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  Issue No 24 Official Organ of LaborNet 30 July 1999  

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Legal

The Source of the Issue

By Jim Nolan - Denman Chambers

Recent legal developments place the spotlight on the outsourcing of government activities.

A considerable amount of publicity has been generated by a decision of the Full Court of the Federal Court which decided that certain public sector health workers in Victoria could rely on the prevailing public sector award despite the fact that their health service had been �mainstreamed� or privatised.

This decision - North Western Health Care Network v Health Services Union of Australia was handed down on 2nd July 1999. It upheld an earlier decision of Marshall J which affirmed the rights of the health care workers to their public sector award rights. The principle determined in the case has general application to all federal awards.

The 'outsourcing' or 'mainstreaming' of the mental health services in Victoria was a substantial undertaking. The evidence in the case showed that all or most of the activities normally associated with mental health services were the subject of the government decision. Doctors, nurses and ancillary staff and facilities such as acute in-patient wards, outpatient services and 'crisis' teams were all transferred to the outsourced service.

Section 149 of the Workplace Relations Act provides that when a business or part of a business is transferred to another employer, that � subject to some exceptions - the award regulation will follow the workers concerned. As long ago as 1932 the High Court upheld the validity of such 'transmission' provisions. Such a law was clearly warranted to prevent an award respondent simply avoiding the award by 'transferring' the employees to another legal entity which was not bound by the industrial dispute which led to the making of the award.

The circumstances in which an employer's business when transferred attracted continued award coverage were considered in relatively few cases. Only in 1988 was the law changed to cover a 'part' of en employer�s business to cover a situation where an employer contracted out only a part of its activities to avoid the award.

The Full Court emphasised the fact that it would take a non technical approach to the question of transmission of award respondency The Court emphasised that that there is no reason to construe the relevant provisions of s.149 of the Workplace Relations Act narrowly. This means that the expression a part of a business can be applied to a governmental activity. This is particularly important in the context of privatisation outsourcing or other contracting out activities.

The Court stated that the phrase �the business or part of the business� takes its colour from the activity in which the employer was. There is no reason why 'outsourcing' or 'mainstreaming' from government to private enterprise should attract a different application under the section that that which applies to private sector.

In relation to the question of whether there was a transmission of the business or not the Court analysed the particular circumstances of the arrangements put in place by the Victorian Government to outsource the psychiatric services. It concluded that once it is accepted that the reference to the 'business' in s.149(1)(d) is to be widely construed it is not necessary to search for some technical legal form of succession, assign or transfer corporate acquisition or takeover. What is necessary to determine is a question of fact whether the 'business' understood in the wide sense has been transmitted to other hands.

The findings established that the same patients become the responsibility of the Networks; the medical records and stock were transferred; leased assets were assigned; staff were transferred while the State retained control over funding and audit. That was the consequence of the governments decision having transferred the responsibility for the provision of mental health services. What was involved was a transmission of the core of the relevant services not a peripheral activity. The court also held that it was not relevant that some pre-existing governmental functions remained with the government.

While the requirement of 'substantial identity' of the activities pre and post "outsourcing, is the test, it should be borne in mind that this test will not necessarily extend award coverage to a 'true' contractor which takes over activities of the award respondent. For example, should the award respondent decide to contract out say, electrical maintenance activities or in the case of an office or factory, cleaning and/or catering activities, it will be far from certain that the award obligations will be transmitted. Much will depend on the character of the contract and the contracting company.

In the South Australian case Crosilla v Challenge Property Services [1982] 2 IR 448 the Industrial Court of South Australia (Russell J) held that where the cleaning services in a hotel had been contracted out to a cleaning contractor, the relevant transmission provisions of the Long Service Leave Act 1967 (SA) would not have the effect of transferring the accrued long service leave entitlement of cleaners whose employment had been transferred from the hotel to the cleaning contractor. The transmission provisions of the Long Service Leave Act 1967 (SA) provided for transmission of �part of a business�. A recent decision which applied Crosilla and rejected a union application that an employer be treated as a successor in business to another employer was the decision of Justice Matthews in FSU v P.P. Consultants Pty. Limited [1999] FCA 631 (12 May 1999.

In P.P. Consultants the St. George Bank had set up an agency in a local pharmacy when it closed its Byron Bay Branch on 12 September 1997. Some employees who had been employed as bank officers at the Byron Bay Branch were employed by the Respondent, Byron Bay Plaza Pharmacy, under an arrangement with the Bank. The agency agreement obliged the pharmacy to conduct an agency of the St. George Bank from its premises under certain conditions of stipulation. The agency agreement was terminable by a month's notice and there were certain limitations placed on the extent of banking activities offered even though for practical purposes employees performed the same work they had performed with the Bank and were paid the same hourly rate. The employees were required to assist in the pharmacy during quiet banking times.

