Industrial Relations Commission of New South Wales CITATION: Notification under s130 by Pirelli Power Cables & Systems Australia Pty Limited of a dispute with National Union of Workers, NSW Branch & Ors re industrial action [2005] NSWIRComm 272 Applicant: Pirelli Power Cables and Systems Australia Pty Ltd Respondents: PARTIES: National Union of Workers, NSW Electrical Trades Union Australian Manufacturing Workers' Union FILE NUMBER(S): IRC3446 of 2005 CORAM: Kavanagh J CATCHWORDS: Dispute notification - compulsory conference failed - certificate issued - parties agree to comply with Commission's recommendations - interlocutory orders - 3 percent wage increase granted - three month trial period for the introduction of agreed key performance indications - if trial successful it will attract a 1% incentive payment to be paid as a component of wages LEGISLATION CITED: Industrial Relations Act 1996 s130 HEARING DATES: 07/22/2005; 07/25/2005; 07/26/2005 EXTEMPORE JUDGMENT DATE: 07/26/2005 Applicant: Solicitors: Mr R. Cook LEGAL REPRESENTATIVES: Clayton Utz, Canberra Respondent: Mr A.P. Joseph of counsel JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES CORAM: Kavanagh J 26 July 2005 Matter No IRC 3446 of 2005 NOTIFICATION UNDER S130 BY PIRELLI POWER CABLES AND SYSTEMS AUSTRALIA PTY LTD OF A DISPUTE WITH NATIONAL UNION OF WORKERS, NSW BRANCH AND OTHERS RE INDUSTRIAL ACTION EX TEMPORE JUDGMENT [2005] NSWIRComm 272 1 HER HONOUR: This matter comes before me arising out of industrial action taken by members of the NUW, the ETU and AMWU on site at Pirelli Power Cables and Systems Australia Pty Ltd, 1 Heathcote Road Liverpool. The stoppage occurred in negotiations related to an Enterprise Agreement. The stoppage directly related to the pay rates to be paid over a 2-year period under the new Enterprise Agreement. 2 The company offered its employees a 2.75 percent wage increase and a 1.25 percentage increase as a bonus. It is important to note the bonus component requires the company to meet all on-going costs but if the 1.25 percent is offered as an incentive wage increase it would attract for the members a component from the company towards the superannuation contribution. 3 Mr R. Cook, solicitor, represented the company. The company submits it does not have a capacity to pay the 4 percent as a wages payment. It concedes it has the capacity to pay the 4 percent in the way it has been offered as a package. 4 The company called four witnesses: Mr Tom Arronis, the Plant Manager at Liverpool, Ms Larissa Tilley-Smith, the Human Resources Manager Energy; Mr Antonio Capristo, the Logistics Manager; and Mr Martin Gough, the Chief Financial Officer. All witnesses gave oral evidence, were cross-examined and tendered statements before the Commission (as amended). 5 Ms Tilley-Smith outlined best before the Commission the history at this work site. It appears that two work places were amalgamated into one in about 2001. That amalgamation, joining independent operations from Minto and Liverpool, involved the company re-defining the classification structure of its employees. 6 In the Enterprise Agreement of 2001 to 2003, the employees were re-classified and, in effect, received a 10 percent wage increase under the Enterprise Agreement. However, the company met with some difficulties in implementing the classification structure and part of the agreement between the parties was that 2 percent of that 10 percent would be paid on implementation of the classification structure. The parties came to the Commission for assistance to implement that agreement. When the re-classification exercise was finalised with the assistance of the Commission, the employees received the 2 percent per the agreement. 7 Between 2003 and 2005, a further Enterprise Agreement was struck through which the employees received a 3 percent wage rise each year. In accordance with that agreement, over those 2 years, they received a 6 percent wage increase. Manning projects for change in work procedures in the factories were introduced to the manufacturing area and the warehouse operation was streamlined. 8 The employees argue in rejecting the offer of the company of a 2.75 percent wage increase and a 1.25 bonus that they should receive a flat 4 percent wage increase each year in the next 2 years under a new Enterprise Agreement. 9 The parties have agreed to comply with the recommendations I make after hearing the evidence from both parties as to this wages issue. 10 The company's submission is it does not have the capacity to pay a straight 4 percent wage increase for each year. The evidence of the company's witnesses, however, also reveals a further underlying problem. The Plant Manager, Mr Arronis, best stated his perception of the workplace saying in his evidence: 22. .... The workload of the operator has not actually increased, because they were always required to work for 8 hours per time, what has changed is the actual time working within that 8 hours has changed rather than operators being required to work additional hours; there is a difference. and later he said: 26. .... All we are asking for is to protect employees buying power in an increase in real wages, greater than the CPI and that a component of a wages outcome be held directly in the hands of the employees themselves in determining it payment. Importantly arising from that last aspect, we are only putting in practices which give the employer the ability to maximise utilisation for the full shift, and while this may require increased concentration it is not generally harder work or more physical (in a sense being an unreasonable demand or hardship). 