Industrial Relations Commission of New South Wales CITATION : Broken Hill Commerce and Industry Consent Award (No 2), Re [2002] NSWIRComm 309 APPLICANTS: Barrier Industrial Council Broken Hill Town Employees Union Construction, Forestry, Mining and Energy Union (New South Wales Branch) PARTIES : Shop, Distributive and Allied Employees Association, New South Wales Branch, and other unions RESPONDENTS: Broken Hill Chamber of Commerce Inc, and other employers FILE NUMBER: IRC 4579 of 2002 CORAM: Wright J President; Walton J Vice-President; Boland J; O'Neill C CATCHWORDS : Wage fixation - State Wage Case - Economic incapacity application - Absorption - Principles to be applied - Nature of evidence required - History of award - Intention of the parties - Special case - Economic incapacity application not made out - State Wage Case increase granted - Reasons for decision given on 30 September 2002. LEGISLATION CITED : Industrial Relations Act 1996 Australian Workers' Union v Livestock and Grain Producers' (Industrial) Association of New South Wales (AIRC Print G5732, 24 November 1986 at 455) Barrier Industrial Council: dispute with Broken Hill Chamber of Commerce and Others re breach of Award [2002] NSWIRComm 232 Broken Hill Chamber of Commerce and CFMEU (NSW Branch) [2002] NSWIRComm 244 National Wage Case 1983 (1983) 4 IR 429 National Wage Case 1986 (1986) 301 CAR 611 CASES CITED : Re Corrections Health Service Nurses' Award (1999) 90 IR 235 Re Liquor Trades Hotels (Australian Capital Territory) Award (AIRC Print Q5625, 28 August 1998) Re Motels Award (AIRC Print K2236, 23 March 1992) Re Pastoral Industry Award (AIRC Prin J1761, 20 March 1990) Safety Net Review - Wages Case 2002 (2002) 112 IR 411 State Wage Case 2002 (2002) 114 IR 81 HEARING DATES: 09/26/2002 DATE OF JUDGMENT: 12/20/2002 APPLICANTS: Mr A Bukarica, Mr Smith and Ms R Greenwood Barrier Industrial Council Broken Hill Town Employees Union Construction, Forestry, Mining and Energy Union (New South Wales Branch) LEGAL REPRESENTATIVES: Shop, Distributive and Allied Employees Association, New South Wales Branch, and other unions RESPONDENTS: Mr C McArdle, Solicitor of KPMG Legal, Solicitors, Broken Hill Chamber of Commerce Inc, and other employers JUDGMENT: INDUSTRIAL RELATIONS COMMISSION OF NEW SOUTH WALES FULL BENCH CORAM: WRIGHT J, President WALTON J, Vice-President BOLAND J O'NEILL C Friday 20 December 2002 Matter No IRC 4579 of 2002 BROKEN HILL COMMERCE AND INDUSTRY CONSENT AWARD Application by Barrier Industrial Council for variation re State Wage Case 2002 REASONS FOR DECISION OF THE COMMISSION [2002] NSWIRComm 309 1 This decision concerns the application by the Barrier Industrial Council (the Council) and other unions to vary the Broken Hill Commerce and Industry Consent Award 2001 to include the increases arising from the State Wage Case 2002 decision (2002) 114 IR 81. The proceedings were heard under the Special Case principle following an application by the Broken Hill Chamber of Commerce (the Chamber) and associated employers that the increases in wage rates not be granted. 2 Mr C McArdle, solicitor, appeared for the Broken Hill Chamber of Commerce Inc. and other employers; Mr A Bukarica, Mr Smith and Ms R Greenwood appeared for the Council, the Broken Hill Town Employees Union, the Construction, Forestry, Mining and Energy Union (New South Wales Branch) (CFMEU), the Shop, Distributive and Allied Employees Association, New South Wales Branch and other unions. 3 On Monday 30 September 2002, the Full Bench delivered its decision in this matter and indicated there that reasons for decision would be provided in due course. The reasons are now provided. 4 The background to this dispute has been set out in the decision of 30 September 2002: Broken Hill Chamber of Commerce and CFMEU (NSW Branch) [2002] NSWIRComm 244 and the decision of Deputy President Sams delivered on 6 September 2002: Barrier Industrial Council: Dispute with Broken Hill Chamber of Commerce and Others re Breach of Award [2002] NSWIRComm 232. The decision of 30 September was in these terms: [1] This matter concerns an application by the Barrier Industrial Council to vary the rates of pay in the Broken Hill Commerce and Industry Consent award 2001 in accordance with the 2002 State Wage Case decision (2002) 114 IR 81. They are proceedings under the Special Case principle as a result of the application by the Broken Hill Chamber of Commerce (the Chamber), and associated employers, that the increases not be granted. However, even that description of the proceedings belies its importance and urgency. [2] Prior to the hearing of this application, the Full Bench has heard applications for expedition and stay in relation to an appeal brought from an interlocutory decision of Sams DP, given in proceedings under s 130 of the Industrial Relations Act 1996 concerning very similar issues to those involved in this matter. [3] The pertinent background is set out in our decision of 20 September 2002: Broken Hill Chamber of Commerce and CFMEU (NSW Branch) [2002] NSWIRComm 244. It is sufficient to observe that Sams DP made interim orders restraining, amongst others, the Construction, Forestry, Mining and Energy Union (NSW Branch) (CFMEU) and the Chamber (the parties currently before us) at the centre of a dispute as to the application of the State Wage Case decision, having regard to the terms of the award and initiatives by the Chamber to bring about an agreement pursuant to s 170LK of the Workplace Relations Act 1996 (Cth). [4] Having regard to the duration of the interim orders made by the Deputy President, the