 'Table of Recommendations'. It may be noted that the MOU essentially adopted the terms of the Table.

Questions for determination

7 The Commission was asked to determine the answers to the following questions:

Question 1: DET has assigned either a zero value (SAS and GA documents, p.2) or a negligible value (TAFE and Corporate documents, p.2) to the "central reforms" agreed to in the MOU, with the result that it identifies the amount of 1.5% or slightly less than 1.5% as the amount required to be covered by employee cost offsets pursuant to clause 6 of the MOU. Is this the correct approach, or was the MOU agreed on the basis of a valuation of the "central reforms" and a limitation of the quantum of agency employee costs offsets such as to make the relevant amount to be recovered by DET under clause 6 of the MOU 0.5% or less?

Question 2: DET has proceeded on the basis that it is entitled to seek variations to award conditions, including variations to standard public service award conditions of employment, pursuant to clause 6 of the MOU. The following costs offsets sought in the conciliation documents are of this character:

SAS document:

2. Removal of workers compensation top-up entitlements.

3. Re-credit of extended leave.

4. Sick leave without pay.

5. Leave without pay.

6. Reduction to overtime rate.

7. Staff transfer entitlements.

8. Minimum payment for overtime on weekends and public holidays.

9. Time off in lieu of overtime.

10. Special leave for association activities.

GA document:

1. Removal of workers compensation top-up entitlements.

2. Part-time employee pay rates.

3. Reduction to overtime rate.

4. Leave without pay not to count as service for recreation leave purposes.

TAFE document:

1. Reduction to overtime rate.

3. Removal of workers compensation top-up entitlements.

4. Abolition of shift loading.

5. Reduction of higher duties allowance entitlements.

6. Reduction of meal allowance entitlements.

7. Part-time employee pay rates.

Corporate document

2. Removal of workers compensation top-up entitlements.

3. Reduction to overtime rate.

4. Reduction of higher duties allowance entitlements.

5. Reduction of meal allowance entitlements.

6. Abolition of shift loading.

Is DET entitled to seek contested award changes under clause 6 as "agency level improvement initiatives", or are award changes under the MOU confined to those agreed as part of the "central reforms", with contested award changes otherwise barred by clause 8 of the MOU?

Question 3: As identified in (2) above, removal of workers compensation top-up entitlements is sought in each of the conciliation documents. Is DET entitled to seek this change as an agency level improvement initiative pursuant to clause 6 of the MOU, or was this issue, which was raised by the NSW Government in the negotiations for the MOU, resolved centrally by clause 5.13 of the MOU?

Question 4: Is DET entitled to invoke the Commission's dispute resolution functions pursuant to clause 6 of the MOU without first having demonstrated that it has attempted to identify and implement, of its own initiative, measures in the nature of "stream lining and reorganisation of services and functions at an agency level to achieve further efficiencies in operations"?

Question 5: In addition or in the alternative to (4), to the extent that DET has already since 1 July 2008 implemented measures in the nature of "stream lining and reorganisation of services and functions at an agency level to achieve further efficiencies in operations" that have achieved savings in employment-related costs, should these be taken into account for the purpose of identifying DET savings under clause 6 of the MOU?

Question 6: To the extent that any department or agency has since 1 July 2008 implemented measures which have achieved savings in employment-related costs which it has chosen to count towards the 1% efficiency dividend required by NSW budgetary policy, should those savings be taken into account for the purpose of identifying departmental/agency savings under clause 6 of the MOU?

Question 7: To the extent that the NSW Government has failed to take any action to implement a number of the "central reforms" identified in clause 5 of the MOU, are individual departments and agencies entitled to proceed under clause 6 of the MOU as if those "central reforms" have no savings value?

Question 8: Are the award variations identified in clause 9 of the MOU (in particular, the variation to FACS leave in clause 9.2) confined to the Crown Employees (Public Service Conditions of Employment) Reviewed Award 2006, or are departments or agencies entitled to seek such award variations in other awards such as to reduce more favourable award conditions?

Evidence

8 There was extensive evidence called by both parties. For the PSA a statement and statement in reply from Stephen Turner, Assistant General Secretary of the PSA was tendered. Mr Turner was required for cross-examination. For the DPC affidavits by the following persons were tendered: Suzanne Ashby, Associate Director of Industrial Relations, Public Sector Workforce; Darren Husdell, Director of Industrial Relations, Department of Education and Training; Peter Horn, Senior Director, Fiscal Strategy Branch, NSW Treasury; and Maryann Hazard, Director of Organisational Reform, Communities NSW, formerly the Assistant Director with the Public Sector Workforce Office and Director of Workforce Policy and Advice. Only Ms Hazard and Mr Horn were required for cross-examination.

