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Federal Court decision on matters pertaining to the employment relationship

The Federal Court has found that a clause in a collective agreement providing for an income protection insurance scheme was unenforceable as prohibited content, because it did not “pertain to the employment relationship”.

Implications for employers

In order to be enforceable, clauses in agreements made under the Workplace Relations Act 1996 (Cth) (“WR Act”) must “pertain to the employment relationship”. This concept will continue to apply to enterprise agreements made under the Fair Work Act 2009 (Cth) (“FW Act”). This case indicates that a clause in a workplace agreement providing for income protection insurance may be prohibited content and unenforceable because it does not so pertain, and the decision also provides guidance on the meaning of “matters pertaining to the employment relationship”.

Background

The Sydney Ferries Corporation (SFC) operates ferry services on Sydney Harbour and Parramatta River. In 2006, it entered into a collective agreement with the Australian Maritime Officers Union. The agreement included a clause requiring SFC to “insure its Maritime Officers for income protection insurance for long term illness and injury equivalent to 75% of his/her salary”.

SFC did not enter into such an insurance arrangement and in 2008 the union sought a declaration from the Federal Court that SFC had breached the clause. However, SFC argued that the clause was unenforceable because the obligation to provide income protection insurance was “prohibited content”.

The WR Act provides that “a term of a workplace agreement is void to the extent that it contains prohibited content”. In turn, the regulations define “prohibited content” to include, among other things, a “matter that does not pertain to the employment relationship”.

Therefore, the issue before the Court was whether an obligation on an employer to provide income protection insurance for its employees pertains to the employment relationship.

Decision

The Court considered a number of arguments which are summarised below.

  • Benefit was contingent: the Court noted that the benefit of the income protection insurance would only be provided to the employee if they became ill or injured while they were employed by SFC. In other words, the benefit was contingent. The Court found the contingent nature of the benefit did not necessarily render the clause as one not pertaining to the employment relationship, noting that long service leave pertains to the employment relationship, even though an employee only becomes entitled to leave if they remain employed for the requisite period. Accordingly, in the Court’s view, the clause was not unenforceable on that ground.

  • Premium payable to third party: the Court also considered whether the fact that SFC was required to pay money to a third party (the insurer) meant the clause did not pertain to the employment relationship. The Court rejected this argument, finding that the “mere fact” that the payee is a third party is usually irrelevant to this determination. For example, superannuation payments are made to a third party - the superannuation fund - and superannuation is clearly a matter pertaining to the employment relationship.

  • Injury/illness need not occur at work: under the clause, income protection benefits would be paid regardless of whether the illness or injury occurred while the employee was at work. Further, if an employee became ill or injured and started to receive the insurance benefits while they were employed, they would continue to receive those benefits even after their employment ceased. The union argued that in this respect the income protection insurance scheme was analogous to superannuation. However, the Court noted that the quantum of superannuation that accrues to a particular employee directly relates to the employee’s service: the higher an employee’s salary and the longer they work, the greater the superannuation benefit they accrue. The Court also noted that superannuation benefits arise “solely in consequence of the employee’s service”, however the benefits under income protection insurance could become payable if an employee was injured away from work in a context “entirely unconnected with the employer and employee relationship”.

  • Benefit proportionate to employee’s income: the Court also rejected the argument that the amount of the benefit was directly related to the employment relationship because it was proportionate to the employee’s income. Instead, the Court found the total amount of the benefit payable depended on the length of an employee’s illness or disability, which was not connected to the employment relationship.

  • Premiums were a reward for services: the union argued that the premiums paid by SFC to the insurer were effectively part of the employee’s reward for services provided to SFC as their employer. However, there was no evidence that the premiums were paid in lieu of providing remuneration to the employee.

The Court refused the union’s application for the declaration, finding instead that the income protection insurance clause did not pertain to the employment relationship and was therefore void and unenforceable.

What will happen under the FW Act?

The FW Act, the bulk of which is expected to commence operation on 1 July 2009, provides that an enterprise agreement may only deal with “permitted matters”. This term includes matters pertaining to the relationship between an employer and employee.

“Permitted matters” also include matters pertaining to the relationship between an employer and a relevant union. This will significantly extend the range of matters that may be dealt with in an enterprise agreement. Parties making a new agreement under the FW Act must ensure that it deals only with permitted matters, and does not include matters unrelated to the employer/employee relationship or the employer/union relationship.

Australian Maritime Officers Union v Sydney Ferries Corporation [2009] FCA 231
Who does this affect?
All Australian employers
What do you need to do?
Ensure you are updated on recent developments

Author(s)

  • Kathleen Love - Solicitor | Email
 

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