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HG Industrial and Employment Law Alert: Coalition IR reforms to be introduced important changes to making Greenfields Agreements for new business projects 25 February 2014

In the last week of February 2014, the Coalition Government is due to introduce a bill to the Parliament that implements the first tranche of its Policy to Improve the Fair Work Laws. The bill includes important reforms to the making of enterprise agreements for new business development and investment projects, particularly relevant to the resources and construction sectors.

Key aspects of the Coalition’s reforms and key considerations

The Coalition Government proposes to fix the current impediments to making a Greenfields Agreement, by making the following changes to the Fair Work Act:

  • bargaining negotiations for genuine new enterprise agreements will have to be completed by the parties within three months of commencement;
  • all parties to the negotiations, including trade unions, will have to bargain in good faith; and
  • if the bargaining negotiations are not successfully concluded within three months, then the Fair Work Commission will be able to intervene and, if necessary, make and approve a Greenfields Agreement in accordance with prevailing industry standards (but still subject to the Better Off Overall Test).

Companies who are considering developing a genuine new enterprise this year should watch this space carefully and also seek professional advice with a view to significantly minimising their long term labour costs by modifying their business development strategy accordingly.

What are Greenfields Agreements?

Greenfields Agreements are a form of enterprise agreement used to fix the working conditions applicable to a genuine new business, project or undertaking, without the risk of protected industrial action being taken by the workforce, for a fixed period of time (potentially up to four years).

Greenfield Agreements have historically been commonplace in the construction and resources industries, but may only be negotiated with a trade union or unions with majority coverage of the proposed employees to be covered by the enterprise agreement.

In 2012, the former federal government’s Fair Work Act Review Panel found that certain bargaining practices open to be legitimately adopted by unions when negotiating Greenfield Agreements under the Fair Work Act, unfairly provided them with a significant capacity to frustrate the timely making of an enterprise agreement with working conditions consistent with prevailing industry standards.

Importantly, the Panel recommended significant legislative reforms be introduced in order to improve fairer bargaining outcomes when making Greenfields Agreements.

Impediments to making Greenfields Agreements

Commonly experienced problems for project developers and investors when making such an enterprise agreement include:

  • unions demanding exorbitant terms and conditions and exploiting their unique position by deliberately causing delays and setbacks in the agreement making process;
  • an absence of any effective dispute resolution mechanisms being available, if negotiations reach an impasse or otherwise cannot be progressed; and
  • a lack of clarity as to what is a “genuine new business, project or undertaking” under the legislation.

What is a genuine new enterprise?

The Fair Work Act does not define or provide any guidance as to what constitutes a genuine new business, project or undertaking, ie a genuine new enterprise.

The Explanatory Memorandum to the legislation simply tells us that a Greenfields Agreement cannot be used for an already established business that an employer has taken over as a going concern.

Otherwise, it is a matter for the Fair Work Commission and the courts to determine what constitutes a genuine new business, project or undertaking.

Last year, the Federal Court ruled that just because significant preparatory work had already been done on a project by a holding company, this did not preclude a finding that its subsidiary company could then validly negotiate a Greenfields Agreement in respect of the conduct of the day to day operations of the project.

More recently, the Commission has signalled that it too is prepared to adopt a more flexible view about what has generally been considered will satisfy the test for a new business enterprise. In one case, the Commission accepted a novel argument that the concept might include a scenario where the project manager had altered its former method of operating the project from an industrial perspective.

In this instance, the project manager had for some time carried out building work on certain projects which it subcontracted to labour hire providers. A genuine new enterprise arose when the project manager decided to directly engage employees to perform the building work, rather than continue to use labour provided by third parties.

These recent decisions suggest that the range of potential circumstances as to when a Greenfields Agreement might be negotiated may continue to expand somewhat over time as more cases are heard and decided by the Commission.

What does the future hold?

If these IR reforms are passed by the parliament, then we should see more Greenfields Agreements being made, and on more commercially advantageous terms for the developers of new business investment projects.

Unions will have to bargain in good faith and the Commission will have power to step in and intervene in the event of an impasse in negotiations being reached or the bargaining process otherwise being unduly delayed. This should result in the overall agreement making process operating more efficiently and fairly.

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