very substantial industrial dispute in Broken Hill and the significant tensions in the Broken Hill community apparently created by that conflict, we consider that the decision of the Full Bench should be given in this matter as a matter of urgency. We shall give reasons for decision in due course. [5] There were two essential contentions raised by the Chamber in its resistance to the State Wage Case 2002 increase. They were: 1. The award should be exempt from the State Wage Case 2002 wage increase because of economic incapacity for the purposes of Principle 15 of the wage fixing principles; 2. The wage increases should be absorbed, in large part, due to the operation of Principle 8(d)(ii). That submission was met by the union parties on a number of bases including the nature and terms of the award. [6] Whilst we are mindful of the present troubled economic circumstances affecting the community of Broken Hill it is clear that the case put on behalf of the Chamber based on economic incapacity was very weak. Having regard to the terms of Principle 15 itself and the authorities of this Commission and the Australian Industrial Relations Commission as to the application of the principle, or of counterpart principles, there was a substantial failure to mount a case by the Chamber in support of the operation of the principle. Very significantly, the Chamber failed to provide any evidence as to the economic circumstances of particular employers or groups of employers which required relief by the operation of Principle 15. The evidence relied on was unhelpfully "macro", or broad and general, in nature and did not serve to differentiate between the wide variety of employers affected by the award, let alone their economic or employment circumstances. [7] Much attention was focussed upon the operation of Principle 8(d)(ii) of the State Wage Case principles. It was contended by the Chamber that wage increases afforded employees under predecessor awards to the award warranted the operation of the absorption principle. This changed approach by the Chamber in effect sought an interpretation of the way in which our decision would operate. It is not necessary to approach the matter in this way as we consider that a Special Case has been established in this matter which would warrant the insertion in the award of the full $18 increase for all classifications of work under it for two reasons: 1. That outcome, in our view, is plainly contemplated by the award which was recently made. We do not consider that the absorption principle was contemplated in the making of the award, except as to over- award payments, as acknowledged by the unions in their submissions. That conclusion is supported by the fact that the principle was not applied to the 2001 State Wage Case increase which occurred in the award. 2. Further, the agreement reached by the parties for the operation of the award contemplated that the award be treated as a new minimum rates award operating from 2001. The agreement did not involve, or contemplate, the award being treated as if the absorption principle could be applied. We consider that Mr Bukarica's argument for the unions, that the issue of absorption was raised relatively late in the day as an attempt to buttress a fragile case on economic incapacity, is sound. We consider that what is proposed in these proceedings is plainly inconsistent with the prior agreements of the parties in respect of this award. [8] Parties should, as a matter of principle, consider their situation very carefully and deliberately before conducting themselves in such a manner. It is extremely important in industrial and employment relations that parties adhere to considered agreements entered into by them. The serious circumstances created by the present difficult, regrettable and preventable industrial dispute are demonstrative of the problems which result from such conduct. No doubt, if considered counsel and advice had been provided to the Chamber in that regard, some of the present difficulties may have been avoided to the benefit of all concerned, including the Broken Hill community. [9] We grant the application by the Barrier Industrial Council filed on 9 August 2002, as varied to comply with the State Wage Case 2002 decision, which variation shall operate on and from 1 October 2002. The applicant is directed to file and serve draft orders, in both hard copy and electronic form, to reflect this decision by 4 October 2002. As noted above, the reasons for decision will be available as soon as feasible. [10] Finally, the material before this Full Bench leads to the conclusion that a division has occurred in the local community of Broken Hill the resolution of which should be assisted by this decision. It does not seem fruitful to explore, in this decision or the subsequent reasons therefore, the genesis and basis of this division, although the local community, which seems to have been relatively united in recent times, cannot benefit from such division. It is sufficient to now state that it is incumbent upon all parties to this dispute to seek to deal with the division created and to recognise that the first step to be taken is that there be mutual assurances that previous and current agreements between them will be honoured in the future in their letter and spirit; second, to recognise that the Commission is always available, at short notice, to assist them although its ability to assist may often depend on the parties' own reciprocal good faith. The case for the unions 5 In support of their application for variation of the award, the Council called Ms Christine Smith and Ms Kay Harvey, who were both employees in the Broken Hill community. Ms Smith and Ms Harvey gave evidence of their financial position, particularly the difficulties they face in covering their living expenses. 