Industrial Relations Commission of New South Wales CITATION : Australian Workers Union, New South Wales v BHP Steel Pty Ltd [2003] NSWIRComm 456 Labor Council of New South Wales (Intervenor) PARTIES : The Australian Workers Union, New South Wales BHP Steel Pty Ltd - Port Kembla Steelworks FILE NUMBER: IRC 1315 of 2003 CORAM: Walton J Vice-President; Grayson DP; Bishop C Industrial dispute - Outsourcing - Union application to prevent outsourcing - Alternative union application to permit outsourcing only on basis of retention of existing rates of pay and conditions of employment for affected employees - Direction to join proposed contractors in dispute proceedings - Lengthy conciliation and arbitration - Primary application refused - Agreement reached as to rates of pay and conditions of employment for transferring employees - Remaining issues as to rates of pay and conditions of employment for new employees (future employees) - Particular contractor carrying out cleaning functions on steelworks site for many years - Employees employed by particular contractor paid under cleaning industry common rule award - Union application to extend agreed rates of pay for transferring employees to new employees (future employees) of contractor - Evidence as to increased intermixing of cleaning workforces under flexible arrangements - Recognition of special circumstances applying historically in the case of transferring employees - Agreed rates of pay derived from preserved/retained non-cleaning classification rates CATCHWORDS : Held, New employees engaged by contractor to perform outsourced work functions to be paid - In the interim - Rates of pay specified under cleaning industry common rule award - Conclusion has no general application beyond instant proceedings - Interim award to be made LEGISLATION CITED : Industrial Relations Act 1996 HEARING DATES: 06/26/2003; 07/14/2003; 07/17/2003; 07/18/2003; 08/04/2003; 09/05/2003; 12/08/2003; 12/09/2003 EXTEMPORE JUDGMENT DATE : 12/09/2003 Mr A Hatcher of counsel for the Labor Council of NSW (intervenor) - instructed by Jones Staff & Co Mr A Gillespie, Australian Workers Union Mr W Phillips, Australian Manufacturing Workers Union LEGAL REPRESENTATIVES: Mr A Morris and later Ms L Dean, solicitors for BHP Steel Pty Ltd (Blake Dawson Waldron) Mr M Diamond and later Mr R Crow of counsel for Berkley Challenge Pty Ltd Mr G O'Donnell for Allied Plant Services Pty Ltd JUDGMENT: - 1 - INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES CORAM: WALTON J, Acting President GRAYSON DP BISHOP C MATTER NO. IRC 1315 of 2003 STATEMENT OF THE COMMISSION [2003] NSWIRComm 456 1 On 18 July 2003, the Commission determined to refuse the primary application brought by the AWU and the Labor Council of New South Wales in this matter. That determination did not, however, dispose of the issues in their industrial dispute in their entirety. The AWU and the Labor Council of NSW sought, in their alternative the relief, paragraph 3.2 of exhibit 17: "That the proposed outsourcing of the functions of BHP Steel's Kembla Site Services division be permitted to occur only on the condition that each affected employee of BHP Steel is offered either alternative employment with BHP Steel, or employment with any contractor to which the functions of the Kembla Site Services division are outsourced, on remuneration and conditions of employment which are not less than those currently enjoyed by each employed." 2 On the same date, the Commission gave directions which were designed to sequentially deal with each disputed element of the alternative relief so claimed. 3 We agree with the summation given by Mr Hatcher of counsel, who appeared for the Labor Council of New South Wales, as to the three step process envisaged by our Statement of 18 July. That process was as follows: i. The resolution of issues concerning conditions of employment for employees of contractors (namely Berkeley Challenge and Allied Plant Services) engaged to perform the functions previously performed by BHP Steel's Kembla Site Services Division. ii. There would be a process by which existing KSS employees would express an interest in taking up employment with the contractors and/or take up redundancy. iii. There would be a resolution of any dispute as to the circumstances which should apply to KSS employees not engaged by the contractors to perform the outsourced functions. 4 This Statement concerns the resolution of issues arising in relation to the first such step, namely the appropriate conditions of employment for former KSS employees who may be engaged to carry out KSS functions with the contractors. 5 We are advised that, following conciliation processes before the Commission, there remained essentially only one issue to determine with respect to that matter. The parties had settled the rates of pay to be provided to existing KSS employees who were offered and accepted employment with Berkeley Challenge. That agreed rate of pay was announced as $17.10 per hour. We were advised that negotiations between the parties as to the conditions of employment (other than rates of pay) for employees engaged by Berkeley Challenge were effectively resolved (save for some minor refinements). We were also advised that there was a total agreement reached by the AWU and Allied Plant Services as to the conditions of employment for employees engaged in the outsourced arrangements with that contractor. 