Enterprise Agreements

Types of enterprise agreements

Enterprise agreements are collective agreements that will cover a group of employees. There are two types of enterprise agreement which can be made – single-enterprise agreements and multi-enterprise agreements. A single-enterprise agreement or multi-enterprise agreement relating to a genuine new enterprise may also be a greenfields agreement.

Single-enterprise agreements

Single-enterprise agreements are made between a single employer, or two or more employers that are single interest employers, and a group of employees. Two or more employers can bargain together for a single-enterprise agreement if they are related bodies corporate, or they are engaged in a joint venture or common enterprise, or they are specified in a single interest employer authorisation (made by the FWA).

Multi-enterprise agreements

Multi-enterprise agreements are made between two or more employers and groups of their employees. Other than in the low-paid bargaining stream, employers must voluntarily agree to bargain together for a multi-enterprise agreement.

Low-paid bargaining stream

A special stream of bargaining for multi-enterprise agreements is available to enable low-paid employees who have not historically participated in enterprise level collective bargaining to make a multi-enterprise agreement. FWA can make low paid authorisations that allow access to this stream. Low-paid authorisations enable employers and employees to, among other things, seek assistance from FWA in order to bargain for a multi-enterprise agreement.

Greenfields agreements

Greenfields agreements are made between an employer or employers and an employee organisation or employee organisations. They must relate to a genuine new enterprise and be made before the employer or employers employ any of the persons who will be necessary for the normal conduct of the new enterprise.

Bargaining and representation during bargaining

Employers and employees are entitled to appoint any person as their bargaining representative for a proposed enterprise agreement. Employers are required to take all reasonable steps to notify each employee of their right to be represented during bargaining. The FW Act provides a more significant formal role for bargaining representatives in the bargaining process compared to bargaining agents under the WR Act.

Bargaining representatives must act in good faith and comply with bargaining orders

Bargaining representatives for a proposed enterprise agreement must meet the good faith bargaining requirements. A bargaining representative may apply to FWA for a bargaining order to ensure that the good faith bargaining requirements are being met and that bargaining is proceeding efficiently and fairly.

Failure to comply with a bargaining order exposes a bargaining representative to pecuniary penalties and other court orders. If the contravention is serious and sustained and significantly undermines the bargaining process, a bargaining representative may also apply to FWA for a serious breach declaration. The consequence of such a declaration is that FWA may make a bargaining-related workplace determination.

What happens if an employer refuses to bargain with its employees?

If an employer does not agree to bargain with its employees, a bargaining representative for an employee may apply to FWA for a majority support determination. If FWA determines that there is majority support among employees for collective bargaining, the employer is required to bargain. If the employer still refuses to bargain, the employee bargaining representative may seek a bargaining order to require the employer to meet the good faith bargaining requirements.

Where there is a dispute about which classes or groups of employees will be covered by the proposed enterprise agreement, FWA has power to make scope orders. A scope order is available on application by a bargaining representative. Bargaining representatives may also apply to FWA for assistance in dealing with a dispute about a proposed enterprise agreement.

Content of enterprise agreements

Enterprise agreements can be made about ‘permitted matters’. The permitted matters are:

• matters pertaining to the relationship between an employer or employers and employees;
• matters pertaining to the relationship between an employer or employers and an employee organisation or employee organisations;
• deductions from wages authorised by an employee; or
• how the agreement will operate.

Notwithstanding previous decisions of the High Court to the contrary (based on the Work Choices legislation), the FW Act provides that an agreement will still be valid even where it includes terms that are not about permitted matters. FWA will not have to scrutinise each enterprise agreement to ensure that all its terms are about permitted matters as this would unduly delay the agreement approval process. However, to the extent that a term of an enterprise agreement is not about permitted matters, the term will be of no effect.

Each substantive term of an enterprise agreement must be about one or more of the permitted matters in order for the agreement to be characterised as about permitted matters. This would not prevent an enterprise agreement from containing other, valid, terms where the term is ancillary or incidental to, or a machinery provision, relating to a permitted matter.

Whether an enterprise agreement is about permitted matters is also significant in the context of protected industrial action for the purpose of provisions which deals with employee claim action. Employees and their bargaining representatives cannot organise or take protected industrial action in support of claims for a proposed enterprise agreement that will include terms that are not about permitted matters.