Approach to be taken

9 It was agreed between the parties that the essential task for the Commission in answering the eight questions put to it was the interpretation of the MOU. There was also a large measure of agreement regarding the legal principles to be applied to the interpretation task. The parties cited the following authorities:

· the interpretation of an industrial agreement turns on its language, but the language used must be understood in the light of its industrial context and purpose: Amcor Ltd v Construction, Forestry, Mining and Energy Union [2005] HCA 10; (2005) 222 CLR 241 at [2] and [96];

· the context includes the whole of the text of the document: Re Media Entertainment & Arts Alliance; Ex parte Hoyts Corporation Pty Ltd [1993] HCA 40; (1993) 178 CLR 379 at 386-387;

· the context in which the words used in any agreement (particularly an industrial agreement) must be understood includes the circumstances in which the agreement was made: see, for example, George A Bond & Co Ltd (in liq) v McKenzie [1929] AR (NSW) 498 at 503-504; Short v FW Hercus Pty Ltd [1993] FCA 51; (1993) 40 FCR 511 at 518; Kingmill Australia Pty Ltd t/a Thrifty Car Rental v Federated Clerks’ Union of Australia, New South Wales Branch [2001] NSWIRComm 141; (2001) 106 IR 217 at [67]; Perisher Blue Pty Ltd v Australian Workers Union (1999) 91 IR 274 at 283-284;

· whilst the circumstances and conduct of the parties at the time of the making of an agreement can assist in the interpretation of the agreement, conduct of the parties subsequent to the making of agreement is irrelevant in its interpretation: see, for example, Ryan v Textile Clothing & Footwear Union of Australia [1996] 2 VR 235; (1996) 66 IR 258 at 285-286; Brambles Holdings Ltd v Bathurst City Council [2001] NSWCA 61; (2001) 53 NSWLR 153 at [26]; Australian Workers Union v Pasminco Australia Ltd [2003] NSWIRComm 365; (2003) 131 IR 1 at [39]; Seamen's Union of Australia v Adelaide Steamship Co Ltd (1976) 46 FLR 444 at 445; City of Wanneroo v Holmes [1989] FCA 369; (1989) 30 IR 362 at 378; Amcor Ltd v Construction, Forestry, Mining and Energy Union [2003] FCAFC 57 at [48];

· the task is ultimately one of ascertaining the intention of the parties to the agreement by reference to the words used and the surrounding circumstances. The intention is judged objectively (Re Union of Postal Clerks and Telegraphists; Ex parte ATPOA [1986] HCA 45; (1986) 66 ALR 227 at 235) by reference to what a reasonable person would have assumed that the parties intended, rather than the actual subjective intentions of the parties: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40];

· particularly in the case of industrial agreements, an overly strict or literal approach to construction is rarely appropriate. It is justifiable to read an industrial agreement so as to give effect to its evident purposes, having regard to such context, despite mere inconsistencies or infelicities of expression: Kucks v CSR Ltd (1996) 66 IR 182 at 184; United Firefighters' Union of Australia v Metropolitan Fire and Emergency Services Board [2006] FCAFC 84; (2006) 152 FCR 18 at [51]- [52];

· the Commission should ensure that the sanctity of good faith bargains are adhered to and, therefore, considerable weight should be placed upon the actual terms of the agreements reached where those words are capable of a clear and unambiguous meaning: BHP Steel (AIS) Pty Ltd v Australian Workers' Union, New South Wales [2003] NSWIRComm 124; (2003) 125 IR 207 at [15];

· the use of extrinsic material in interpreting agreements is allowed in very limited circumstances such as where the language is ambiguous or susceptible of more than one meaning but only where such facts are known to both parties or so notorious knowledge of them will be presumed. However, such evidence is not admissible to contradict the language of the contract or agreement when it has a plain meaning. Further, the Commission should not look to the actual intentions, aspirations or expectations of the individual parties before or at the time of the MOU when determining the meaning of the MOU (see Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Mason J at 348-352; Australian Workers Union v Pasminco Australia Ltd at [41]; Construction, Forestry, Mining and Energy Union (New South Wales Branch) v Delta Electricity [2003] NSWIRComm 135; (2003) 146 IR 360 at [43]- [44] and Crown Employees (Police Officers - 2009) Award [2009] NSWIRComm 190 at [15]- [16]).

10 It is accepted that the principles articulated in these cases are generally applicable to a resolution of the issues in these proceedings. I note the respondent also referred to Director of Public Employment (by her Agent the Commissioner of NSW Fire Brigades) v New South Wales Fire Brigades Employees' Union [2008] NSWIRComm 158; (2008) 180 IR 170. Whilst that case was concerned with the interpretation of an industrial award, the principle there enunciated is relevant to the interpretation of the MOU. At [46]-[47] it was stated:

[46] Whilst awards are instruments to be construed according to the terms of the Interpretation Act, consideration should be given to the differences between statutes and awards. Some of these differences were referred to by Street J in Bond v McKenzie:

But at the same time, it must be remembered that awards are made for the various industries in the light of the customs and working conditions of each industry, and they frequently result, as this award in fact did, from an agreement between parties, couched in terms intelligible to themselves but often framed without that careful attention to form and draughtsmanship which one expects to find in an Act of Parliament.

