With the effective abolition of the Commonwealth 'Building Code' and the imminent demise of the Australian Building and Construction Commission (ABCC), building employers can expect increased pressure from the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU) to select or reject subcontractors on the basis of CFMMEU preference.

Great care is required.

Building employers can still place themselves at significant jeopardy if they reach an agreement with a union in relation to the subcontractors they do and don't engage with. This is so even if the agreement is reached as a result of extreme industrial pressure.

A recent decision of the Federal Court of Australia emphasises that decisions made in the industrial context can have broader legal implications. It indicates that it is always necessary to consider the competition law when making any decision which damages another company, especially if it is done to solve an industrial issue.

What was the case about?

J Hutchinson Pty Ltd (Hutchinson) was the head contractor for a construction project located in South Brisbane.

In March 2016, Waterproofing Industries Qld Pty Ltd (WPI) entered into a subcontract with Hutchinson to perform waterproofing works for the project. WPI did not have an enterprise agreement which covered the CFMMEU.

The CFMMEU subsequently complained to Hutchinson about the engagement of WPI for the project.

The complaint included that Hutchinson had not complied with its own enterprise agreement before engaging WPI. That enterprise agreement included a clause to the effect that if Hutchinson wished to engage contractors and their employees to perform work in the classifications covered by the agreement, Hutchinson must first consult in good faith with potentially affected employees and the CFMMEU. There had been no consultation with the CFMMEU or employees before WPI was engaged.

The clause also required the contractor and their employees to receive terms and conditions of engagement (or terms no less favourable) as they would receive if they were engaged as employees under the Hutchinson enterprise agreement performing the same work.

Clauses to this effect are very common in the construction industry.

Shortly after the complaint was made, the CFMMEU threatened to organise workers on the project to engage in industrial action if Hutchinson allowed WPI to continue working on the project.

Hutchinson excluded WPI from the site and later terminated the subcontract it had with them.

The Australian Competition and Consumer Commission (ACCC) subsequently investigated the matter and brought proceedings alleging that:

• Hutchinson was liable for contraventions of ss45E(3) and 45EA of the Competition and Consumer Act 2010 (Cth) (C&C Act) for making and giving effect to a 'boycott arrangement'.
• The CFMMEU was accessorily liable for Hutchinson's contraventions by threatening to bring industrial action as per section 76 of the C&C Act, and were also party to the boycott arrangement.

What does the C&C Act say about boycotts

Relevant to this case, section 45E of the C&C Act prohibits a head contractor (in some circumstances) from entering into an arrangement or understanding with a union which has the purpose of preventing the head contractor from using a particular existing subcontractor.

There is a separate prohibition in section 45EA of the C&C Act which prohibits the person from 'giving effect' to the arrangement with the union i.e. by ceasing to obtain services from the subcontractor and terminating the relevant subcontract.

There are other provisions in the C&C Act which make particular types of boycott unlawful, including in the industrial context.

All of these provisions are complex, however in any circumstance where a head contractor capitulates to a demand by a union to 'boycott' a particular subcontractor there is risk of breach.

The findings of the Court

The Court upheld the ACCC's claims against Hutchinson and the CFMEU.

The Court found that Hutchinson had not breached the consultation obligations in its enterprise agreement. This was because it did not employ any 'potentially affected employees' for the purpose of the clause, so did not need to consult with the CFMMEU before it engaged WPI for the project.

The Court also accepted Hutchinson's position that the obligation regarding the engagement of contractors on 'terms and conditions no less favourable' was not required where there were no 'potentially affected employees' whose security of employment may have been undermined by the engagement of a contractor at a cheaper rate.

It was accepted that the CFMMEU's purpose was to ensure that only subcontractors covered by a 'CFMMEU EA' were engaged on the project because there was evidence:

• from senior Hutchinson employees that they knew that the CFMMEU would object if they appointed a 'non-CFMMEU' subcontractor, and that it was unlikely that the subcontract with WPI would have been entered into if consultation with the CFMMEU had occurred; and
• that the CFMMEU delegate advised the project manager that he was under instructions to 'sit the job down' if WPI was allowed to work on site and that this was because WPI did not have a CFMMEU EA.

The Court accepted that Hutchinson's actions in excluding WPI from the project and then terminating the subcontract was the 'manifestation' of agreement or understanding to carry out the purpose of the CFMMEU to not allow WPI on site.

Finally, the Court concluded that the CFMMEU induced the breaches of the C&C Act by Hutchinson because of its threats or the implication that there would be industrial conflict on the site if Hutchinson did not cease using WPI.

In a separate decision released in September 2022, the Court issued a penalty of $600,000 to Hutchinson for making and giving effect to the boycott arrangement. A maximum penalty of $750,000 was issued to the CFMMEU for inducing and being a party to Hutchinson's contraventions.

Both the CFMMEU and Hutchinson have appealed the decision.

Implications for the construction industry

The ACCC has a Commercial Construction Unit with a focus on anti-competitive conduct and unfair business practices in the construction industry. In fact, the ACCC and the ABCC had a memorandum of understanding which was designed to promote effective co−operation and communication between the agencies and to assist each agency in the performance of their roles and responsibilities, including decision−making, and to contribute to the effective regulation of the building and construction sectors.

The ACCC's attention to the construction industry may increase now that it is clear the ABCC is likely to be abolished and will in any event have no or reduced funding to continue its function.

Accordingly, building employers are at risk of significant legal exposure if they accede to demands by unions to restrict their ability to engage with subcontractors (or other businesses) as they see fit.

All people involved in the procurement process and in the selection of subcontractors and business partners, including project, legal and procurement teams need to be aware of the legal peril which exists if they are faced with a union demand to 'blackball' a particular subcontractor.