The following is an extract from a decision of a senior member of the Fair Work Commission which sets out the principles which are inherent in the doctrine of management or managerial prerogative
“The contemporary state of the law in respect to managerial prerogative was considered by Lawler VP in CFMEU v HWE Mining. I cite a lengthy passage from His Honour’s judgement below, which I respectfully adopt. At paras [7]-[12], His Honour said:
‘[7] The law recognises that there is an area of managerial prerogative in which an employer has the right to make decisions on how to manage their business. In Re Cram, ex parte N.S.W. Colliery Proprietors Association Limited the High Court observed that “many management decisions, once viewed as the sole prerogative of management, are now correctly seen as directly affecting the relationship of employer and employee”. That case was concerned with whether the jurisdiction of the federal tribunal (under the then legislation based on s.51(xxxv) of the Constitution) to make an award in settlement of a dispute was constitutionally limited so as to prevent any interference with managerial decisions. The High Court rejected any such limitation, observing:
“… we reject the suggestion, based on the remarks of Barwick C.J. in Melbourne & Metropolitan Tramways Board, that managerial decisions stand wholly outside the area of industrial disputes and industrial matters. There is no basis for making such an implication. It is an implication which is so imprecise as to be incapable of yielding any satisfactory criterion of jurisdiction: see Federated Clerks Union. Indeed, the difficulty of making such an implication is accentuated by the fact that the extended definition of ‘industrial matters’ proceeds on the footing that many management decisions are capable of generating an industrial dispute.
These considerations indicate that the objection voiced by O’Connor J. in Clancy to the regulation and control of business enterprises by industrial tribunals is not a matter that goes to the jurisdiction of the tribunals. Rather it is an argument why an industrial tribunal should exercise caution before it makes an award in settlement of a dispute where that award amounts to a substantial interference with the autonomy of management to decide how the business enterprise shall be efficiently conducted.”
(footnotes omitted)
[8] Subject to express terms, there is an implied term in the contract of employment that the employee will comply with the lawful and reasonable directions of the employer. This is one of the principal ways in which the employer’s managerial prerogative arises from a legal perspective and forms the basis on which an employer may be said to have a right to make and vary policies that employees are required to observe.
[9] As was observed by the Full Bench in Woolworths v Brown:
“[24] In the modern era employers face an often bewildering array of statutory obligations in relation to matters such as health and safety, discrimination, taxation, trade practices and fair trading to mention the most obvious examples. Employers face potential liability arising from their common law duty of care to their employees and to members of the public. Employers may be subject to contractual obligations that require them to conduct their business in a particular way or to meet particular standards or observe particular constraints. For these reasons it is entirely reasonable, and often necessary, for employers to put in place policies, with which employees must comply, to facilitate the employer’s compliance with its obligations and duties.”
[10] However, managerial prerogative in relation to employees (including the employer’s right to make and vary policies that employees are required to observe) is subject to legal constraints. It may be constrained by statute or the terms of an award. It may also be constrained by the terms of a contract of employment or a statutory agreement that the employer chooses to make. For example, an enterprise agreement might provide that all work must be carried out in accordance with a roster pattern specified in the agreement. In that example, unless the agreement also confers a right on the employer to vary the roster pattern, the employer has bound itself not to require employees to work a different roster pattern. In particular, an employer can bind itself in a statutory collective agreement not to change a policy or policies without, for example, the agreement of a relevant union or a majority of employees.
[11] If an employer’s exercise of managerial prerogative is not prevented by statute, an award, a statutory agreement or the contract of employment, the basis for a tribunal such as Fair Work Australia, acting as an arbitrator of a dispute, interfering with what would otherwise be a lawful exercise of managerial prerogative (such as the making or varying of a policy which employees are required to observe) was laid down Australian Federated Union of Locomotive Enginemen v State Rail Authority of New South Wales (XPT case):
“It seems to us that the proper test to be applied and which has been applied for many years by the Commission is for the Commission to examine all the facts and not to interfere with the right of an employer to manage his own business unless he is seeking from the employees something which is unjust or unreasonable. The test of injustice or unreasonableness would embrace matters of safety and health because a requirement by an employer for an employee to perform work which was unsafe or might damage the health of the employee would be both unjust and unreasonable. The ACTU submitted to us that we should apply the test as to whether the demand of the employer was just and equitable having regard to all the circumstances. It is our view that under any given set of facts the test suggested by the ACTU would not lead to a different decision from the test which the Commission has applied over time. Accordingly in reaching our decision we have approached the matter from the point of view of making a judgement whether the request of the SRA that the XPT be manned by one man is unjust or unreasonable.”
[12] I proceed on the basis that an exercise of managerial prerogative will not be unreasonable in this sense if a reasonable person in the position of the employer, could have made the decision in question.
[endnotes omitted]’
Steenstra v J.J. Richards & Sons Pty Ltd (2015) FWC 7918 delivered 18 November 2015 per Sams DP