Whether a particular term is about matters pertaining to the employment relationship will depend on its precise construction, as well as the circumstances surrounding the particular employment relationship. Frequently, it will be obvious that a term pertains to the employment relationship – e.g., a term about the payment of wages or a term about hours of work and shift patterns. However, there are some terms where it is not so immediately clear whether the terms are about matters pertaining to the employment relationship.

The following terms would be within the scope of permitted matters:

• terms relating to particular staffing levels (subject to any other applicable legislative requirements or limitations) particularly if those terms are aimed at ensuring the health, safety and wellbeing of employees;
• terms relating to conditions or requirements about employing casual employees or engaging labour hire or contractors if those terms sufficiently relate to employees’ job security – e.g. a term which provided that contractors must not be engaged on terms and conditions that would undercut the enterprise agreement;
• terms that would provide that casual employees are converted to permanent employees after a set period of time; and
• terms that would prevent an employer from seeking a contribution or indemnity from an employee in respect of personal injuries or losses suffered by that person where such injuries or losses were cause by the employee in the course of their employment.

The following terms would probably not be within the scope of permitted matters:

• terms that would contain a general prohibition on the employer engaging labour hire employees or contractors;
• terms that would contain a general prohibition on the employer employing casual employees;
• terms that would require an employer or employee covered by to the enterprise agreement to make a donation to a political party or charity;
• terms that would require an employer to source only products from a particular supplier or Australian made products (unless, e.g., such a term was directly related to employees’ job security);
• terms that would require an employer to engage or not engage particular clients, customers or suppliers who had agreed to commit to certain employment, environmental or ethical standards (unless, e.g., such a terms was directly related to employees’ health and safety); and
• terms that relate to corporate social responsibility, e.g., terms requiring an employer to participate in charity events or commit to climate change initiatives.

The permitted matters are focussed on the employment relationship. One effect of this is that terms that are about the relationship between an employer and an employee organisation may not pertain to the employment relationship, even where the terms are closely associated with the organisation’s representation of employees under the agreement.

Permitted matters relating to employee organisations

However, the FW Act permits terms in agreements that are about matters pertaining to the relationship between the employer or employers, and the employee organisation or employee organisations that will be covered by the agreement. For an agreement term to fall within ‘permitted matters’, the term needs to relate to the employee organisation’s legitimate role in representing the employees to be covered by the agreement.

The following terms are examples of those intended to fall within the scope of permitted matters:

• terms relating to union training leave and leave for training conducted by a union;
• terms that provide for employees to have paid time off to attend union meetings or participate in union activities;
• terms that provide for union involvement in dispute settlement procedures;
• terms that allow unions to promote membership or have noticeboards in the workplace or otherwise provide information to employees;
• terms that require an employer to provide information to a union about employees who are covered by an enterprise agreement or information about a union to an employee; and
• terms that provide for the union to attend the workplace for certain purposes such as dispute resolution or consultation meetings (subject to the rules governing unlawful content).

Some terms relating to employee organisations are not permitted

Because of the way in which the relationship arises, there are limitations on the types of terms that would pertain to the relationship between an employer and an employee organisation. For example, a term granting a lease over property owned by the employer to the employee organisation would not be a term about a permitted matter because it would not concern the relationship between the employer as an employer and the employee organisation as a representative of the employees covered by the agreement.

Agreements are able to contain terms about deductions from wages provided that they are authorised by an employee. This would, for example, permit terms dealing with salary sacrifice, payments to superannuation or the deduction of union membership fees. This has been expressly included because courts have held that such terms may not be a permitted matter.

There are some other limits on terms about deductions from wages. For example, terms relating to bargaining agents fees are unlawful terms and terms that provide for unreasonable deductions from wages are of no effect. The FW Act permits an agreement to contain terms about how the agreement operates. This could include, e.g., terms setting out how and when the negotiations for a replacement agreement will be conducted, about the nominal expiry date or terms specifying who the agreement will cover.

Passing the better off overall test (BOOT)

To be approved, an enterprise agreement must pass the BOOT. An agreement that is not a greenfields agreement passes the BOOT if FWA is satisfied, as at the test time, that each award covered employee and each prospective award covered employee would be better offer overall if they were employed under the agreement than under the relevant modern award.

Although the BOOT requires FWA to be satisfied that each award covered employee and each prospective award covered employee will be better off overall, it is intended that FWA will generally be able to apply the BOOT to classes of employees. In the context of the approval of enterprise agreements, the BOOT does not require FWA to enquire into each employee’s individual circumstances.