6 The issue which remained unresolved was whether new employees engaged by Berkeley Challenge to perform or substantially perform the work carried on by existing KSS employees should be paid in accordance with The Cleaning and Building Services Contractors' (State) Award at the rate of $13.15 per hour or at the rate of pay of $16.28 per hour sought by the AWU. 7 It is important at the outset of the consideration of that issue to note that the amount of $16.28 per hour claimed by the AWU derives from the rate of $17.10 agreed for KSS employees transferring to Berkeley Challenge. The rate of $17.10 apparently derives from an average of the classification rates for existing KSS employees (not including workers compensation rates) and becomes $16.28 when components which are said to be peculiar to the steel works' operation, namely the quarterly lump sum bonus payment and additional superannuation rates are deducted. It should also be emphasised that the rates of pay for KSS employees do not represent a rate fixed for the actual work required to be performed by such employees in carrying out functions in the KSS division. Rather, the rates are essentially rates which have been retained by persons transferred to the KSS division under various special circumstances described in Mr Field's evidence. He indicated, inter alia, that the KSS was established in 1992. It brought together a number of employees in "yard-gangs" located in various operational areas who, for various reasons such as changes in technology, injuries and the like had been displaced from their previous positions within the company. When so transferred to the KSS and thereafter, those employees retained their existing rate of pay. 8 Thus, the AWU did not claim but did refer to the rates of pay under the BHP Steel (AIS) Pty Limited – Port Kembla Steel Works Employees' Award 2000. The lowest paid rate of pay for a labourer (as an unrestructured classification) under that award is $15.84 per hour. 9 By contrast, and as emphasised by Mr Crowe of counsel who appeared for Berkeley Challenge, that company's position was strongly influenced by the fact that it already employed a number of persons as commercial cleaners under the cleaning industry award in the steel works (and had done so for many years). 10 Mr Hatcher contended that the surest guide to the appropriate fixation of rates of pay for the subject employees was the existing rates of pay within the steel industry for those employees. This, he submitted, corresponded to the $16.28 per hour rate. By contrast, Mr Crowe submitted that the award for the cleaning industry must constitute the benchmark of fair and appropriate rates of pay for new employees, as those rates are already paid to commercial cleaners by Berkeley Challenge in the steel works and throughout industry generally. 11 Both counsel contended that the fixing of differential rates of pay for persons engaged in cleaning activities (in relation to prior KSS functions) had the prospect of causing industrial disharmony by dint of the payment of different rates of pay for the same or similar work, although Berkeley Challenge's case also emphasised the need for flexibility in its cleaning operations. 12 We consider that both of these submissions had meritorious elements. Whilst it is true that the cleaning industry award does represent a benchmark of fair and appropriate rates of pay for employees engaged in commercial cleaning work, it does not necessarily follow that that rate of pay would be applicable in the steel works if contractors were engaged to perform work which was otherwise regulated by the Steel Industry Award and thereby possibly indicating the applicable rates of pay for work performed in that industry. It is also true to say that any formulation which creates differential rates of pay does have the potential to adversely affect industrial relations, and thereby any resolution of the issues in this matter is not without some real difficulty. We do consider that it is a relevant factor, however, that over time there will be an increased intermixing of ex KSS and Berkeley cleaning workforces under flexible arrangements. 13 We consider, however, that the resolution of the issues in this matter lies with a recognition of the special circumstances which have historically applied (and continue to apply) to employees engaged in the KSS division of BHP Steel. Those employees have received special retained rates of pay in consequence of the circumstances under which they were brought to work in the division. That fact is, in our view, entirely appropriately recognised in the agreement reached between the parties as to a rate for existing KSS employees who transfer to Berkeley Challenge. 14 When viewed in that light, we consider that the appropriate resolution of this matter is that new employees engaged by Berkeley Challenge to perform KSS functions should be paid the rate of pay specified, at least in the interim, under the cleaning industry award. That is so because, in our view, to do otherwise would be to import into the outsourced arrangements rates of pay which are wholly inapplicable because of their special and unique origins. 15 It follows that this conclusion has no general application beyond these proceedings. We emphasise that as a general proposition the issue of the appropriate rates of pay for an outsourced workforce retained in an existing industry is a vexed one. It is not necessarily productive of a one dimensional outcome by which the rates of pay of the recipient employer (contractor) becomes the norm. 16 We have given some consideration as to whether this determination should be presently incorporated within an award. We consider, however, that given the stage of the proceedings, this approach would be inappropriate. We also have the view that the making of a recommendation as such would not be appropriate. In the result, we propose to simply state that it is our intention, upon the resolution of the issues at each subsequent stage of the process to resolve this industrial dispute earlier described, and upon the letting of contracts to give effect to our determination by the making of an interim award governing employment within Berkeley Challenge in the steel works referable to KSS functions. That interim award will give effect to the conclusions we have reached as well as the grandparenting and conditions of employment agreements otherwise reached between the parties. 17 We propose that the interim award will operate for a period of six months, after which we will receive any applications by the parties for its variance having regard to the circumstances then applying to Berkeley Challenge's operations at the steel works. However, we adopt the contentions put by Mr. Crowe that the award should operate from 1 March 2004 with liberty to apply to vary that date for the duration of the award in the event that there arises some revisions to the presently proposed timetable in Exhibit 25. ----- DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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