The terms and effect of an EA not properly explained

Further to our previous article, two recent decisions of the Full Bench of the Fair Work Commission have again shown that an employer’s failure to properly comply with the requirement in s.180(5) of the Fair Work Act 2009, relating to the employer taking all reasonable steps to explain an EA and its effect to employees, has proved fatal to the approval of the EA.

In Australian Workers’ Union v Professional Traffic Solutions Pty Ltd, the statutory declaration filed with the application to approve the EA contained an answer that stated:

“The agreement was explained to all relevant employees at the time that it was handed out, on 24 May 2017. All employees were encouraged to ask questions, and to get back to company management if they did not understand any of the content.”

The Commission agreed with the relevant union that there had been a failure by the employer to take all reasonable steps to explain the terms of the EA and their effect. It was also found that the answers given by the employer, in the statutory declaration in support of the EA, as to whether the EA contained less beneficial terms in comparison to the modern award were incorrect. Therefore, the Commission had “real doubts as to whether the employees had ‘genuinely agreed’ to the Agreement” and drew the inference in light of the answers provided in the statutory declaration “that the pre-approval explanation cannot amount to the taking of all reasonable steps to explain the terms of the Agreement and their effect on employees.”

The Commission also confirmed that an undertaking by the employer could not be used to correct such an error.

Moreover, the Commission warned that it is a criminal offence to “intentionally make a false statement in a statutory declaration”. In this case, even though there was no intention to knowingly provide false information or to mislead the Commission, the Commission emphasised the need for employers to carefully consider the answers on statutory declarations and to ensure the accuracy of those answers.

This issue was again discussed by the Full Bench of the Fair Work Commission in Diamond Offshore General Company v Michael Baldwin (Diamond Offshore). In that case permission to appeal was refused, thus upholding Deputy President Kovacic’s decision that there were key differences in this new EA. Since the effect of these material changes were not explained, this was again fatal to the proposed EA and there was no genuine agreement by the employees.

The Commission, in Diamond Offshore, referred to Construction, Forestry, Mining and Energy Union v One Key Workforce Pty Ltd, where on appeal, the Full Court of the Federal Court stated “a bare statement by an employer that an explanation has been given is an inadequate foundation upon which to reach a state of satisfaction.” The Full Court of the Federal Court also explained, “the Commission was required to consider the content of the explanation and the terms in which it was conveyed, having regard to all the circumstances and needs of the employees and the nature of the changes made by the Agreement.”

In Diamond Offshore there were “material changes to the terms and conditions of employment” “which had either not been highlighted or which had been explained in a limited way”, including a decrease in the casual loading by 5%. The Full Bench reiterated that the requirement to explain the terms and the effect of those terms “is not a mere formality” and it is not enough to merely read, without explaining, the terms of the agreement to employees (per Flick J in Construction, Forestry, Mining and Energy Union v One Key Workforce Pty Ltd).

The key takeaway from these cases is the importance of explaining every term of a proposed EA to employees before the vote and ensuring the accuracy of statements made in statutory declarations, which can be fatal to the EA approval process and could also be a criminal offence.

Australian Workers’ Union v Professional Traffic Solutions Pty Ltd [2018] FWCFB 6333 (2 November 2018)

Diamond Offshore General Company v Michael Baldwin [2018] FWC 6907 (12 November 2018)

National Workplace Lawyers

Note — this is for information purposes only and does not purport to be comprehensive or to render legal advice.