Unions and ‘Free-Riders’: avoid getting caught in the crossfire

For years now, union leaders have publicly decried the concept of ‘free-riders’.  The pejorative term is used to describe employees who receive the benefits of an enterprise agreement, despite not being members of the union that bargained for it.

One of the reasons this situation of ‘free-riding’ exists is freedom of association. Employees remain absolutely free to choose to join a union or not. Recognising the right to freedom of association is one of the objects of the Fair Work Act 2009 (Cth) (FW Act). It is a civil remedy provision for an employer to induce an employee to become, remain, or cease to be a member of a union. Nevertheless, unions have expressed frustration that the situation has contributed to decreased rates of union membership; a trend they do not want to see continue.

Bargaining for enterprise agreements has increased since the Secure Jobs Better Pay and Closing Loopholes amendments to the FW Act. We are seeing logs of claim to-ing and fro-ing at rates not seen since the FW Act was first introduced. The question is whether unions will try to address their ongoing ‘free-rider’ concerns through enterprise agreements. In other words, whether unions will pursue enterprise agreements which, in effect, benefit union members over non-union members.

If unions yield to this temptation, it could expose employers to legal difficulties. If an employer agrees to an agreement which preferences union members, they may fall foul of the anti-inducement provisions in the FW Act and be exposed to financial penalties.

In this context, if you are faced with a log of claims that raises concerns, we suggest you ask two things:

  • If I agree to this claim, would it provide an incentive for employees to join a union?
  • Does the incentive constitute an unlawful inducement?

Voluntary membership and general protections

Section 350 of the FW Act provides that an employer must not induce an employee to take, or propose to take, “membership action”. A person takes membership action if the person becomes, does not become, remains or ceases to be, an officer or member of an industrial association. This section does not apply to unions.

If an employer makes an enterprise agreement that induces employees to become, or not become, members of a union, the employer may fall foul of s.350 of the FW Act and face penalties.

What do the cases say?

In BHP Iron Ore Pty Ltd v Australian Workers’ Union [2000] FCA 430, the Federal Court examined whether BHP’s offer of individual workplace agreements constituted an inducement for employees to leave their union, as prohibited by section 298M of the Workplace Relations Act 1996 (Cth). The Court found that the term “induce” is not limited to explicit threats or promises and includes leading or moving by persuasion or influence. The evidence indicated that the acceptance of these agreements led to a decline in union membership and activity, thus potentially violating section 298M. An interlocutory injunction was granted to prevent BHP from offering further agreements until the final hearing, aiming to maintain the status quo and uphold the integrity of union membership. However, in the final hearing, the Court found there was insufficient evidence to establish that BHP’s offering of individual workplace agreements constituted an inducement for employees to resign from their unions under section 298M. The Court was not satisfied that BHP’s actions were designed to reduce union membership or that employees’ resignations were a necessary outcome of the offers.

In TWU v DHL Exel Supply Chain (Australia) Pty Ltd [2008] FMCA 604, the Federal Magistrates Court determined that DHL contravened the Workplace Relations Act 1996 (Cth) by inducing employees to cease their membership with the Transport Workers Union (TWU) and join the National Union of Workers (NUW).

The Court found DHL had conducted secret negotiations with the NUW, excluded TWU officials from the workplace, and gave preferential access to NUW officials, who then promoted their union to the employees. The Court found that these actions were deliberately aimed at encouraging employees to switch their union, thereby violating section 794 of the Act, which prohibited employers from inducing employees to leave or not join an industrial association. The Court concluded that the company’s conduct was intended to undermine the TWU and promote the NUW, significantly affecting the employees’ freedom of association and their right to choose their union representation.

By contrast, in Australian Industry Group v Fair Work Australia [2012] FCAFC 108, the Federal Court of Australia reviewed a decision by Fair Work Australia (FWA) – as it was then – concerning the approval of an enterprise agreement. Australian Industry Group (AIG) argued that clauses 16.6(b) and 16.6(d) of the agreement, which stated that union membership should be promoted and union members encouraged to participate in union meetings, required the employer, ADJ Contracting Pty Ltd, to induce employees to take membership action in contravention of section 350 of the FW Act.

The Federal Court examined whether the terms “promote” and “encourage” equated to “induce,” as prohibited by section 350. It concluded that “induce” did not necessarily mean “promote” or “encourage.” The court held that the clauses did not contravene section 350 as they did not explicitly require ADJ to induce employees to join or remain in the union. In short, the employer could promote and encourage membership action, without actually inducing it.

The key lessons from these cases are as follows:

  • inducement action can occur both in the context of bargaining, as well as once an agreement is introduced;
  • the practical consequence of the employer’s conduct is highly relevant; in other words, whether the conduct actually results in a change in union membership at the workplace is relevant; and
  • even clauses which appear on their face to require an employer to promote union membership can be ‘read down’ so as not to require ‘inducement’, emphasising the significance of drafting and adding a layer of complexity for employers.

In conclusion, navigating the complexities of enterprise agreement bargaining requires a keen understanding of the legal landscape, including in relation to inducement provisions. The cases of BHP Iron Ore Pty Ltd v Australian Workers’ Union and Australian Industry Group v Fair Work Australia discussed above continue to serve as critical reminders for employers in this respect. They underscore the importance of precise language in agreements, the need to focus on bargaining without contravening anti-inducement laws, and thus the importance of getting legal advice on these issues.

Key takeaways:

  • Familiarise yourself with the FW Act and its provisions regarding union membership and inducement to ensure compliance.
  • Before agreeing to any claims, consider if they provide an incentive for employees to join or leave a union and whether such incentives are lawful.
  • Seek legal advice to navigate the complexities of enterprise agreements and ensure precise language to avoid inadvertent inducements.
  • Prioritise fair bargaining practices that do not discriminate between union and non-union members and benefit all employees equally.


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The views expressed in this article are general in nature only and do not constitute legal advice.

Please do not hesitate to contact us if you require specific advice tailored to the needs of your organisation in relation to the implications of these changes for your organisation.


Steven Amendola
+61 3 9958 9606
[email protected]
Peter Willink
Senior Associate
+61 2 9169 8457
[email protected]
Dylan Pietrocola
+61 2 9169 8423
[email protected]