FWA must disregard any individual flexibility arrangement (see below) that has been agreed to by an award covered employee and his or her employer under the flexibility term of the relevant modern award when assessing whether that employee would be better off overall under the agreement. It is envisaged that an employee and employer who have agreed to an individual flexibility arrangement under a modern award would take into account the terms of that arrangement when negotiating a proposed new agreement. If the flexibilities set out in the arrangement were not included in the agreement, it would be open to an employee and employer, subject to the terms of the agreement, to agree to a similar individual flexibility arrangement under the flexibility term of the agreement.

A greenfields agreement passes the BOOT if FWA is satisfied that each prospective award covered employee would be better off overall if the employee was employed under the agreement than under the relevant modern award.

What is an “award covered employee”?

An award covered employee is an employee who, at the test time, is covered by the agreement and is covered by a modern award that is in operation and covers the employee’s employer. The modern award must cover the employee in relation the work that she or he is to perform under the agreement.

The BOOT refers to all award covered employees, including those that have been given a guarantee of annual earnings. This is because an employee that has been given a guarantee of annual earnings remains covered by a modern award even though the award ceases to apply to the employee where the annual rate of the guarantee exceeds the high income threshold.

When is the BOOT applied?

The BOOT is a ‘point in time' test, which requires each award covered employee and prospective award covered employee to be better off overall at the test time. The test time would be the time that a bargaining representative made the application for FWA approval of the agreement.

Unlawful terms

Some terms of an enterprise agreement are unlawful terms. Unlawful terms are generally defined within the FW Act. Examples of unlawful terms include:

• a discriminatory term;
• an objectionable term;
• a term which gives an employee, who has not completed the minimum employment period and who would be protected from unfair dismissal after completing that period, an entitlement or remedy in relation to a termination of the employee’s employment that is unfair;
• a term which excludes or modifies the application of the unfair dismissal provisions in the FW Act;
• a term which purported to authorise or allow industrial action prior to the nominal expiry date of the agreement;
• a term which provides for an entitlement that is inconsistent with rights of entry provisions; or
• a term which provides for the exercise of a State or Territory OHS right.

Mandatory terms of enterprise agreements – flexibility terms

Enterprise agreements must include certain terms. These include flexibility terms, which enable an employee and his or her employer to agree to an arrangement (an individual flexibility arrangement) varying the effect of the agreement in relation to the employee and the employer in order to meet the genuine needs of the employee and employer. It must comply with the requirements of the FW Act.

A flexibility term must specify which terms of the enterprise agreement can be varied by an individual flexibility arrangement.

How individual flexibility agreements change the effect of the enterprise agreement

Where there is an individual flexibility arrangement under a flexibility term in an enterprise agreement, the agreement has effect in relation to the employee and the employer as if it were varied by the flexibility arrangement and the arrangement is taken to be a term of the agreement. This means, for example, that if an employer contravened a term of an individual flexibility arrangement the employer would contravene a term of the agreement – so the individual flexibility arrangement can be enforced as a term of the agreement.

The individual flexibility arrangement does not change the effect the agreement has in relation to the employer and any other employee and does not have any other effect other than as a term of the agreement. For example, an individual flexibility arrangement would not have any effect as a contract in its own right or as a variation to an employee’s contract of employment.

Approval of agreement by FWA

Application for approval

All enterprise agreements must be lodged with FWA for approval before they can commence operation.

The application for approval must be made by the employer, a bargaining representative for an employer, or a bargaining representative for an employee. The agreement must be signed by the employer and a representative of the employees before it can be approved. At the time of lodgement the employer or bargaining representative will be required to submit a statutory declaration setting out details of the agreement.

The application for FWA approval must be made within 14 days after the agreement has been made.

An enterprise agreement will only come into operation after it has been approved by FWA.

Requirements

FWA will approve an enterprise agreement if it is satisfied the following requirements are met:

• the agreement has been genuinely agreed to by employees (unless it is a greenfields agreement);
• the agreement contains a nominal expiry date, an enterprise flexibility clause, a dispute settlement clause and a consultation provision;
• the agreement does not contain any unlawful terms;
• the terms of the agreement do not contravene the NES; and
• the agreement passes the BOOT.