The evidence showed that a negligible amount of time was spent on pharmacy activities. For all practical purposes the two employees, who had been transferred over from the Bank, performed bank duties, they wore the same Bank uniform and used the same Bank equipment and so on.

On the basis of the evidence her Honour Justice Matthews found that there was no transmission of respondency and in this connection she placed great reliance upon the decision of the South Australian Industrial Commission in the long service leave case of Crosilla Matthews J made her decision on a number of bases including the terms of the Agency Agreement, the fact that the Agency Agreement was terminable on a month's notice, that there was no payment for goodwill and that there had been no assignment of premises or stock in trade or outstanding contracts as a result of the transfer of the banking activities by the Agency Agreement.

The decision in PP Consultants has been appealed and that the appeal will be heard by the Full Court in mid August.

Whether PP Consultants is correct or not, considerations such as the scope of activities of the contractor, the utilisation of staff on other activities etc will be relevant to a determination regarding transmission. For example, a computer services company which performed �outsourced� computer services for the respondent company and for many other companies would arguably not be a transmittee. One which was �industry specific� might be. The application of the �substantial identity of activities� test any specific case read against the background of the limiting factors suggested immediately above, may yield different conclusions in each.

Unions should not lose sight of the fact that the AIRC can make a fresh award covering the 'privatised or outsourced' activity. The most notable example of this was in the recent decision of the Full Bench of the AIRC in the Employment National case. Employment National was created by the Howard government to undertake a myriad of functions formerly undertaken by the Department of Employment Education and Youth Affairs [DEETYA].

The CPSU applied to the Federal Court for a declaration that the public sector awards which applied to the workers when they were DEETYA employees followed the employees to Employment National. That case was heard by the Federal Court and a decision is reserved. Any decision will be academic in the light of the AIRC decision and new award.

The Full Bench of the Commission rejected the CPSU's argument that the EN application should be adjourned to await the Federal Court decision. It said that the public interest would be best served by providing ENA with the opportunity to have the Commission consider on the merits, the terms and conditions of employment that should apply to ENA and its employees:

The Bench said that it was obvious that the Commission would at some point be required to examine whether the contents of the APS awards were unsuitable for ENA and its employees. ENA argued that notwithstanding the Federal Court decision, it would renew its application to the AIRC.

The sequel to that decision was a decision handed down by the same Full Bench on 26 February 1999 where, after having heard the application by ENA, the Commission agreed to make an award which would cover ENA. The Commission made that award by reference to the award simplification principles and the Paid Rates Review Decision.

Despite the significance of this decision there is still a considerable amount of doubt about the circumstances where transmission of award respondency arises. The following general observations may be made

First, the courts will take a broad and liberal view of questions of transfer of activities and will not be hidebound by technicalities. The substance of the arrangements will be considered and not the technical legal form. Where there is a "substantial identity" of the activities before and after the transfer of the activity concerned the award respondency will probably �follow� the employment. An activity will probably be considered to be a "part of the business" it is a part of the "core business" or "core activities" of the organisation concerned. Where the activity outsourced or contracted out is a peripheral activity, award respondency will probably not be transmitted. It should not be forgotten that the AIRC may make an award which applies to the activity (or more generally the organisation) which has been transferred and, if done, this will resolve any doubt about transmission questions.


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*   Issue 24 contents

In this issue
Features
*  Interview: The Man in the Hot Seat
WorkCover general manger John Grayson cut his teeth in the trade union movement. Now he�s trying to save the state�s workers compensation scheme.
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*  Unions: Turning Up The Heat: Bush Fire Officers Seek Award Justice
"We want an award for the job that we do, not the job other people want us to do". Donald Bushby, and his fellow Fire Control Officers, know what they want. It's simple: an award for FCO's and deputy FCO's, an award that recognises who they are, the job they do, the pressures they have to live with.
*
*  International: The Virtual Labour Congress
International trade unions are launching an online debate on Labour in the 21th century.
*
*  Legal: The Source of the Issue
Recent legal developments place the spotlight on the outsourcing of government activities.
*
*  Review: The Split that Changed a Nation
A new book looks at the Cold War ALP split that redefined politics in this country.
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*  Labour Review: What's New at the Information Centre
Read the latest issue of Labour Review, Labor Council's resource for unionists.
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*  Satire: Man Takes Home Pay - More Pokies Needed
The NSW government has expressed concern following the release of a second report by the Productivity Commission which shows that a majority of employed people still spend their pay on luxury items such as food and clothing for their family.
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»  STOP PRESS - Firefighters Seek End To Safety Apartheid
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Columns
»  Guest Report
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»  Sport
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»  Trades Hall
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»  Piers Watch
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Letters to the editor
»  Snag�s Filmsy Evidence
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»  Amnesty Acts on Timor
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»  Cash in Transit
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»  Second Wave Action Hits North Vic
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»  Compo: Tips from the Dark Side
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