[47] Nevertheless, it would be untenable to attempt to construe the terms of an award according to the subjective intentions of the parties if, in doing so, it resulted in an unreasonable and unnatural construction having to be placed on the words of the award. In interpreting the provisions of an award the intention of the drafters must be ascertained by reference to the actual words used (and those words should be given their plain, ordinary meaning), thereby disclosing the underlying purpose or object of the award and its context, using that term in its broadest sense, including extrinsic material. Thus, attention must at all times be given to the meaning and effect of the award as it appears from the plain and ordinary meaning of the words used: see Zoological Parks at [43]. It is not permitted to attach to a provision of an award a meaning which the words of the award cannot reasonably bear: Cooper Brookes (Wollongong) Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia [1981] HCA 26; (1981) 147 CLR 297 at 321 (per Mason and Wilson JJ).

Question 1

11 Question 1 raises the issue as to the quantum of savings in employee-related expenses that can be pursued by Departments and agencies under clause 6 of the MOU.

12 The position of the PSA was that the MOU or the 'underlying agreement' between the parties was agreed on the basis that 'agency level improvement initiatives' under clause 6 were capped at 0.5 per cent per year.

13 The PSA submitted that the question has arisen because some Departments and agencies were representing that no or negligible savings have been derived from the central reforms and that the entire 1.5 per cent cost of the salary increases must be funded by additional 'agency level improvement initiatives'. This approach, it was submitted, was fundamentally inconsistent with the position adopted by the Government which was communicated to the PSA in the negotiations that resulted in the making of the underlying agreement and the MOU.

14 The DPC’s position regarding a cap was that there was no 'underlying agreement' in respect of a cap and no cap applies. It was submitted that it was open to a Department or agency to pursue agency level initiatives that would fund the difference between the 2.5 per cent available under the Government's Wages Policy and the 4.0 per cent salary increase payable under the Crown Employees (Public Sector - Salaries 2008) Award. In other words, if an agency or department found that the central reforms were of zero or negligible value that agency or department was entitled, under the MOU, to pursue employee-related costs savings of 1.5 per cent

15 The PSA relied for its position on the evidence of Mr Turner that he recalled that at the commencement of a conciliation conference chaired by the Commission on 15 September 2008 the legal representatives of the NSW Government said words to the effect that: 'My instructions are that if an accommodation is reached on 4% then there needs to be 3.5% found by the central reforms. Outside agency level initiatives are capped at 0.5%. There is a cap of paragraph 6 at point 5.' This was acknowledged in the DPC’s evidence.

16 It was apparent that the position represented to the PSA in the course of the negotiations was the consequence of a Cabinet decision that any 'liability' for agencies was restricted to 0.5 per cent. There was no evidence that Cabinet ever changed the Government's position in that regard and it was never communicated to the PSA that the position had altered at any point prior to the signing of the MOU. This was accepted by Ms Hazard in her evidence.

17 Mr Turner said in his evidence:

The position that there was a 0.5% cap on agency level initiatives was reinforced by representatives of the NSW Government during the course of negotiations on 15 September 2008 and negotiations that led up to the Recommendation of his Honour Justice Boland on 17 September 2008. This policy was stated to be the firm position of the Government. So far as I or the PSA is aware, the policy was not retracted at any stage prior or subsequent to the Recommendation.

18 Based on this evidence it was submitted for the PSA:

[T]he Government’s position, decided by way of decision of the Budget Committee of Cabinet, was that agency level savings be limited to 0.5%. That decision was binding upon the Government representatives in their negotiations with the PSA. No evidence was called to suggest that the Cabinet decision was ever changed. Certainly, no change in the Government’s position was ever communicated to the PSA or the Commission. The Government cannot rely upon an inference that upon accepting the Recommendation it “returned to the earlier position and no longer sought to impose such a cap..." In circumstances in which the Government has not called any evidence, the only inference to be drawn is that there was no change in the Government’s position.

19 The MOU does not provide an obvious answer to the issues raised by Question 1. The MOU simply does not provide any express indication as to the quantum of agency employee cost offsets to be achieved. Nor does it identify the value of cost offsets of the central reforms proposed in the Recommendation other that the statements 'the Commission's recommendation it will mean the government will have achieved cost savings to fund, in part, the increase above 2.5 per cent' and that 'it is open to the parties to negotiate outcomes at the agency level that will produce cost savings to fund the difference between what has been achieved under the Commission's recommendation and what is necessary to fund the remainder of the 4.0 per cent increase.'

20 There is nothing expressed in the MOU that limits the quantum of agency employee cost offsets to 0.5 per cent or less. Nor, in my view, could such a limitation be implied, based on the tests enunciated in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283.

21 It is arguable, however, that the MOU is ambiguous given there are rival contentions by the parties as to its proper interpretation: Printing & Kindred Industries Union v Davies Bros Ltd (1986) 18 IR 444 at 449; Spargo v Repatriation Commission [2001] FCA 1763; (2001) 116 FCR 304 at [13]. To resolve the ambiguity regard may be had to extrinsic material. There is also the issue of whether there was some underlying agreement between the parties of a limit on agency level cost offsets of 0.5 per cent.

22 In considering the question of whether there was an underlying agreement imposing a cap of 0.5 per cent or whether there was ambiguity in the MOU, it is permissible to have regard to surrounding circumstances, one of which is the Commission's Recommendation of 17 September 2008 from which the MOU derived.

