Outsourcing - the public sector


Outsourcing - the public sector

The Federal Court has ruled that Commonwealth public sector employees transferred to the private sector may retain public sector wages and conditions.


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The Federal Court has ruled that Commonwealth public sector employees transferred to the private sector may retain public sector wages and conditions. In Employment National Ltd & Ors v CPSU& Ors, [2000] FCA 452 (11 April 2000), employees formerly employed by the Commonwealth Employment Service were ruled to be covered by public sector awards and a public sector certified agreement, when their jobs were transmitted to the privatised Employment National.

The significant aspect of this decision is the fact that it comes on the eve of the High Court's decision to hear an appeal on whether the substantial identity test is the most suitable test to apply in determining whether a business has been transmitted.


This matter is comprised of three related proceedings, which were all heard together as they raised common issues. The proceedings stem from the decision of the Australian Government to privatise most of the work of the Commonwealth Employment Service (CES) to Employment National Ltd and Employment National (Administration) Pty Ltd (as there is no distinction between their legal status, both companies will hereafter be referred to as EN). Between March and May 1998, the Commonwealth, EN and the union all independently sought declarations pursuant to s412and s413of Workplace Relations Act 1996, as to whether or not four public sector awards and a department certified agreement were still binding on EN.

Central to this matter was the question of whether the activities of the CES constituted a "business" and whether EN became the successor, assignee or transmittee of that business or part of that business. To that end, the Federal Court examined the degree of identity that existed between the CES and EN to either support or reject the claim that the business of the former was transmitted to the latter.

The legislative provisions as the core of these proceedings were s149(1)(d) and s170MB(1) of the Workplace Relations Act 1996. These provisions deal with the circumstances in which a relevant award or agreement will be binding on an employer where that employer becomes the successor, assignee or transmittee of the business, or part of the business, of an employer who was party to the original dispute giving rise to the award or agreement, and who was bound by that award or agreement.

Did the activities of the CES constitute a 'business' for the purposes of s149(1)(d)?

The Commonwealth submitted that the activities of the CES were not a 'business' that could be transmitted or succeeded to. Instead, the activities of a Commonwealth department were a function of government in which there were none of the commercial features that are characteristic of a 'business'. That is, the activities of a government department are geared towards the discharge of their statutory responsibilities as a function of government, and as such could not be considered a 'business'.

His Honour approached this question by referring to the approach taken by the Full Federal Court in North Western Health Care Network v Health Services Union of Australia [1999] FCA 897 (2 July 1999), where Nicholson J held that:

...the words 'the business' take their colour and context from the reference to the 'industrial dispute' in relation to which the employer is involved.

In relation to this matter Einfeld J reasoned that if an activity carried on by employees can give rise to an industrial dispute under the Act, and is as such an activity that can be the subject of award proceedings, then it is likely to be considered to be a business. His Honour rejected the Commonwealth's submission, finding that, the term 'business' refers to more than just commercial enterprises pursuing profit. As such, it is simply not true to say that the activities of a government department by virtue of their capacity for characterisation as 'governmental', cannot also be considered as 'business' just, and within the same context, as they are considered to be 'industrial'.

The decision in North Western confirmed that it is both logical and unsurprising that 'the business of an employer' in s149may very well refer to governmental services in which employees are employed. Adopting a broad interpretation of the term 'business', Einfeld J held that that the activities of CES employees prior to 1 May 1998 constituted a 'business' capable of transmission to a successor employee within the meaning of s149(1)(d).

Was there a transmission of business?

The High Court decision in Re AIRC; ex parte Australian Transport Officers Federation (1990) 171 CLR 216 F.C. 90/049(ATOF) considered the meaning of the words 'successor or assignee or transmittee' in the context of the eligibility rules of a registered organisation. In ATOFit was held that the primary consideration in determining whether there has been a transmission of business is whether there is a substantial identity between the old and new activities. His Honour was of the view that the 'substantial identity' test laid down by the High Court in ATOF, was the correct test to be applied when considering whether a transmission under s149(1)(d) had occurred. 

Therefore, the question of whether EN became a 'successor or assignee or transmitte' of the business is dependent upon whether, as a matter of fact, there is 'substantial identity' between the activities of the respective entities. His Honour found that the 1998 changes, as fundamental as they were structurally, did not have a relevant impact upon the substantive activities of the EN employees who were essentially performing the same activity, that of providing labour exchange services. His Honour noted that:

... the structural or organisational framework altered upon transmission from government to 'private' employers is undoubted but in my opinion this change did not in itself mean that the actual 'business' or activities were any different.

One further consideration noted by Einfeld J was the fact that in the performance of these similar 'activities' EN employees by and large used the material assets of the previous employer. These included some of the premises, the furniture, telephones and computers.

Overall, the controversy as to whether there existed a transmission of business was in Einfeld J's opinion, an exercise in semantics. What was essentially a question of fact, was according to his Honour dressed up as a question of law. 

The fact that the same or similar activities are carried on within an altered structure does not dictate the conclusion that the business was not transmitted. Awards and employment contracts are about the working conditions of workers. The issue raised by the legislation is not whether the businesses were structurally different, but whether the workers are doing, and therefore the employer is delivering, the same or different work.

A transmission of the businesses to which the awards and agreement related was found to have occurred.

As mentioned above, the High Court on 14 April 2000, granted special leave to appeal the Federal Court's decision in Finance Sector Union of Australia v PP Consultants Pty Ltd [1999] FCA 1251 (10 September 1999), (reported in HR Link 112/99). The arguments and decision by the High Court to grant special leave will be canvassed in an upcoming HR Link.

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