Perils of the last resort

03 March 2012 By Lawyers Weekly

Powers of "last resort arbitration" under the Fair Work Act represent a significant shift away from the governing philosophy of Work Choices, writes Richard Naughton A significant feature of the…

Powers of "last resort arbitration" under the Fair Work Act represent a significant shift away from the governing philosophy of Work Choices, writes Richard Naughton

A significant feature of the new Fair Work Act are the powers "last resort arbitration" that have been invested in the industrial tribunal, Fair Work Australia (FWA).

These powers mean that FWA will be able to impose a final settlement on parties who are negotiating collective agreements in certain circumstances. Critics of the legislation suggest that this is a return to the tribunal exercising powers of compulsory arbitration. While this may not be strictly correct, it is still a long way removed from the position under Work Choices where the governing philosophy was that the parties should be free to negotiate an enterprise agreement themselves, without "third party involvement".


FWA's power to impose compulsory settlements upon parties can arise in three separate situations. The first is where one or other bargaining representative (for example, the employer or union party) has engaged in serious and sustained breaches of good faith bargaining requirements.

The second is where a negotiating party has engaged in protected industrial action that causes significant economic harm to the bargaining parties or to employees that will be covered by the agreement, or is threatening the personal health or safety of the population, or part of it, or else is damaging to the Australian economy.

The third situation where the FWA can impose compulsory settlements upon parties is where a low paid authorisation is in place, and the various parties specified in that instrument have been unable to finalise a multi-employer enterprise agreement.

In each of these three situations, FWA is empowered to issue a "workplace determination", which imposes an arbitrated outcome on the parties. The workplace determination has the same effect as an enterprise agreement. It will contain a range of agreed terms; including "core" and "mandatory" terms (such as the nominal expiry date, and clauses about individual flexibility arrangements, and a dispute resolution clause); and the terms imposed by FWA which it considers deal with matters remaining in dispute between the parties.

Breaches of good faith bargaining requirements

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There has been considerable debate about the new good faith bargaining obligations that appear in the Fair Work Act, and it is anticipated that the new statutory requirements imposed on both employer and union parties to "meet and confer"; to disclose relevant information; to "recognise" each other during the course of negotiations; and to respond in a timely way to each other's proposals are likely to become matters of strategic importance during the course of enterprise negotiations. If a party fails to comply with these requirements it will be possible to seek a bargaining order, and a breach of such an order is a contravention of the legislation.

The possibility of a workplace determination arises in cases where the breaches of bargaining orders are "serious and sustained" and have "significantly undermined bargaining for the agreement". In those circumstances FWA has the power to issue a serious breach declaration, which in turn triggers a post declaration negotiating period. Where this happens the parties will have 21 days after the serious breach declaration to resolve their dispute or FWA will step in and exercise its powers of "last resort arbitration".

There is little guidance in the legislation about how these provisions will operate in practice. The Government has insisted that there is a "high bar" before these arbitral powers can be used in a bargaining dispute, but ultimately this will depend on how FWA interprets the requirements about whether there has been a serious and sustained breach of bargaining orders. How these provisions are ultimately utilised will be one of the most closely watched aspects of the new legislation.

In political terms the inclusion of "last resort arbitration" in conjunction with the new good faith bargaining requirements was something of a victory for the union movement during the lengthy deliberations about the content of the new industrial legislation. This had not been part of the ALP's industrial policy prior to the 2007 election, and was only announced by the Minister immediately prior to the introduction of the Fair Work Act. The ACTU has been a constant advocate of the industrial tribunal having powers of "last resort arbitration" in bargaining disputes.

Workplace determinations in cases of serious industrial action

The tribunal's ability to terminate or suspend a bargaining period and then impose an arbitrated determination on bargaining parties was also a feature of the Work Choices legislation. The powers of FWA under the Fair Work Act are slightly different as the concept of bargaining periods has been removed. Instead, the tribunal may terminate protected industrial action where it is damaging to the bargaining parties or the national economy. Here FWA would issue a termination of industrial action instrument, which would immediately result in the commencement of a 21 day post-industrial negotiating period. If the parties remain in dispute after that time it is again possible for FWA to impose an arbitrated settlement of their dispute upon them.

The low paid bargaining stream

Little has been written about the low paid bargaining arrangements which enable FWA to impose an arbitrated outcome on a range of employers in a designated sector or industry. First what is required is that a bargaining representative or trade union obtain a low paid authorisation. This would apply to a number of employer parties across a low paid sector (for example, security, cleaning, aged care and community service workers).

In deciding whether to issue a low paid authorisation FWA is required to consider the history of bargaining across the industry and the relative bargaining strength of the employers, and employees who would ultimately be subject to a multi-employer enterprise agreement. The Fair Work Act does not actually specify who is a low paid worker, and the low paid authorisation would be available even where employers are currently meeting all existing minimum entitlements under awards and the National Employment Standards.

However, if such a low paid authorisation is issued, and bargaining representatives are then unable to reach a multi-enterprise agreement, it will be possible for FWA to impose an arbitration determination upon the parties (at least where it was satisfied that this is in the public interest). These new provisions are likely to prove a highly controversial aspect of the Fair Work Act.

Already employer critics have complained that this low paid bargaining stream will mark a return to trade unions seeking industry-wide wage outcomes. It is difficult to see the justification for these arrangements when the stated object of the Fair Work Act is "to encourage genuine enterprise bargaining".

Perils of the last resort
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