23 There is no doubt that on 15 September 2008 representatives of the DPC put on the negotiating table the concept of a cap on agency level savings. That was obviously designed to place pressure on the PSA to deliver more savings through centrally negotiated reforms. It was clearly the case that the Commission's concern expressed at [3] of the Recommendation related to the change in the Department's position represented by the cap of 0.5 per cent at the agency level imposed unilaterally by the respondent. In the Commission's view, given the progress that had been made up to that point, that was a retrograde step and raised the question whether the respondent was bargaining in good faith.

24 By 16 September, after a very long period of difficult negotiations between the parties, with an extended arbitration imminent before the Full Bench, it is evident from the terms of what the Commission said in its Recommendation that the Commission was seeking to break the deadlock, namely, that the PSA would not agree to any further cost saving measures through centrally negotiated reforms and the DPC adopting a position that only 0.5 per cent of savings could be negotiated at the agency level and the remainder had to be achieved through central reforms. The Commission understood that a number of central reforms had been largely agreed and to the extent of that agreement, that it offset part, but not all, of the cost of the difference between the 4.0 per cent offer by the Government and the 2.5 per cent funded element of a wage increase. To the extent there was agreement on central reforms this was reflected in the Recommendation.

25 The mechanism proposed by the Commission to resolve the impasse was that the parties should 'negotiate outcomes at the agency level that will produce cost savings to fund the difference between what has been achieved under the Commission's Recommendation and what is necessary to fund the remainder of the 4.0 per cent increase.' The scope of matters to be negotiated at the agency level had been agreed between the parties and it was unnecessary for the Commission to make any recommendation that differed in that respect.

26 It is inconsistent with the Recommendation that there be a cap of 0.5 per cent on employee cost offsets at the agency level. The Commission was aware of the fact that only a proportion of the 1.5 per cent that needed to be found was fundable by the central reforms that had been agreed and that the parties had exhausted their efforts in being able to agree on any further central reforms. The idea that the Recommendation was envisaging a cap of 0.5 per cent for agency bargaining does not fit at all with the recommendation that the parties 'negotiate outcomes at the agency level that will produce cost savings to fund the difference between what has been achieved under the Commission's Recommendation and what is necessary to fund the remainder of the 4.0 per cent increase.' There was no suggestion or evidence that what could be 'achieved under the Commission's Recommendation' amounted to 1.0 per cent, leaving 0.5 per cent to be negotiated at the agency level.

27 Moreover, it is clearly the case that the Commission was seeking to find a mechanism that would fund the difference between the funded increase of 2.5 per cent and the 4.0 per cent on offer. Part of that difference could be filled by the central reforms proposed in the Recommendation, but on the information available to the Commission that part could not have constituted 1.0 per cent in savings. For the Recommendation to be regarded as imposing a cap of 0.5 per cent on agency level savings would have meant that the Commission was limiting the ability of the parties to negotiate reforms that would enable the potential for cost savings to be achieved to fund the whole of the difference between 2.5 per cent and 4.0 per cent. That is not what the Commission intended nor what the Recommendation states in [6] and [7].

28 As for the underlying agreement, whilst the DPC did, on Cabinet Committee authority, propose a cap in the negotiations and did not at any stage indicate that position was withdrawn, the concept of a cap was clearly overtaken by the Commission's Recommendation and a reasonable bystander would have understood that to be the case. That the PSA continued to believe the cap remained because the DPC did not expressly indicate otherwise, such a subjective belief is no basis to find that there was an underlying agreement regarding the application of a cap.

29 The remaining issue concerns whether a department or agency is entitled to negotiate employee-related cost savings to the full extent of 1.5 per cent notwithstanding the Commission's Recommendation acknowledged that acceptance of the Recommendation would mean that 'the government will have achieved cost savings to fund, in part, the increase above 2.5 per cent.'

30 The PSA submitted that the Recommendation and the parties contemplated that it was only the residual, that is, what was left (up to a cap of 0.5 per cent) given the cost savings achieved from the central reforms, that would need to be found from 'agency level improvement initiatives'. Further, that it was not and could not have been envisaged that the PSA would come to negotiate 'agency level improvement initiatives' for any particular department and agency and be required to identify 'agency level improvement initiatives' which would satisfy the whole of the cost of the salary increases for employees in that department or agency (above 2.5 per cent per annum).

31 The DPC's position was that a department or agency was entitled under the MOU to negotiate agency level improvement initiatives up to 1.5 per cent if the central reforms were of zero or negligible value for that department or agency.

32 At [7] of its Recommendation the Commission stated:

[7] ... In other words, as far as the Commission is concerned agencies will be entitled to negotiate and implement improvement initiatives that, at a minimum, will produce cost savings to fund the difference between what has been achieved under the Commission's recommendation and what is necessary to fund the remainder of the 4.0 per cent increase.

33 That statement has to be seen against the attempt by the Commission in its Recommendation to facilitate, in a fair and reasonable way, the opportunity for the parties to achieve employee-related cost offsets that would fund the difference between 2.5 per cent and 4.0 percent across the whole of the public sector that was the subject of the claim. That objective would be thwarted if a department or agency were prevented from pursuing offsets that would deliver savings of 1.5 per cent. Given the size of the Department of Education and Training, if it were not able to pursue 1.5 per cent of cost offsets (either through agency level bargaining or a combination of agency level bargaining and the central reforms) the potential for the Government to achieve the necessary savings to fund the wage increase across the board would be made impossible.