11 Ms Tilley-Smith said of the workplace: 94. Over the last four (4) years the employees at Pirelli Power Cables and Systems Australia Pty Limited have benefited from wage increases on the basis of further improvements to the efficiency and productivity of our operations area that required their cooperation and participation. During the last four (4) years the Company has sought the assistance of the Commission on three (3) occasions seeking recommendations and endorsement of moving forward with initiatives agreed to within the context of an enterprise agreement. Employees have accepted and received wage increases on the basis of their cooperation and participation. Yet post certification the Company has been presented with barriers and delays that have resulted in lost opportunities to realise improvements that would ultimately improve the financial position of the Company. ... 12 Mr Capristo, the Logistics Manager, who is updating the works programme at the factories conceded there had been great improvement in the way the work was being performed and that improvement post dates both parties last appearance before the Commission in March 2004. 13 Since March 2004, the progress on site has been satisfactory to all parties. But it appears the company really relies upon two submissions. The first submission is that the company does not have a financial capacity to pay a straight 4 percent wage increase and, secondly, that the employees do not always comply with their agreement productivity when they have received the wage increases. The company is not persuaded at this stage that future implementation of change will occur without dispute even when such changes are agreed to. 14 The unions represented by Mr A.P. Joseph of counsel rely upon a number of documents, including the Enterprise Agreement of 2003 to 2004 and the University of Sydney's Analyse's of Wage Trends through from September 2004 to April 2005. It also tendered a Manning Program Summary. The unions called two witnesses both employees on site, Mr Colin Minns, a machine operator and Mr Daniel Leslie White, who works in the warehouse. Both are union delegates. 15 The unions' evidence revealed there are five factories on this site. In factory one, the manning arrangements have changed; in factory two, a manning project has been partly implemented; in factory three, there has been a significant decrease in overtime as a result of manning implementations. There has not been redundancies in the manufacturing area but alternative duties have been provided to employees. 16 The manning projects that are underway are by agreement between the parties through a Site Consultative Committee that involves both management and the employees. In the future in accordance with the projected "manning projects" in factory one, the company seeks to reduce the number of operators from two to one. In factory two, the company seeks to reduce the number of operators from two to one. In factory four, there will be a reduction in overtime; and in factory five, the company seeks to reduce five operators to four with a part-time operator and in the second stage to three full-time operators with one part-time operator. 17 It is clear within the factories there has been and is ongoing significant manning projects in place, which projects will require the co-operation of the employees. Mr White gave evidence that warehouse employees have worked with key performance indicators for the last three years and the warehouse workforce has been reduced from 37 employees to 28. Mr White described the variations for both productivity and efficiency that have been implemented inside the warehouse, for example, (given by both parties before me) there has been achieved a reduction in the use of the drums which correlated also with the change in the size of the orders now accepted. 18 Reliance is also placed by the unions on statistics kept by Sydney University as to overall wages trends in the manufacturing, transport and storage industries. The latest trend in the Adams Report of 2005 indicates that the wage increases averaged 4 percent in the manufacturing industries and 3.8 percent in the transport and storage industries. The December 2004 report also recited indices which suggest that bonus systems now include key performance indicators and such bonus systems are now drawn up with greater flexibility. 19 Mr Gough, the Chief Financial Officer of the company gave evidence. He acknowledged the company has increased its purchase of copper as a short-term risk minimisation strategy being used by management, given the recent increases in copper prices. The financial statement of the company reflects a 25 percent increase in the costs of raw materials. There seems to be a very practical reason for "hedging". It allows the company not to enforce upon their wholesalers the higher prices that any later purchase of copper would demand. The company expenses for raw materials has increased from $131 million in 2003 to $160 million in 2004. 20 The financial report of the company dated 30 June 2005 for six months indicates the company is in profit ($1.360 million). Mr Gough asserts the profit is because of the large purchase of copper in 2004. It is relevant to note in 2003, the company made a net profit of $1.703 million; in 2004 it recorded a loss of $2.388 million and, allowing for hedging and wage increases (in accordance with the company offer), Mr Gough estimated the company would in the next six months period suffer a net loss of $245,000. 