Fatty agreements are to be avoided: drafting an enterprise agreement

Interpreting a clause in an employment contract or enterprise agreement should be a straight forward exercise for the parties who drafted or negotiated it.  Unfortunately, many agreements are not drafted with clarity and precision and do not reflect a true meeting of minds.

To settle a dispute with a union or to give a good impression to a prospective employee, words of comfort are included in agreements.  To cover different permutations that may arise, more detail is included in the agreement.  Sometimes, there is more than one drafter having input into the document.  The output may be a dog's breakfast or less than ideal.

In National Tertiary Education Union v La Trobe University [2015] FCAFC 142, the Full Federal Court of Australia was asked to resolve a controversy concerning the meaning of a redundancy provision in the context of a restructure.  The union won the case, in a split decision.  Regardless of the outcome, the decision provides invaluable lessons to employers about the drafting of an agreement. 

The dispute

La Trobe University announced that it was proceeding to implement a restructure.  As a result, 280 employees were to have their employment terminated, with 100 to be forcibly terminated.

The union argued that the University had not complied with clause 74 of the enterprise agreement.  It had not, the union said, exhausted other options like calling for voluntary redundancies first, before proceeding to implement the restructure.  The union argued the University was implementing compulsory retrenchments not as a 'last resort'.

The enterprise agreement

Clause 73 of the La Trobe University Collective Agreement 2014 dealt with the obligation to consult.  Clause 74 then provided:

The University is committed to job security.  Wherever possible redundancies are to be avoided and compulsory retrenchment used as a last resort.  The University reserves the right to use the agreed redundancy procedures and provisions set out in this Agreement when all reasonable attempts to mitigate against such action and to avoid job loss have been unsuccessful.

Clause 76 contained lengthy and detailed provisions as to redundancy and redeployment procedures.

The legal issue

The question for the Court was whether clause 74 imposed any binding obligations on the University.  The parties accepted that the first sentence of clause 74 was merely aspirational and not binding.

The Full Court was divided in opinion

Bromberg J, with whom White J agreed, found that the remainder of clause 74 was binding on the University.

Bromberg J said the second sentence of clause 74 specifies what is to be done (redundancies are to be avoided) and what is not to be done (compulsory retrenchment is only used as a last resort) and when that is to occur (wherever possible).  In that sense, his Honour said there is nothing aspirational about the clause; it imposes a limitation on the University: at [67].  It was not necessary to use the language of "will" or "shall": at [70].  Further, the use of the phrase "wherever possible", supported the clause being binding.  It would not be necessary to qualify an obligation if it was merely aspirational.

White J noted that enterprise agreements are approved by a process of negotiating, voting and approval by the Fair Work Commission.  An enterprise agreement is binding on approval.  His honour said "it is natural to suppose that the parties [therefore] ... intended that the result should be a binding and enforceable agreement": at [108].  Consistent with that intention, the language that redundancies "are to be" avoided was language of obligation: at [110].  The third sentence reinforced that view, as the University would only reserve its "right", if an obligation had been imposed on it: at [113].

In dissent, Jessup J agreed with the trial judge that clause 74 did not create any binding obligations.  Jessup J observed that enterprise agreements often contain a mixture of obligations and aspirational terms.  His honour formed the view that the wording of clause 74 was merely advisory, like a warning that "fatty foods are to be avoided":  at [32].

Jessup J said his view was supported by clause 76.  Clause 76 set out what the parties specifically agreed to minimise the impact of redundancies, having regard to the aspiration in clause 74.  Bromberg and White JJ however held that clause 74 was overarching, and clause 76 merely one way to achieve the obligation of avoiding redundancies.

What are the lessons for employers?

An employment contract contains contractual terms.  An enterprise agreement is subject to pecuniary penalties for contravening its terms: s50 of the Fair Work Act 2009.  As a general rule, you should only include in your agreement what you intend to be bound by and no more.

When drafting an agreement, keep obligations clear and simple.  If a matter requires detail, consider whether the detail needs to be in the agreement or should be dealt with by way of policy.  It is easier to vary or terminate a policy than an agreement.

If you do not intend to be bound by a matter, but need to include it in the agreement, say explicitly that the clause or term is not binding.  Drafting techniques, like text boxes, could be used to differentiate aspirational matters from binding terms.  At least this way each party will be clear the matter is not intended to be binding.

It is important to keep in mind that aspirational statements may also be representations or used against a party in dispute resolution processes to argue a preferred interpretation or to obtain a settlement.  As such, there may also be a need to say no reliance should be placed on aspirational matters.  This supports our view that such aspirational statements should not be in an agreement in the first place. 

Industrial relations may mean the above approach is ideal rather than a practical reality.  Nevertheless, parties should aspire and try to be clear and precise as to the agreed terms, to avoid future disputation and unexpected surprises.

Author: James Mattson