34 The answer to Question 1 is that the MOU was not agreed on the basis that there was a limitation on the quantum of agency employee cost offsets to 0.5 per cent or less. Further, that a department or agency is entitled to pursue agency level employee-related cost savings that would fund a wage increase of 1.5 per cent, either through agency level bargaining or a combination of agency level bargaining and the central reforms.

Question 2

35 As the applicant submitted, Question 2 raises the issue of whether individual departments and agencies are entitled to seek variations to award conditions, including standard public sector award conditions, as 'agency level improvement initiatives' pursuant to clause 6 of the MOU.

36 The position of the PSA was that there was no such entitlement. It was submitted that any variations to standard public sector award conditions were dealt with by the parties in the negotiation of the 'central reforms' and the phrase 'agency level improvement initiatives' did not contemplate further award changes. This included further variations to the Conditions Award or variations to other agency level awards which were reflective of standard public sector conditions of employment.

37 The position of the DPC was that in order to achieve employee-related cost savings, a department or agency was entitled to pursue any award variation, whether it be in relation to the Conditions Award or other agency level awards.

38 It was earlier said that the Commission's Recommendation was to facilitate the opportunity for the parties to achieve employee-related cost offsets that would fund the difference between 2.5 per cent and 4.0 percent across the whole of the public sector that was the subject of the claim. However, that does not mean there was an absence of any restriction on that opportunity.

39 I do not accept that the MOU leaves it open to a department or agency pursuing agency level improvement initiatives to do so by way of an award variation to the Conditions Award for the following reasons that include those submitted by the PSA:

a. the MOU, read as a whole, does not envisage changes to standard public sector award conditions by use of the mechanism in cl 6 of the MOU. Any matter involving the reduction or abolition of those conditions by way of an arbitrated variation to an award of the Commission under the Industrial Relations Act is not an agency level improvement initiative. The changes to the Conditions Award are dealt with in cl 5. There is a clear demarcation between those changes and the changes envisaged under cl 6;

b. the 'Objectives' listed in cl 1 of the MOU include that the parties 'agreed that the change of conditions and agency improvement initiatives outlined in this Memorandum underpin the agreement regarding the quantum of wage increases (above 2.5%) for the period covered by this Memorandum.' A distinction is drawn in the language agreed to by the parties between 'change of conditions' and 'agency improvement initiatives'. Where the MOU contemplated award changes occurring, it said so very specifically. For example, cl 9 refers to the particular clauses of the Conditions Award which would be varied;

c. clause 6 of the MOU itself does not contemplate a series of major merit arbitrations concerning unrestricted alterations to any award conditions or salaries. It is confined to dealing with 'disputes or difficulties' that arise at the agency level in respect of the implementation of 'agency level improvement initiatives';

d. the matters identified in cll 6.1-6.4 relate to 'agency specific initiatives'. That is a class of matters readily distinguishable from employment conditions that have public sector wide application. Clause 6.5 - Any other initiatives as relevant, refers to agency specific initiatives and does not extend the coverage of cl 6 to allow a department or agency to seek to reduce or abolish award conditions that have general application in the public sector. An application to reduce or abolish such conditions would necessarily involve a consideration of the general industrial merit of the condition beyond any consideration of it being an agency level improvement initiative;

e. The reference in cl 6.1 to consideration being given to 'agency specific initiatives to deliver further efficiencies in the Conditions areas identified in this Memorandum' does not suggest the MOU contemplated variations to standard award conditions. The reduction of a standard award condition such as overtime rates, higher duties allowances, workers compensation entitlements and the like are not 'agency specific' conditions;

f. the notion that the PSA would be at risk of significant and detrimental changes to standard, public sector-wide award rates of pay and conditions in what would inevitably be a major industrial arbitration would be inconsistent with the stated objective of the MOU that it was 'designed to provide both parties with certainty of outcomes for the period of the Memorandum';

g. the background circumstances, particularly the detailed negotiations of the 'central reforms' in cl 5 of the MOU, support the conclusion that the parties did not intend standard award conditions (including the matters specifically negotiated) to be the subject of agency level initiatives. As the PSA submitted:

The parties and the Commission expended very considerable amounts of time, resources and expertise throughout August and September 2008 in negotiating the details of the various “central reforms” proposed by the Government. The Government withdrew various proposals to reduce award conditions which were objected to by the PSA and the substance and wording of the remaining were subject of substantial revision. The parties ultimately accepted the Recommendation of the Commission as to the particular “central reforms” which could not be agreed directly between the parties, particularly with respect to managing displaced employees, transferred officers entitlements and travelling compensation.

