What to do when your project is impacted by industrial action

Over recent months, numerous sectors across Australia have felt the impact of periods of industrial action.  Building, infrastructure and energy project participants in particular have been affected by protracted industrial action or disputation, including by the CEPU and the CFMEU.

As many know all too well, such action can have significant and devastating flow on impacts to projects. This includes the exposure of project parties to delay liquidated damages, lost revenue where the project is complete but cannot be energised or connected to the grid, or general delay and disruption due to resourcing impacts.

Recent examples of such impacts include the projects affected by industrial action at Endeavour Energy, Essential Energy, Ausgrid and TransGrid.  Such action has reportedly delayed billions of dollars in energy and infrastructure projects.  Further, in recent weeks, tens of thousands of construction workers abandoned job sites across Australia to protest the government's action against the CFMEU. These strikes follow new legislation that forced the construction arm of the union into administration.

To ensure project participants’ rights are protected, it is important to be prepared.  We discuss below how principals and contractors in the building, infrastructure and energy sectors can protect their rights in the event a project is impacted by industrial action.

How does project documentation typically deal with industrial action?  What contractual relief is available, and to whom?

1. How does your contract define industrial action?

The first consideration is what comes within the ambit of “industrial action” for the purposes of your contract.  Namely:

• Your contract may or may not define industrial action specifically.
• If your contract does define industrial action, this should be your first port of call if industrial action impacts your project.
• If your contract does not specifically define industrial action, the usual rules of contractual interpretation will apply. In such instances it is also useful to consider the definition under the Fair Work Act 2009 (Cth) (FWA). This is also necessary where your contract expressly defines industrial action by reference to the FWA. The definition under the FWA includes:^[1]
  • the performance of work by an employee in a manner different from that in which it is customarily performed, or the adoption of a practice which results in a restriction, or limitation on, or a delay in the performance of work;
  • a ban, limitation or restriction on the performance of work by an employee or on the acceptance of or offering for work by an employee;
  • a failure or refusal by employees to attend for work or a failure or refusal to perform any work at all by employees who attend for work; or
  • the lockout of employees from their place of employment by the employer.

2. What are the contractual consequences of industrial action?

The scope of “industrial action” identified, it is next important to consider the contractual consequences if industrial action occurs.  Specifically, it is necessary to identify and consider:

• Which contract regimes might apply: consider the specific clauses which may be relevant to industrial action including where time / cost relief or suspension of obligations will be available. Construction contracts often define industrial action and include it under either or both of the force majeure or qualifying delay regimes. The treatment of industrial action, and what relief is available, varies contract to contract.  Further, the right to any relief or suspension of obligations generally requires issuance of prescribed notices in the event that industrial action occurs or impacts the works (with such notices a condition precedent to any relief).
• Under those regimes, how is risk allocated: consider how the risk of industrial action is dealt with under the relevant contract. As to how risk is typically allocated, contractors will generally be responsible for their own workforce and for any site-specific issues. Conversely, if the industrial action is State-wide or Nation-wide, this may be an event which gives rise to time / cost relief or invokes the force majeure regime (subject to compliance with other preconditions to claiming such relief). This risk allocation may vary under your contract.

Whether the action is protected or unprotected may be an important distinction too. Industrial action is ‘protected’ only where it meets the strict procedural requirements in the FWA. Any other conduct which constitutes industrial action is ‘unprotected’, under the Commonwealth regime.

What other avenues may be available to project parties?

In addition to the contractual regimes which applies, there are potential avenues under the FWA and under general law.

The remedy most likely to be relevant to circumstances where industrial action involving an unrelated entity affects your project is to seek an order as a third party suspending the industrial action. An outline of the requirements for seeking this type of order and a recent case is set out below.

There are a range of other potential avenues under the FWA and at general law which are also discussed briefly below. The suitability and prospects of any option avenue will be highly fact-specific.

Third party rights under s 426 of the Fair Work Act 2009 (Cth)

Project parties may wish to consider using section 426 of the FWA which applies if protected industrial action is threatening significant economic harm to a third party.  On application to the Fair Work Commission (FWC), the FWC must suspend the protected industrial action if:

• the action is threatening to cause significant economic harm to a third party (ie, a person other than the employer, the union or an employee who will be covered by the agreement). The FWC may take into account any matters it considers relevant, including the extent to which the action threatens to:
  • damage the ongoing viability of the third party's enterprise;
  • disrupt the supply of goods or services to the third party's enterprise;
  • reduce the third party's capacity to fulfil a contractual obligation; or
  • cause other economic loss to the third party; and
• the suspension is appropriate, taking into account whether it would be contrary to the public interest or the objectives of the FWA.

Importantly, it is a high bar for the FWC to suspend the right to take protected industrial action.  Critical factors will be the length of the suspension sought and the magnitude of the harm suffered.  If the suspension sought is short, and the magnitude of harm high, there is a higher likelihood of a successful outcome under this section.

We make this observation in the context of the recent success by impacted third parties in making an application under this provision in circumstances where a 72-hour suspension was sought to avoid potentially significant incursion of additional costs.

