Competing with the rise of inflation: Clarifying the amount of a CPI wage increase

It is not entirely uncommon for enterprise agreement wage increases to be tied to the Consumer Price Index (CPI). However, with the high levels of inflation across Australia in recent months, employee wage increases have been higher than perhaps some employers anticipated when they negotiated their enterprise agreements. We have also seen situations where enterprise agreements have not clearly defined how a CPI-based wage increase will be calculated.

This issue was recently considered by the Fair Work Commission (FWC) in the matter of The Australian Workers Union v Visy Glass Operations (Australia) Pty Ltd T/A Visy Glass [2023] FWC 1379.

Facts

Visy Glass Operations (Australia) Pty Ltd (Visy) is a glass manufacturer with operations in South Australia, New South Wales, Victoria, and Queensland. Visy’s business in each of these states operates under a different enterprise agreement (EA).

All employees at Visy in South Australia are covered by the O-I Adelaide (Glassworkers) Enterprise Agreement 2020 (the 2020 Adelaide EA). The 2020 Adelaide EA was negotiated between the South Australian branch of the Australian Workers Union (the AWU) and Visy.

The 2020 Adelaide EA provides for a CPI-based wage increase as follows:

‘The base rate of pay for ordinary hours worked will increase by:

…

d. 2.5%, or CPI, whichever is the greater, from the first full pay week on or after

14 February 2023.

CPI to be obtained from the ABS December statistics of the relevant year.’

When the wage increase became payable under the 2020 Adelaide EA from 20 February 2023, Visy applied the national annual CPI obtained from the Australian Bureau at Statistics (ABS) published in December 2022, which amounted to 7.8%.

However, the AWU argued that the reference to the CPI in the 2020 Adelaide EA meant the annual Adelaide CPI obtained from the ABS for the same period, being 8.6%.

Visy and the AWU attempted to resolve this dispute at the workplace level but failed. On 27 March 2023, the AWU applied to the FWC to deal with the dispute.

The AWU submitted that the reference to ‘CPI’ in the 2020 Adelaide EA was a reference to the Adelaide CPI because the 2020 Adelaide EA was geographically limited to a location in Adelaide, the Adelaide CPI is more likely to maintain the value of wages to Adelaide employees, and the 2020 Adelaide EA was negotiated at the South Australian level.

On the other hand, Visy’s key submission was that ‘CPI’ was a reference to the national CPI as the national CPI was more commonly used than the capital city CPI. Visy also submitted that previous Visy EAs in South Australia expressly defined CPI as the national CPI and that it could be inferred that the 2020 Adelaide EA intended to continue that meaning.

Decision

The FWC found that the correct interpretation of ‘CPI’ in the 2020 Adelaide EA was to the Adelaide CPI and therefore an 8.6% CPI increase was applicable.

Three contextual considerations that were determinative in the FWC’s decision were that:

• the EA only applies in Adelaide;
• the EA was negotiated locally; and
• calculating the movement in wages by reference to the Adelaide CPI would better reflect the local movement in prices and therefore the applicable wage increase.

In making its decision, the FWC did not take into account the language used in the previous Adelaide EAs or the terms of the interstate EAs as it determined that each EA is a unique agreement between Visy and its employees in each location and at a specific point in time. Therefore, the other EAs were not relevant to the interpretation of the 2020 Adelaide EA.

Take home messages

As the FWC noted, a large reason for the dispute in this case resulted from the ‘lack of specificity in the language of an important clause in the 2020 Adelaide EA. That lack of specificity resulted in an expression being used which was capable of two meanings each of which were reasonably arguable but only once of which was correct.’

This comment highlights the importance of clear and detailed drafting in any legal instrument to ensure that the meaning of words and phrases are precise, and to prevent the interpretation of words in a manner not intended by the drafting party.

We recommend that employers review the drafting of the CPI clauses in their EAs to remove ambiguity in the interpretation of the clauses and to avoid being liable to pay higher wage increases than intended, which may be at a significant financial cost.

We also recommend that employers reconsider linking wage increases to CPI at all, particularly where wages under an applicable enterprise agreement already exceed the award rate.

For more specific information or advice on any of the material contained in this article please contact Lincoln Smith on +61 8 8210 1203 or lsmith@normans.com.au, Anastasia Gravas on +61 8 8217 1331 or agravas@normans.com.au or Annabelle Narayan on +61 8 8210 1292 or anarayan@normans.com.au.