There would have been absolutely no point in the parties negotiating the details of these “central reforms” or the Commission making its Recommendation if the MOU contemplated that the Government could revisit those subjects and have arbitrated any variations to public sector award conditions it wished to pursue (including the very same conditions which had been determined centrally) on an agency by agency basis. Had this been contemplated, there would have been no purpose in negotiating or agreeing any “central reforms”. The only sensible construction of the phrase “agency level improvement initiatives” having regard to the conduct of the parties is that it did not extend to variations to standard award conditions;

h. on the approach of the DPC, it would be possible for a department or agency to pursue the cancelling of the accrued leave of employees as a measure to deliver 'further efficiencies' in the area of reducing annual leave liabilities (cl 5.12 of the MOU). On that approach, a department or agency could pursue the reduction or abolition of maternity leave as a 'further efficiency' in the area of maternity leave even though the parties expressly agreed to an enhancement of maternity leave entitlements (cl 5.10 of the MOU). A reasonable person would not impute to the parties unreasonable or absurd intentions in making an agreement;

i any attempt (other than by consent) to vary the Conditions Award is precluded by cl 8 of the MOU, No Extra Claims. Clause 8 confirms that a contested variation to that Award is not contemplated by the MOU. Clause 8 specifically refers to the circumstances in which award variations can occur during the term of the MOU. The parties would not have made provision ensuring that consent variations could proceed notwithstanding the no extra claims provision if cl 8 permitted contested award variations to be pursued during the life of the MOU. Clause 8 is made subject to cl 6; this allows variations to agency level awards in the circumstances described below, but not to the Conditions Award.

40 As for agency level awards, I take the view there is no prohibition in the MOU on pursuing changes to such awards in order to achieve any of the matters identified in cl 6, provided the changes do not involve a reduction in or abolition of standard public sector conditions of employment. In other words, if an agency level award contains a provision which is merely a reflection of a provision in the Conditions Award, it is not open to the parties to seek to change that provision to the detriment of employees covered by the agency level award. Subject to that proviso, changes sought to agency level awards in order to improve the efficiency of the agency and deliver cost savings to fund the wage increase may properly be regarded as 'agency level improvement initiatives'.

41 The answer to Question 2 is that individual departments are entitled to seek contested award changes under cl 6 - Agency Level Improvement Initiatives of the MOU where the changes are sought to an agency level award. However, individual departments are not entitled to seek contested award changes to the Conditions Award or to provisions of agency level awards where such provisions reflect a term of the Conditions Award and the changes would result in the reduction in or abolition of standard conditions of employment.

Question 3

42 The issue in Question 3 apparently has arisen as a result of the proposal advanced by the DET to remove workers compensation top-up entitlements for its employees. That proposal would require award variations to cl 82 of the Conditions Award and other awards covering employees within the Department containing the same standard conditions. Clause 82 of the Conditions Award provides that a staff member who continues to receive workers compensation after the completion of a period of 26 weeks may use any accrued and untaken sick leave to make up the difference between the amount of compensation payable and the staff member's ordinary rate of pay.

43 The PSA submitted the proposal revisited a matter that was subject of detailed negotiation as a 'central reform' and resolved in the MOU. A proposal to remove the capacity of employees to utilise sick leave entitlements to top-up workers compensation payments until the employee had exhausted accrued annual leave and extend leave entitlements was advanced by the Government in the draft MOU provided to the PSA on 29 August 2008. The PSA rejected that proposal and the Government agreed to remove the proposed clause.

44 The PSA contended that the Government did not press the proposal again and the PSA negotiated on the basis that the Government was no longer seeking to change the entitlement of employees to workers compensation top-up payments. Further, that it was never suggested by the Government's representatives during the course of the negotiations that it regarded itself as able to advance the proposal again under cl 6 of the MOU. Counsel for the PSA submitted:

It was certainly never suggested that it was open to not only reintroduce the proposal, but go further and seek the complete abolition of workers compensation top up payments. It was never communicated that this was the intention of Government.

The parties instead agreed (prior to the Recommendation of the Commission being issued) to amend the Conditions Award to “ensure that workers compensation top up payments paid to employees after a period of 6 months of incapacity do not operate to undermine return to work programs.” This provision expressly contemplates that the entitlements to workers compensation top up payments will not change. The text of the Recommendation of the Commission also expressly contemplates that workers compensation top up payments will continue to exist.

Having regard to the Government’s agreement not to press for changes to workers compensation top up payments and the fact that the parties specifically agreed to an alternative proposal to better manage workers compensation rehabilitation, it is impossible to construe clause 6 as permitting the Government to then entirely remove top up entitlements through contested award changes as an “agency level improvement initiative”.

45 In support of the proposition that it was open to the DET to pursue a proposal to remove workers compensation top-up entitlements for its employees, the DPC essentially relied on its submission that cl 6 of the MOU, in particular cl 6.1, permitted it to do so.

46 It has already been determined that cl 6 does not allow a reduction in or abolition of standard public sector conditions of employment. Nor does it allow changes to an agency level award to reduce or abolish such conditions.

47 I note the DPC's complaint that cl 5.13.1 of the MOU has not been implemented. That provision is as follows:

The parties agree to amend the Conditions Award by 31 December 2008 to ensure that workers compensation top up payments paid to employees after a period of 6 months of incapacity do not operate to undermine return to work programs.

