Streets Ice Cream - A salient reminder from Australia

20 November 2017

If you can’t remember NZ industrial relations in the 1970s study this Australian example of what could happen under the Fair Pay Agreements the Government is proposing.

The industrial relations environment at Streets Minto site in Campbelltown, some 50km South West of Sydney is anything but sweet, as the Unions are running campaigns encouraging consumers to boycott the brand over what it says is a proposed 46% cut to wages.

The fact is the parties entered into an enterprise agreement, that provides for terms and conditions including rates of pay that are well in excess of those contained in the relevant Modern Award.

In August 2017, Unilever made an application to the Fair Work Commission (FWC) to terminate the enterprise agreement, so it could return to coverage by the relevant Modern Awards which provide for lesser terms and conditions of employment. That decision was made following sixteen months of negotiations where the parties reached an in-principle agreement but that was subsequently voted down by employees.

Unilever states that its Minto operation is their most expensive factory to run in the world, and it is currently almost 30 per cent cheaper to import a Magnum Classic ice cream made in Europe than to make the same ice cream in Minto, even when the cost of 16,000 kilometres of frozen transport is factored into the equation.

According to its press release on the matter, Unilever is seeking flexibility in its enterprise agreement which will allow it to be competitive. The restrictions on competitiveness include:

• Minimum manning levels to operate production lines that can render an entire line inoperable when 1 or 2 employees are on leave or on a break.
• Restrictions on the employment of casual, fixed term and seasonal staff meaning that at times there are more staff than needed at the factory, yet a line still can't be run because those staff can't be trained and allocated where needed.
• Permanent staff are not allowed to move around the factory to work on different parts of the production process even if they are appropriately trained.

If an agreement is not reached, the business is likely to act rationally and simply offshore these Australian manufacturing jobs. While it will be difficult for the Unions to sustain their boycott campaign to a degree significant enough to counter the allure of the impulse ice-cream purchase, any effect that the campaign may have on Unilever's profitability will mean the company has less money to satisfy its wage bill. However, the reputational damage caused by a boycott campaign may be translated into industrial pressure by the Unions in their battle to preserve the status quo in Minto.

Termination of Enterprise Agreement

You may be wondering how a party can terminate an enterprise agreement.  Essentially, there are two ways:

• By genuine agreement of the parties, and approval of the FWC.
• By one party to the enterprise agreement successfully applying to the FWC after the nominal expiry date of the agreement.

If the parties to an enterprise agreement agree to terminate it, that can’t occur unless the majority of the employees concerned vote in favour of termination.

This is most likely to occur where a business can successfully convince its employees that termination of the enterprise agreement is the best way employees can avoid job losses, or that employees will be able to achieve better career progression or performance-based incentives once restrictive terms in an enterprise agreement are set aside.

If the FWC is satisfied that genuine agreement has been reached, then it should approve the termination.

Termination by unilateral application to the FWC is the more common approach and the one Unilever has chosen to take.

Once the nominal expiry date of the enterprise agreement has passed, a party to the agreement may make an application to the FWC for the termination of it. Under section 226 of the Fair Work Act 2009 (Cth), the FWC must terminate the agreement if it:

• Is satisfied that it is not contrary to the public interest to do so, and
• Considers it appropriate to terminate the agreement.

In determining the 'appropriateness' of termination the FWC will consider all the circumstances, including:

• The views of the employees, each employer, and each Union covered by the agreement; and
• The circumstances of the employees, employers, and Unions including the likely effect the termination will have on each of them.

Applying to terminate an enterprise agreement without the agreement of the other party (or parties) is a strong move that can provide powerful leverage in industrial negotiations. Recent decisions by the FWC seem to indicate that it is not as difficult as it used to be for such applications to succeed. Where attempts at mutual interest bargaining, and constructively and collaboratively resolving disputes have failed, a business may be left with little other option but to make such an application, or else face the real prospect of closing its doors.