In Manildra Group v CEPU,^[2] the Manildra Group successfully applied under section 426 seeking orders to temporarily suspend industrial action on the basis that they had cost the Manildra Group more than $1.2 million in extra power bills by preventing it from starting new gas turbines at its Shoalhaven plant.

By way of background:

• Manildra Group has been undertaking works to transition the co-generation powerplant at its Shoalhaven Starches site from coal-fired boilers to natural gas-fuelled operations including the construction and installation of gas turbines;
• at various stages during construction, Manildra Group was required to engage with Endeavour Energy to gradually commission the new plant, and transition the site to being 98% powered by the turbines. While this commissioning process is ongoing, a ‘lock’ is in place which ensures the turbines only provide power to the level as currently commissioned (ie preventing the provision of power from the turbines to the rest of the Site).  As part of this process, the ‘lock’ needs to be lifted and re-installed at another position and then certain switches reset. Part of this work, including the moving of the lock, can only be carried out by authorised employees of Endeavour Energy.  While the lock is in place, the balance of the site is powered by electricity purchased by Manildra Group from the spot market;
• in early 2024, when the commissioning was ongoing such that approximately 67% of the site was being supplied with power by the turbines, members of the CEPU employed by Endeavour Energy were undertaking protected industrial action. Because of this, Endeavour Energy informed Manildra Group that (despite the work being scheduled and rescheduled several times) that the work could not be performed;
• Manildra Group applied to the FWC to request a 72-hour suspension of the CEPU action to allow the work to be performed so that Manildra Group could fully utilise two new gas turbines (and avoid the need to purchase electricity which was subject to price spikes at various times).

Before the FWC, Manildra Group led evidence as to the “significant harm” which it, a third party (ie not Endeavour Energy, the employer) had and would continue to suffer if the suspension was not ordered.  The FWC accepted this evidence and did not accept the submission by the CEPU that the impact to Manildra Group had to be viewed in light of its size and scale.  The FWC found that while the potential prolonged exposure to the spot market was unlikely to damage the ongoing viability of Manildra Group, or cause it to not be able to fulfil contractual obligations, suspension was appropriate where the industrial action was likely to cause economic loss to Manildra Group which was significant.  Such loss was in the order of “at least about $190,000 per week (or, over three and six months, $2,470,000 and $4,940,000 respectively)”. 

In that case, and illustrative of the high bar which applies to relief sought under section 426, the FWC found “… this is one of the very rare cases where the impact on a third party (Manildra) of protected industrial action is above and beyond the sort of loss, inconvenience or delay that is commonly a consequence of industrial action. The harm being incurred, and likely to be incurred, by Manildra is, in my view, exceptional in its magnitude when viewed against the sort of harm that might ordinarily be expected to flow from industrial action in a similar context.”

As alluded to above, also in Manildra Group’s favour was the length of suspension sought (being only 72 hours), which allowed the FWC to balance the potential harm to Manildra Group with the right of the employees to take protected industrial action.

The CEPU sought leave to appeal, however this was dismissed in August 2024 (noting that the suspension had already occurred by this date, in any event).

Other potential avenues for the FWC to suspend or terminate industrial action

There are other grounds on which the FWC has the power to suspend or terminate industrial action, although an application on these grounds cannot be directly pursued by a third party.

Danger to safety or significant economic harm etc

The FWC can make an order to suspend or terminate protected industrial action on its own initiative, or on application by the employer which is the target of the industrial action or the State/Commonwealth Government where the industrial action has threatened, is threatening, or would threaten:

• to endanger the life, personal safety, health or welfare of the population or part of it
• to cause significant damage to the Australian economy or an important part of it;
• the action is protracted and is causing, or is going to cause, significant economic harm to the employer or employees who will be covered by the agreement.

Ministerial declaration

The Minister for Employment may make a written declaration terminating the protected industrial action if they are satisfied that the industrial action is threatening, or would threaten:

• to endanger the life, the personal safety or health, or the welfare, of the population or a part of it; or
• to cause significant damage to the Australian economy or an important part of it.

What if the action is unprotected?

The applications above relate to ‘protected’ industrial action. Where your project is affected by unprotected industrial action, an application under section 418 of the FWA may be an option. Under this section, the FWC must make an order that the industrial action stop, not occur or not be organised if it is satisfied that unprotected industrial action is happening, threatened or being organised.

General Law

Entities affected by industrial action might also need to look outside the FWA or the project documents for a legal remedy, such as the industrial torts of interference with contractual relations, intimidation or conspiracy.  Whether these types of actions are available will depend on the situation, but even if available on the facts they are almost certainly more costly and complex to pursue compared with remedies available from the FWC under the FWA.

Key takeaways

Industrial action can have significant impacts on major projects. There are however avenues for project parties to seek relief, both under and outside of their contracts.

Careful consideration of the possibility of industrial action impacting a project should be undertaken at the time of contract drafting and early advice obtained if it is planned or occurring.

The proactive development of business continuity plans in the context of industrial disputation are also recommended to help minimize the potential impacts of industrial action on projects, if and when it occurs.