48 It may be that the DET's proposal to remove workers compensation top-up entitlements for its employees would become unnecessary if the Conditions Award was amended in the manner contemplated by cl 5.13 of the MOU. Unless some progress is made in meeting the obligation imposed on the parties by cl 5.13, it may become necessary for the Commission to revisit its Recommendation in this respect. This issue is further addressed in Question 7.

Questions 4 and 5

49 As the PSA submitted, Questions 4 and 5 raise an issue in relation to whether a department or agency is entitled to seek to enliven the dispute resolution functions of the Commission unless it has attempted to identify and implement "stream lining and reorganisation of services" and whether, if it has done so since 1 July 2008, any savings derived from those measures should be considered for the purpose of identifying savings under cl 6 of the MOU.

50 The PSA contended that the various methods of arriving at the savings to fund the cost of the salary increases referred to in cl 6 of the MOU were sequential. That is, the structure and language of cl 6 required that the methods that must be pursued were:

(a) First, it is envisaged that Departments and agencies will identify agency level improvement initiatives and consult with the PSA in relation to proposed initiatives.

(b) Second, if that process does not lead to sufficient savings, the Government will pursue stream lining and reorganisation of services and functions at an agency level to achieve further efficiencies.

(c) Third, if disputes arise, then the parties recognise the process of dispute resolution by the Commission and commit to addressing disputes and difficulties in such a way.

51 Counsel for the PSA submitted:

The clause makes clear that a Department or agency must have followed the second step above and have been unable to achieve the required savings before it is entitled to access the dispute resolution processes of the Commission to determine any proposed “agency level improvement initiatives”. There is no evidence to suggest this has occurred within the DET.

Even more clearly, where a Department or agency has implemented measures in the nature of "stream lining and reorganisation of services", any savings derived from the implementation of such measures must be taken into account in considering the reforms necessary under clause 6 of the MOU. Were it otherwise, clause 6 of the MOU could become the vehicle for a never-ending procession of employee-related savings measures. That was not and cannot have been the intention of the parties to the MOU.

52 The DPC submitted that consistent with the principles of interpretation and the terms of the MOU the answer to Question 4 was that the DET may have access to the process in the last paragraph of cl 6 without first having demonstrated that it had attempted to identify and implement, of its own initiative, measures in the nature of 'stream lining and reorganisation of services and functions at an agency level to achieve further efficiencies in operations'.

53 As to Question 5, the DPC submitted the NSW Public Sector Wages Policy 2007, which formed the basis for the background of the negotiations by the respondent which led to the MOU was clear that negotiated employee-related cost savings and reforms tied to additional increases above 2.5 per cent must be in addition to those savings 'already identified under the efficiency dividend on agency discretionary expenditures and other savings measures announced in the Economic and Financial Statement 2006'. Therefore, it was submitted, any efficiency an agency makes pursuant to other requirements placed on agencies, cannot be taken into account for the purpose of identifying savings under cl 6 of the MOU.

54 A plain reading of the MOU, and one consistent with the Commission's intention in making its Recommendation, indicates that initially agencies will identify improvement initiatives consistent with cl 6.1-6.5 and consult with the PSA regarding these initiatives. If these initiatives do not produce the required savings, the Government may pursue 'stream lining and reorganisation of services or functions at an agency level to achieve further efficiencies in operations'.

55 Any dispute arising out of the process of agency level negotiations, whether they be disputes over the matters in cl 6.1-6.5 or matters concerning 'stream lining and reorganisation' may be referred to the Commission to be dealt with using the process described in Operational Ambulance Officers (State) Award [2008] NSWIRComm 156.

56 In relation to Question 5 the NSW Public Sector Wages Policy 2007 formed the basis of the respondent's negotiating position and that position was well understood by the PSA. It was, as the DPC submitted, 'a matter both known and notorious and reinforced throughout negotiations that the Government would not count such savings as costs savings under the Government’s wages policy'.

57 It is clear from the Policy that negotiated employee-related cost savings and reforms tied to additional increases above 2.5 per cent had to be in addition to those savings 'already identified under the efficiency dividend on agency discretionary expenditures and other savings measures announced in the Economic and Financial Statement 2006'.

58 The answer to Question 4 is that a department is entitled to invoke the Commission's dispute resolution functions pursuant to cl 6 of the MOU without having first demonstrated that it has attempted to identify and implement measures in the nature of 'stream lining and reorganisation of services and functions at an agency level to achieve further efficiencies in operations'.

59 The answer to Question 5, subject to what is said about Question 6, is that employee-related cost savings and reforms tied to additional increases above 2.5 per cent are to be in addition to those savings 'already identified under the efficiency dividend on agency discretionary expenditures and other savings measures announced in the Economic and Financial Statement 2006'.

Question 6

60 Question 6 raises an issue in relation to the extent to which savings in employee-related costs which a department or agency has chosen to attribute towards the 1 per cent efficiency dividend required by the NSW Treasury should be taken into account for the purpose of identifying savings under cl 6 of the MOU.

61 The Wages Policy states:

The Policy seeks to maintain the real wage improvements secured in recent years. Future increases to employee related expenses will be limited to a net cost of 2.5 per cent per annum, with any additional increases above 2.5 per cent per annum tied to negotiated employee related cost savings and reforms. Such savings must be in addition to those already identified under the efficiency dividend on agency discretionary expenditures and other savings measures announced in the Economic and Financial Statement 2006.

