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FWC backs employer approach to reducing FIFO salaries

Tayissa Popowicz of AREEA’s Legal Services team explores a recent decision where an employer’s approach to reducing salaries after changing FIFO roster patterns is put to the test, and ultimately backed by the Fair Work Commission.

Tayissa Popowicz

REACHING agreement on the key terms and conditions of an enterprise agreement (EA) is the central aspect of enterprise bargaining, however, another essential component to the process is the drafting of these terms which effect interpretation. This issue was central to a dispute settled last week by Fair Work Commissioner Danny Cloghan.

In AWU v Fluor Rail Services Pty Ltd [2016] FWC 1612, Cloghan C dealt with a dispute under an in-term agreement from 2013 (the Agreement) that centred around the interpretation of ‘appropriate annual salary’ in a clause that permitted a change in the pattern of hours or work cycle due to operational needs of the business.

In so doing, Cloghan C tastefully quoted Lewis Carroll’s Through the Looking Glass – “When I use a word, it means just what I choose it to mean…”

Background and earlier decision

Fluor Rail Services Pty Ltd (the Employer) employs about 290 employees on a fly-in, fly-out (FIFO) arrangement.  In 2014, the Employer implemented a new work cycle in accordance with clause 38 of the Agreement that changed the roster pattern from 14/7 to 7/7.

This clause also enabled the calculation of an ‘appropriate annual salary’ for such change. The Employer therefore proposed to reduce annual salaries by 25 per cent, calculated on the change in work hours per annum.

The AWU did not oppose the roster change, however they did raise a dispute in relation to the reduction of salaries, arguing that any reduction in salary should reflect changes to individual components such as travel time.

This dispute was initially subject to a decision in May 2015 whereby Cloghan C concluded that it was incorrect to interpret a clause selectively by focusing on only one aspect of a clause:

“I consider both parties have approached Clause 38 of the Agreement with a degree of selectivity… the parties have failed to take into account the remaining components which are clearly set out in Clause 36 of the Agreement…(this) will inevitably lead to further interpretation issues.”

Given neither party was approaching the calculation of ‘appropriate’ annual salaries in the correct manner, Cloghan C concluded the matter should be subject to further discussions between them.

The distinction between ‘annualised’ and ‘annual’ salaries

In his decision of 29 March 2016, Cloghan C referenced the leading Full Bench authority on the construction of an EA, AMIEU v Golden Cockerel [2014] FWCFB 7447, and noted the phrase ‘appropriate annual salary’ was not plain and was capable of more than one meaning.

He also drew a distinction between ‘annual’ and ‘annualised’ salaries:

  • ‘Annualised’ salaries describe a weekly or other periodic amounts that are converted to an equivalent yearly amount, being a ‘bottom up’ exercise that has identifiable constituent parts which make up the annualised salary; whereas
  • An ‘annual’ salary is a specific yearly dollar amount for a year’s worth of work, in other words, a pre-determined ‘top down’ exercise.

The issue – was this the correct approach to reduce salary?

The Agreement provided for an annual salary which ‘includes compensation’ for specific components such as travel time and working on public holidays. It also listed compensation for ‘any and all disabilities associated with the work and the FIFO nature of the employment’.  The term ‘disabilities’ contemplated constituent parts that were not readily identifiable.

Cloghan C also considered the more specific constituent of travel time and although clause 38 clearly noted that this was taken into account in the annual salary, it was not a factor, akin to disabilities, that could be discretely identified or calculated in an annual salary (as the AWU sought to do). It followed that the annual salaries in the Agreement:

are all inclusive and cannot be (historically or contemporaneously) disaggregated into constituent part. In such a situation, the annual salaries cannot be disassembled and changes made to various components, to arrive at appropriate salaries for the new work pattern.”

Accordingly, the reduction in 25% of the salary as proposed by the Employer was an appropriate approach to take.

Implications for our members

The drafting of an EA is just as important as the broader discussion of the terms and conditions themselves during negotiations.  The key takings from this decision are:

  • When drafting an EA, all the words in a sentence will impact meaning. For example, the word ‘includes’ is likely to be seen as limitless and non-exhaustive (especially where items can not be discretely identified), whereas ‘is’ or ‘means’ are more final and less open to different meanings;
  • Parties to an EA can not retrospectively construct a basis for a meaning of a term in an EA;
  • Rostered hours and overtime work can be objectively calculated and a direct monetary consequence attributed, in contrast to other aspects such as disabilities relating to FIFO work; and
  • It is difficult to construct a particular formula for the breakdown of an annual salary but annualised salaries can be more easily aggregated from discrete component parts.

This decision is also a reminder that an employer does not need to rely on salary figures in a preceding EA. It is open for an employer at the bargaining table, as occurred in this decision, to base negotiations around salary on market research and commercial considerations.

Careful drafting can also allow for flexibility and change as a result of operational needs, however, this will still require agreement of bargaining representatives (who may resist such wording).

It is also clear that for FIFO work, changes in rosters may result in increased travel, however this then also means that FIFO employees spend less time away from home and their families which can endorse a reduction in disability compensation associated with FIFO employment.

For further detail on this ruling and what it means for your employee relations strategy, or for any other workplace or legal matters, contact an AREEA workplace consulting representative at your local AREEA office.

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