6 The Council also gave evidence as to the agreement between the parties to the award in respect of the flow on of State Wage Case increases. Mr Brett Campbell, an official of the Council, gave evidence that during negotiations for the award, the Chamber gave no indication that the award was anything but a minimum rates award. According to Mr Campbell, [The Chamber] thought it was fair enough that these increases flow on…and that was the original intent, and that was what was clearly defined between the parties during negotiation and that seemed to appease the Chamber in respect to helping out their members. 7 This understanding was confirmed by Mr Edward Butcher of the CFMEU who gave evidence that the original intent of both parties, at least from the union parties' understanding, was that the State Wage Case increases would be adopted following the procedure outlined in clause 1.7(j) of the award which was in these terms: The parties agree that New South Wales State Wage Case decisions will be applied into our 2001 award upon exchange of letters between the BIC and the Broken Hill Chamber of Commerce Inc as soon as possible after such decisions are handed down. Such letters will set the date of the implementation of State Wage Case decisions into the 2001 award, in order that there be no cause for back pay. 8 It should be noted that Ms Sharon Hocking (President of the Chamber who gave evidence in its case) during cross-examination confirmed her understanding that clause 1.7(j) was an automatic flow on provision and that the State Wage Case 2001 had been applied without absorption. 9 Mr Butcher and Mr Campbell also provided evidence to counter the economic incapacity claim raised by the Chamber. Mr Campbell provided alternative explanations for the closure of businesses discussed in Ms Sharon Hocking's evidence (to which further reference will subsequently be made). For example, new businesses had opened, some by proprietors of businesses that had closed, and others undergone refurbishment and/or expansion. The reduction of bank services in the community, referred to by Ms Hocking, had also occurred in other regional and metropolitan areas and there continued to be a high demand in the Broken Hill real estate market. Mr Butcher outlined the potential positive economic growth and job opportunities in Broken Hill from the purchase of the existing mine by the Perilya Company which had employed in excess of 300 people to date and was planning to extend the mine life to 2011, to the opening of a new mine by Consolidated Broken Hill Clough and the proposal as to the BeMax Resources Minerals Separation Plant. 10 It was submitted that the Chamber's case of economic incapacity should be dismissed solely on the basis of the Chamber's conduct. Mr Butcher and Mr Campbell gave evidence of the consensual nature of the award and the co-operative relationship which previously existed between the parties. Specifically, the Council submitted that the inclusion of clause 1.7(j) in the consent award represented an unequivocal commitment to apply the flow on from State Wage Cases, subject to the process prescribed in the clause itself, that is, the exchange of letters detailing operative dates. Accordingly, the Chamber's refusal to flow on the 2002 State Wage Case increase was not reasonable and amounted to a repudiation of the bargain underpinning the award. 11 The Council also contended that the Chamber was estopped from raising the economic incapacity argument due to their representations made during negotiations for the consent award and in the consent award itself. 12 In the alternative, the Council submitted that the respondent's case for exemption due to economic incapacity should fail on the ground of lack of evidence, particularly given the heavy onus required by the applicable tests as set out in Re Liquor Trades Hotels (Australian Capital Territory) Award (AIRC Print Q5625, 28 August 1998) and the Safety Net Review - Wages Case 2002 (2002) 112 IR 411. Specifically, the Council contended that the Chamber must, in accordance with those authorities, provide detailed evidence of economic incapacity from each individual employer seeking an exemption to be successful and that the Chamber had failed to provide such evidence to the Commission. 13 In its written submissions and through evidence from Mr Butcher and Mr Campbell, the Council disputed the level of economic activity in the Broken Hill community, citing the continuation of the Broken Hill Mine under the management of Perilya, the intended opening of a new mine (the Rasp Mine by Consolidated Broken Hill Clough) and the approval of the BeMax Minerals Separation Plant. 14 The Council contended that there was an additional consideration in New South Wales that arises from the words "unemployment and other serious consequences for employees and employers" found in Principle 15. The Council submitted that this wording directed the Commission to consider the economic impact upon employees of withholding or delaying the State Wage Case increase. 15 The Council questioned the validity of drawing a causal link between increases in minimum wage rates and increases in unemployment citing the work of American economists David Card and Alan Krueger and the OECD publication, Employment Outlook. 