...

Each Agency must look at reform areas to meet their planned objectives. Attachment A lists areas where organisations must review existing arrangements and determine the potential for reform. In some cases achievement of outcomes in these areas has already been factored into the Budget and can not be included as cost savings for the purposes of wage increases (for example reducing average sick leave absences). Further reforms in these areas may be included where additional savings can be demonstrated. (my emphasis)

62 As the PSA submitted, it is only savings 'already identified' or 'already factored into the Budget' under the efficiency dividend prior to the conclusion of a salaries negotiation that are said to be excluded from counting towards the funding of any agreed salaries outcome. The Wages Policy does not suggest that a department or agencies can introduce measures producing employee-related cost savings after the MOU was entered into and then arbitrarily attribute those savings to meeting the efficiency dividend rather than the cost of the salary increases.

63 The answer to Question 6 is the same as Question 5, subject to what is said in the immediately preceding paragraph.

Question 7

64 Question 7 raises an issue as to whether, to the extent that the Government has failed to implement a number of the 'central reforms' agreed in the MOU, individual departments and agencies are entitled to proceed under cl 6 as if those 'central reforms' have no value. The position of the PSA was that additional savings were not required to be found under cl 6 of the MOU simply because the Government has failed to implement agreed 'central reforms'.

65 If central reforms have not been implemented in accordance with the obligations imposed by the parties to the MOU then not only has there been a failure to abide by the terms of the MOU, but also no value may be attributable to those reforms. That is an unsatisfactory state of affairs. It has contributed to the problems that have emerged over agency level bargaining by the fact that in the absence of savings being achieved via a central reform, agencies are proposing to make up the shortfall by relying on the proposition that such savings may be achieved under cl 6, notwithstanding that it involves the abolition or reduction of a standard condition.

66 It was said earlier that the failure to implement what was agreed, may necessitate revisiting the Recommendation. The parties are to advise the Commission which of the agreed central reforms have not been implemented and what the impediments are to that occurring. For that purpose the Commission will sit at 9.30am on Wednesday, 19 May 2010. In the meantime, the parties are referred to the answer to Question 2 and 3.

Question 8

67 Question 8 raises an issue as to the operation of cl 9 of the MOU, namely, whether the award variations referred to in cl 9 are confined to the Conditions Award or can be extended to other awards so as to reduce more favourable award conditions.

68 As the PSA explained:

The issue has arisen due to some agencies seeking to remove different provisions from agency specific awards to align with the Public Service Conditions of Employment Award. For example, clause 8 of the Crown Employees (NSW Department of Primary Industries) Fisheries Staff Award currently deals with FACS leave by expressly excluding the operation of the Public Service Conditions of Employment Award and conferring an entitlement to 5 working days in any 12 month period on a cumulative basis. The Director of Public Employment has applied to vary that award by deleting clause 8 and simply referring to the entitlement in the Public Service Conditions of Employment Award, that is, 2.5 days in any 12 months.

69 The DPC's position was that an individual agency award may be varied pursuant to cl 9.2 of the MOU. It was submitted cl 2 of the MOU defined 'Conditions Award' to mean the Crown Employees (Public Service Conditions of Employment) Reviewed Award 2006 or the relevant conditions instrument(s) as pertaining to the employee group. Consequently, the agreed changes in FACS leave that are contained at cl 9.2 extended to all relevant conditions instruments pertaining to all employees covered by the MOU given the definition in cl 2.

70 It was further submitted that throughout negotiations it was the position of the respondent that changes envisaged in cl 9 would flow beyond the Conditions Award. This was why when the cl 9 matters were costed at the PSA's request of 12 September 2009, they were costed across all agencies and provided that to the Commission and the PSA on the understanding they would be applied across all agencies covered by the MOU. In addition, cl 9 also contained some enhancements in conditions. The PSA's position would mean that those matters would not be flowed on to the agency level.

71 Consistent with what was determined in relation to Questions 2 and 3, it is open to an agency, pursuant to cl 6 of the MOU, to seek changes to agency level awards, provided that the change sought does not reduce or abolish standard public sector conditions of employment.

72 Consequently, it is permissible for an agency to seek to vary an agency level award to make it consistent with the Conditions Award notwithstanding that the agency level award contains a more favourable provision.

73 I note, however, the provisions of cl 102 of the Conditions Award:

102. Existing Entitlements

The provisions of this award shall not affect any entitlements existing in a Department or section of a Department at the time this award was made, if such provisions are better than the provisions contained in this award. Such entitlements are hereby expressly preserved until renegotiated with the Association.

74 It seems that any change to an agency level award would first require consultation with the PSA. However, if no agreement were reached on the proposed change, cl 102 would not prevent the Commission varying the relevant agency level award if a proper case was made out.

75 It is not my intention that I would deal with any outstanding disputes in relation to the implementation of cl 6. Such matters should be handled in accordance with the process laid down in the MOU. I understand that the Vice-President, Walton J, presently has carriage of these matters.

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LAST UPDATED:
7 May 2010