Contractor required to maintain employment conditions of previous contractor

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Contractor required to maintain employment conditions of previous contractor

In an important ruling for principal businesses and contractors alike, a Full Court of the Federal Court upheld an earlier decision that required a contractor taking over activities previously performed by another contractor to honour the industrial instruments that applied to the outgoing contractor.

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In an important ruling for principal businesses and contractors alike, a Full Court of the Federal Court upheld an earlier decision that required a contractor taking over activities previously performed by another contractor to honour the industrial instruments that applied to the outgoing contractor.
 
The Full Federal Court has stated that there did not need to be a direct business transaction between two employers for one of them to succeed to the business of another under the federal workplace relations legislation. Here there were separate contracting companies dealing with a business that allocated the contracting work.
 
Section 149(1)(d) of the Workplace Relations Act 1996 was in issue. The Full Court said that a narrow approach to s149(1)(d) was 'not appropriate'.
 
Background
 
At first instance, Justice Gray had ruled that Gribbles took over the business of another business, MDIG, when it contracted with Region Dell P/L to provide radiography services at Region Dell's clinic. MDIG had carried out the services immediately prior to Gribbles coming in.
 
Justice Gray's decision is reported in a previous edition of IR Link.
 
Gribbles had offered ongoing employment to four radiographers who had been employed by the previous contractors. Both MDIG and Southern Radiology were respondents to the Health Services Union of Australia (Private Radiology - Victoria) Award 1993. Gribbles was not a respondent to the award.
 
Four radiographers employed by the old business claimed redundancy and other benefits after the business came under the control of the new company. They were made redundant by Gribbles.
 
Full Court found transmission of business occurred
 
The Full Court applied a test formulated by the High Court in PP Consultants Pty Ltd v FSU.
 
The Full Court stated:
'Gribbles submitted that s 149(1)(d) did not operate to make the Award binding upon it for two reasons.
 
'The first was that the activities that MDIG undertook at the Moorabbin clinic were not part of its business nor part of Gribbles' business when undertaken by that company.
 
'The second was that Gribbles was not the successor, assignee or transmittee of any business activities that MDIG had undertaken. The latter submission was, in substance, that MDIG effectively left the Moorabbin clinic and ceased is activities at the clinic and that thereafter Gribbles arrived and commenced its own activities at the clinic....
 
'This approach, in our opinion, is too narrow.
 
'While the provision of radiography services at the Moorabbin clinic could be viewed as an activity it was a discrete activity of the business of both MDIG and Gribbles undertaken for the purpose of enabling both to carry on their entire business. It was undertaken for the purpose of enabling the entire business to generate both income and profit as a commercial activity.
 
'Both that part of the business and the business as a whole were directed towards generating profit as a commercial enterprise.
 
'Indeed, it is to be recalled that both MDIG and Gribbles ceased providing radiography services at the Clinic because it was not profitable.
 
'To suggest that a "part of a business" must itself generate a net income or profit (typically aspects, as the High Court noted in PP Consultants, of business) does not allow for the possibility that s 149(1)(d) can, having regard to its terms, operate not only on a business but on part of a business.
 
'We do not see any basis for confining the expression "part of a business" for the purposes of the section to a discrete profit earning part or unit of a business.'
PP Consultants considered
 
The Full Court considered the relevant case law:
'The High Court in PP Consultants was ... not concerned with identifying what might be the characteristics of part of a business simpliciter, but the characteristics of entire businesses or their parts for the purposes of comparison....
 
'Thus, as was pointed out in PP Consultants careful consideration must be given to "the transferred business activities in the hands of the new employer". However, the expression "successor, assignee or transmittee" is not to be construed narrowly....
 
'Gribbles pointed to observations of Ryan and Madgwick JJ in Employment National Employment National ... and of Mansfield J in Australian Rail Tram and Bus Industry Union v Torrens Transit Services Pty Ltd (2000) 105 FCR 88 at 100-101 [54] that s. 149(1)(d) (and the equivalent provision concerning certified agreements) does not operate in circumstances where one employer simply vacates a business (perhaps conducted out of particular premises) and another employer enters the same field of business activity (perhaps also at the same premises).
 
'Some greater or closer connection between the earlier and later businesses is necessary. We do not disagree with these observations.
 
'However, in the present case there is a sufficient connection between the earlier part of the business of MDIG at the Moorabbin clinic and the part of the business subsequently conducted at the clinic by Gribbles to enliven the operation of s 149(1)(d).
 
'The connection arises by reason of Gribbles' assumption of the business activities conducted at the clinic by MDIG as a result of Region Dell conferring on Gribbles all of the rights and facilities it required to operate the radiology services previously provided by MDIG....
 
'It is not an essential element in our analysis that the transfer also included taking steps to facilitate the transfer of the four radiographers.
 
'Further, it is not to the point that the transfer was effected by a third party... The succession was effected by Region Dell so as to perpetuate a facility or service which was an important element of its own business at the Moorabbin clinic.
 
'It may well be, as submitted by Gribbles that, for there to be an assignment or transmission for the purposes of s 149(1)(d), there must be a direct dealing between the old employer and the new employer.
 
'Such an approach would be consistent with the ordinary meaning of the words "assignee" or "transmittee" as descriptive of a party to a transaction even if the words were broadly construed in a non-technical way as discussed earlier. But the entire expression "successor, assignee or transmittee" may be viewed as dispersive in which the "or" is a kind of hybrid of disjunctive and conjunctive: see Minister for Immigration and Ethnic Affairs v Baker (1997) 73 FCR 187 at 195.
 
'It is unnecessary to resolve the question of whether there needs to be a direct dealing in an assignment or transmission because, in our opinion, a person can be a "successor" as a result of a transaction involving a succession to a business or part of a business by reason of the conduct of a third party who is not the operator of the business or part of the business.
 
'Such a conclusion would be consistent with the ordinary relevant meaning of "successor" and "succeed"....
 
'In the terms of three steps stipulated in PP Consultants at 655:
  • the relevant part of the business of MDIG was the provision of radiography services at the Moorabbin clinic pursuant to its contract with Region Dell;
  • the "transferred" business activities were the provision of radiography services at the Moorabbin clinic pursuant to essentially the same contractual arrangements with Region Dell;
  • MDIG's and Gribbles' business activities at the clinic are essentially the same activities.
'As we are satisfied that the business activities of MDIG constitute a "part" of its business and a "transfer" of those activities has been effected by Region Dell it must follow that s 149(1)(d) has been enlivened as a result of Gribbles' succession to part of MDIG's business.'
The Full Court concluded that the primary judge's conclusion that Gribbles was bound by s 149(1)(d) to pay the severance pay claimed by the four radiographers at the Moorabbin clinic was correct.
 
See: Gribbles Radiology Pty Ltd v Health Services Union of Australia[2003] FCAFC 56 (28 March 2003) - Full Court of Federal Court (Moore, Marshall and Merkel JJ).
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