16 In relation to the absorption argument, the Council accepted that the absorption principle applied to the award. However, it argued that the operation of the principle only extended to over-award payments and not to awards of money made under previous movements in the award. The case for the Chamber 17 The Chamber did not dispute that the State Wage Case decisions applied to the award. Their point of contention lay in what was the proper application of the wage fixing principles, in particular Principles 8 and 15. 18 The Chamber submitted that a proper application of Principle 8(d)(ii) of the State Wage Case 2002 would entail a full absorption of the $18 increase for the Metal and Shops components of the consent award and for the other components, an absorption of the value exceeding the minimum rates found in comparable state awards. 19 Two main arguments were raised in relation to the absorption principle. First, that wage increases received by employees under predecessor awards warranted the operation of the absorption principle. The second argument was that the non-application of the absorption principle would result in the Commission subjecting the award to differential treatment. The Chamber highlighted the disparity in wage rates provided in the award and those in comparable state awards, as well as those in the "surrounding" regions, such as Wentworth and Mildura. 20 The Chamber submitted that the wording of clause 1.7(j) reinforced the intention of the parties that State Wage Case decisions would be applied rather than State Wage Case increases. Accordingly, the absorption principle would operate and some sections of the award would receive no wage increase and others would receive a proportionate increase. 21 The Chamber also submitted that the award should be exempted from the State Wage Case 2002 wage increase under Principle 15, the economic incapacity principle. The Chamber relied on these major arguments: 1. That the Broken Hill community currently suffered great economic disadvantage and unemployment. 2. The current rates of pay for the shop and trade employees were based on a historical fact that no longer exists, namely the existence of a mining industry. 3. There is already a wage rate differential between the award and counterpart awards in Australia. Applying the 2002 State Wage Case increase would simply exacerbate the economic situation in Broken Hill. 4. With regard to previous case authority, the emphasis given to uniformity in wages outcomes being a factor against any argument finding economic incapacity should be applied in reverse to support the Chamber's argument. 22 In support of the fourth point, the Chamber referred to the statement of the federal Commission in The Australian Workers' Union v Livestock and Grain Producers' (Industrial) Association of New South Wales (1986) 20 IR 1, where the federal Commission cited the 1983 National Wage Case decision (1983) 4 IR 429 at 443 where it had been held: While we would not debar argument being advanced on economic incapacity we would emphasize not only the long established principle of wage fixation that those seeking to argue incapacity to pay must present a strong case, but also that the fundamental basis of a centralized system is uniformity and consistency of treatment. In particular in cases involving the adjustment of rates in line with national wage decisions the Commission should not refuse an increase except in extreme circumstances. 23 The Chamber tendered evidence said to compare the industrial and economic position of those employers party to the award and those employers party to comparable awards in Australia, focusing particularly on the metal trades and shop assistants classifications. The evidence highlighted what the Chamber described as the widening gap between the "community rates", "market rates" and the rates in the consent award. Evidence was also tendered on the wage differential between Broken Hill and neighbouring communities in Western New South Wales and Central Australia. Given this evidence, Mr McArdle, on behalf of the Chamber, submitted that in order to achieve "uniformity and consistency of treatment", the award should be exempted from 2002 State Wage Case increase. 24 The Chamber relied on the evidence of Mr Fred Smith from West State Training Limited, who undertook a statistical analysis of certain features of the Broken Hill community including unemployment, crime and education opportunities. The most relevant finding of the report was the substantial reliance on unemployment benefits within the community. He concluded that the Broken Hill community was not "self sufficient" and faced a significant economic disadvantage compared with those communities in competition with Broken Hill. 25 As noted earlier, the Chamber also called evidence from Ms Sharon Hocking President of the Broken Hill Chamber of Commerce who gave statistics of the decline in Broken Hill, including businesses which had closed, reduced services or stopped employing labour, reduction in hospital beds, increases in unemployment services and the closures of schools and churches. Ms Hocking also gave evidence as to the effect that an $18 wage increase would have an adverse impact on the entire Broken Hill community. 