Agreeing to live with the wrong decision (when you are right)

In a significant reminder for employers, the Federal Court in Linfox Australia Pty Ltd v Transport Workers Union of Australia [2013] FCA 659 has highlighted the importance for employers in giving careful consideration to the actual detail of dispute resolution processes to be adopted in agreements and contracts.

Dispute resolution has been a common feature of industrial relations for many years.  Many employers adopt the standard dispute resolution clause, oblivious to what it actually means.  Would you agree to be bound by a decision that is wrong just to settle a dispute?  Do you have a get out of jail card to correct an injustice that may impose significant burden?

The facts in Linfox

Linfox was a party to an enterprise agreement that gave the Fair Work Commission the power to arbitrate a dispute about matters arising under the agreement.  A dispute arose about whether crib breaks were to be paid at overtime rates or ordinary rates.  A crib break is a 20 minute rest period after ordinary hours of work but before overtime work commences.

The Linfox dispute resolution clause

Clause 22 of the Linfox agreement said, like many dispute resolution clauses:

22.1      Any dispute … that arises ... about the Agreement ... shall be dealt with in the following manner:

…

(e)       If the matter is not resolved in conciliation conducted by the [Commission], the parties agree that the [Commission] may proceed to arbitrate the dispute...

(f)      The decision of the [Commission] will be binding on the parties subject to the following agreed matters:

(i)    There shall be a right of appeal to a Full Bench ... within 21 days of the decision;

22.2    The decision of the Full Bench in the appeal will be binding upon the parties.

Under the Fair Work Act 2009 the Commission is empowered to determine the matter by arbitration.  However, section 739(5) provides:

... the [Commission] must not make a decision that is inconsistent with this Act, or [an enterprise agreement] that applies to the parties.

The outcome of the dispute

Linfox notified a dispute about the payment of the crib break with the Commission.  At first instance, the Commission found Linfox was correct; crib breaks are paid at ordinary time rates.  The union appealed.  The Full Bench held the crib break is to be paid at overtime rates.

Linfox then applied to the Federal Court for a declaration as to the proper interpretation of the agreement and for orders quashing the Full Bench decision.  Linfox argued that, pursuant to section 739(5) of the Act, the Commission cannot make a decision inconsistent with the agreement.  As the interpretation of the Full Bench was the incorrect interpretation, it was a decision the Court should overturn.

The union argued the outcome was final and binding on Linfox under clause 22.2 of the agreement.  Linfox said the decision was binding, not final.

The Federal Court said:

• The parties agreed to resolve the dispute by way of private arbitration.

• The decision of the arbitrator, the Commission, had effect according to the terms of the agreement reached.

• The decision was binding, conclusively determining the dispute between the parties as they agreed to under clause 22.2.  There was no appeal to the Federal Court.

Ironically, and despite the decision of the Full Bench being binding, the Court said the Full Bench was incorrect in its interpretation.  Nevertheless, because Linfox agreed to be bound to the decision, whatever it may be, the appeal to the Court was dismissed.  A bittersweet ending with no cake!

What to have in a dispute clause?

Employers must assume that a purpose of any dispute resolution process will be to resolve the dispute.  An arbitrator will have the function to conclusively determine the dispute.  The avenues for resolution and appeal will be as agreed by the parties.  The absence of appeal mechanisms may mean there is no appeal.

Who is the arbitrator?

It was determined a couple of years ago that a dispute resolution process in an enterprise agreement need not include a provision requiring arbitration or arbitration by the Commission:  Woolworths Ltd trading as Produce and Recycling Distribution Centre [2010] FWAFB 1464.  Different types of disputes may call for different arbitrators or different methods of resolution.

How to resolve a dispute?

When there is a dispute about the proper interpretation of an industrial instrument, an employer usually has a choice of forum to resolve the dispute.  It can apply to a Court for a declaration as to the proper meaning of the disputed clause, or it could seek the assistance of the Commission under a dispute resolution process.

Courts tend to apply principles of interpretation in a more mechanical strict fashion.  Courts can exercise judicial power to interpret the instrument in an authoritative way.  The Commission, whilst following a similar process, is more attuned to notions of industrial fairness and arbitrates an outcome; it cannot exercise judicial power.  Outcomes in the Commission may not be the same as a judicial determination.

The issue therefore that immediately confronts an employer is to give prompt consideration to the best forum to resolve a dispute, ensuring they are not constrained by an agreed dispute resolution process that may not be the best process to resolve the particular dispute.

Conclusion

There is no doubt there is a benefit in conclusively resolving some disputes regardless of the outcome.  But other disputes can have significant financial and other consequences for business such that an incorrect decision, unchecked, may not be desired or intended.  How happy would your business be to live with the incorrect decision?

Author: James Mattson