21 Notwithstanding the significant endeavours that have been made by both the company and the employees to streamline the operations in these factories, there is really no significant variation over the years shown in the table prepared by Mr Gough setting out the actual total cost to the company's blue collar employees between the periods December 2002, December 2003, December 2004 and the 6 months ending June 2005. 22 The company's Annual Report of 2004 contains the statement of the financial performance of the company for the year up to 31 December 2004. The report reveals the hedging policy of the company (about which I make no criticism at all) and shows the cost of raw materials have gone up from $131 million from 2003 to $160 million in 2004. In that comparative document, the wages expenses were $33 million in 2003 and $35 million in 2004. There was no substantial percentage increase in wage costs compared to the 25 percent significant increase in the costs of the raw materials. 23 The unions submit any assessment of whether the company has a capacity to pay should also take into account that the company paid $6 million to the parent company in Milan for royalties and $1.3 million to the parent company for loans in the financial year 2004. 24 The unions also submit the company, through the Australian taxation rules, has the advantage in putting in returns for its two independent corporations, this company and their Dee Why operation (which on the record it has been agreed between the parties is profitable) but when assessing its total taxation liabilities it is permitted to join together the two financial results thus giving them a tax advantage. 25 Mr Gough analysed the effect of any wage rise and put the following proposition: the annual cost of each 1 percent wage outcome is approximately $219,000. A four percent wages outcome would equate with an additional $876,000.00. This would result, when added to the projected net underlying loss of at least $490,000 of an aggravated underlying loss of $1.3 million for the 12 month period. Mr Gough opined therefore the company could not have the capacity to pay more than a 2.75 percent wage increase plus the 1.25 percent bonus. 26 Later and in cross examination as to how he would assess the productivity gains already achieved by the company and the future gains expected under the proposed KPIs, Mr Gough agreed there would be savings to the company. He estimated the costs gain to the company would be approximately $270,000 per year for 1.25 percent bonus and if the component of super was added in and a percentage was paid as an incentive payment then the cost to the company would be marginally more at $290,000 per year. 27 In take into account the company earning over the last three years, the financial status of the company to date in 2005, the estimated net loss for the second half of 2005 and the estimated costs to the company of the difference between paying a bonus of 1.25 percent and paying it as an incentive payment (as wages). I note the offer of the wage increase was 2.25 percent. 28 I further take into account the submission of the company that the wages increase should reflect the consumer price index. I further take into account the productivity gains made by the company so far which gains should continue. 29 In all, I am persuaded the company does have a capacity to pay a four percent wage rate increase. I, however, accept the company's concern that, notwithstanding the improvement since March 2004, there has been significant industrial disputation on this site with the introduction of new manning projects and a practice by the employees of not following the dispute procedures agreed between the parties in the prior Enterprise Agreement. 30 The Commission is available to assist the parties in circumstances where the agreed dispute procedures are not providing assistance. Prior to any industrial action being taken each party is free to notify this Commission and to come before it and ask for its assistance to avoid industrial action. 31 I am further not persuaded at this stage that the proposed KPIs will provide an achievable standard which could reflect in a payment to the employees. The KPIs it is agreed are to cover two categories - one called productivity, one called waste. 32 I intend to give interim orders in this matter. I have found the company has a capacity to pay a 4 percent wage increase. However I accept the company's expressed concern as to the implementation of its proposed future changes. I intend to order a three month trial of the proposed KPIs. If successful they will attract an incentive wage payment. 33 I make orders as follows: 1. The company is to pay a 3 percent wage increase from the first full pay period on or after 6 July 2005. 2. The members of the National Union of Workers, Electrical Trades Union and the Amalgamated Metal Workers Union are to work to the agreed KPIs for a three month trial period beginning 1 August 2005. The Commission when it hears the Report Back as to the KPIs will then consider the payment of the further one percent as an incentive payment to the employees which payment will be treated as a wages component. 3. There is to be no industrial action on site during that 3 month period. 4. Leave for either party to apply at short notice for re listing, especially related to the implementation of the KPIs. 5. The parties are to continue negotiations as to any outstanding issues related to the Enterprise Agreement. 6. The matter is stood over part heard to 10 am Monday 7 November 2005. I will hear argument as to final orders. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.