26 The final witness called by the Chamber to support their economic incapacity argument was Ms Carol Wishart, proprietor of "Fabrics and Things" shop in Broken Hill. Ms Wishart's stated that "Fabrics and Things" could not afford to employ any staff under the current award rates since: If I employed staff I would be required to pay $40 per week to a shop assistant more than I would have to pay if I relocated my shop to another town such as Wentworth… I will certainly not be able to [employ people] if an $18 wage increase is imposed on top of the $40 in excess of the State Award which is already required. Consideration and conclusion 27 The Chamber contested the Council's application for the State Wage Case 2002 increase on two grounds. First, that Principle 15 of the wage fixing principles, the economic incapacity principle, operated to exempt the award from the increase. Second, that the wage increase should be absorbed, through the operation of Principle 8(d)(ii). 28 Dealing initially with the economic incapacity argument, the evidence provided by the Chamber was very limited. This conclusion does not detract from the present serious economic circumstances facing the Broken Hill community. However, the evidence provided by the Chamber fell well short of demonstrating "very serious or extreme economic adversity" as required by the wage fixing principles. 29 Although there is no specific test for what constitutes a "very serious or extreme economic adversity", there is clear authority for the proposition that employers seeking an exemption from a State Wage Case decision have a heavy onus to prove it should be granted on the ground of economic incapacity. (See for example Liquor Trades Hotels (Australian Capital Territory) Award Print Q5625 (28 August 1998); National Wage Case 1986 (1986) 301 CAR 611 at 659; Re Motels Award (AIRC Print K2236, 23 March 1992); Re Pastoral Industry Award (AIRC Print J1761, 20 March 1990) at 9; Australian Workers' Union v Livestock and Grain Producers' (Industrial) Association of New South Wales (AIRC Print G5732, 24 November 1986). The decisions provide clear authority for the proposition that the economic incapacity exception from a general wage increase has limited application. Where the incapacity claim is made in respect of a group of employers, each individual member of the group must be able to show that they would suffer a "very serious or extreme economic adversity": Liquor Trades Hotels (Australian Capital Territory) Award. Further, in the Safety Net Review - Wages 2002 at 66, the Full Bench of the Federal Commission stated, "the individual circumstances of employers will need to justify the relief sought by them". 30 The Chamber relied on the evidence of Mr Fred Smith, Ms Hocking and Ms Wishart. Although the Chamber's witnesses provided a snapshot of the general troubled economic circumstances facing Broken Hill, there was no detailed or direct evidence to support the economic incapacity argument for employers affected by the application. In particular, there was no evidence from individual employers in the Broken Hill community regarding their financial position which demonstrated empirically that they were facing a "very serious or extreme economic adversity". The only business owner called by the Chamber was Ms Wishart. Given her business does not employ any staff, her evidence was of limited weight and significance. 31 Turning to the operation of Principle 8(d)(ii), the Chamber contended that the absorption principle should apply to wage increases under predecessor awards to the award. However, the prior negotiations and agreement between the parties in relation to the award and the terms of the award itself gave no indication that the absorption principle should apply to anything other than over- award payments. In the result this is not a case where the matter is to be determined by the operation of Principle 8(d) but rather by the Special Case principle. 32 This conclusion is supported by several factors. First, the inclusion of clause 1.7(j) in the award which is set out earlier in paragraph [7]. This clause represents an agreement by the parties to the award to apply the State Wage Case decisions subject to the process outlined by the clause. This intention was supported by the consideration that the absorption principle was not applied when the 2001 State Wage Case increase occurred in the award. 33 On 3 June 2002, in accordance with the process outlined in clause 1.7(j), the Council sent a letter to the respondent applying for the implementation of the State Wage Case 2002. On 2 July 2002, correspondence from the Respondent was sent to the Council rejecting the request. This conduct of the Chamber is clearly at odds with the intention of the parties and the agreement they reached in making the award. It is essential to ensure that industrial parties observe their bargain and undertakings: Re Corrections Health Service Nurses' Award (1999) 90 IR 235 at 245. Parties should, as a matter of principle, consider their situation very carefully and deliberately before conducing themselves in such a manner. It is extremely important in industrial and employment relations that parties adhere to agreements entered into by them. 34 Further, the evidence suggested that the parties had intended that the award be treated as a new minimum rates award operating from 2001. This conclusion is supported by the fact that the award was made on May 14 by Sams DP and as stated previously, the only increase in the award is the 2001 State Wage Case adjustment. 35 The Chamber's case was not made out. Its application therefore could not be granted and was accordingly refused. These proceedings were otherwise concluded by its decision of 30 September 2002, subject to settlement of the terms of the variation to the award made by the Full Bench which was remitted to O'Neill C by the Full Bench pursuant to s 156(5)(b) of the Industrial Relations Act. 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.