FWA may still approve an agreement that does not pass the BOOT so long as it is not contrary to the public interest. This would include situations such as where the agreement is part of a reasonable strategy to deal with a short term crisis assisting revival of the employer’s business.

Giving undertakings

Where FWA has concerns about the agreement passing the BOOT the agreement may be approved with undertakings.

For example, an enterprise agreement may contain a term that the employer will not approve requests for annual leave during the end of financial year accounts processing. In this instance FWA might accept an undertaking from the employer that it will not unnecessarily refuse an employee’s request to take paid annual leave at any time, including during the end of financial year accounts processing. It is important to note however that the fact that the employer needs all employees to work at this time would be relevant to whether a refusal was unreasonable.

FWA may only accept a written undertaking from one or more employers covered by the agreement if FWA is satisfied that the effect of accepting the undertaking is not likely to cause financial detriment to any employee covered by the agreement or result in substantial changes to the agreement.

Before accepting an undertaking FWA must seek the views of bargaining representatives for the agreement.

Where FWA accepts an undertaking it is then taken to be a term of the agreement and applies to each employer that gave the undertaking.

Approval decision

An agreement will come into operation 7 days after it is approved by FWA or on a later date if one is specified in the agreement.

Variation and termination of agreements

Variation

Employers and employees can agree to vary an enterprise agreement at any time. However, where the scope of the agreement changes as a result of the variation, all of the employees affected by the change must decide whether to make the variation.

An agreement which did not pass the BOOT, but which FWA approved under the public interest test, cannot be varied by employers and employees.

A variation is made when the proposed variation is approved by a majority of the affected employees. At this point a person covered by the agreement must apply to FWA for approval of the variation (e.g. an employer, employee or employee organisation covered by the agreement). The application for approval must be accompanied by a signed copy of the variation and any declarations that are required by the procedural rules to accompany the application. The application must be made within 14 days after the variation is made.

FWA can also vary an enterprise agreement to remove an ambiguity or uncertainty in the agreement. An application may be made by one or more of the employers covered by the agreement, an employee or an employee organisation.

A variation will come into operation when it is approved by FWA.

Termination

Employers and employees can agree to terminate an enterprise agreement at any time.

A termination is agreed to when a majority of employees who cast a valid vote approve the termination. However, where a multi-enterprise agreement is only approved by a majority of employees of some, but not all, the employers, FWA cannot approve the termination. In this instance, it would be open to the employees and employer to negotiate a new single-enterprise agreement which would replace the multi-enterprise agreement.

Once termination of an enterprise agreement is agreed to, a person covered by the agreement must apply to FWA for approval of the termination (e.g. an employer, employee or employee organisation covered by the agreement). The application for approval must be accompanied by any procedural rules required to accompany the application. The application must be made within 14 days after the termination is made.

A termination will come into operation when it is approved by FWA.

Powers of FWA in relation to bargaining

Bargaining orders

A bargaining representative may apply to FWA for a bargaining order in certain circumstances. The application can be made if the bargaining representative:

• has concerns that:
  • one or more of the bargaining representatives for the agreement have not meeting their good faith bargaining requirements (i.e. attending meetings, responding to proposals made by other bargaining agents and disclosing relevant information in a timely manner); or
  • the bargaining process is not proceeding efficiently or fairly because there are multiple bargaining representatives for the agreement; and
• has given a written notice setting out those concerns to the relevant bargaining representatives; and
• has given the relevant bargaining representatives a reasonable time within which to respond to those concerns; and
• considers that the relevant bargaining representatives have not responded appropriately to those concerns.

In order to issue a bargaining order FWA must be satisfied that the above conditions have been met.

FWA can then take several courses of action, including:

• specifying the actions required to ensure that the bargaining representatives meet the good faith bargaining requirements (e.g. time and dates when bargaining agents must attend and participate in meetings);
• specifying actions to ensure the representatives refrain from capricious or unfair conduct that undermines freedom of association or collective bargaining (e.g. an order which reinstates an employee whose employment was terminated on the grounds that it relates to a failure by a bargaining representative to meet this good faith bargaining requirement);
• excluding a bargaining representative from bargaining; or
• requiring multiple bargaining agents representing employees to meet and appoint one representative to bargain.

A bargaining representative who fails to comply with a bargaining order may expose themselves to pecuniary penalties and other court orders.

FWA will not be able to make good faith bargaining orders until 90 days before the nominal expiry date of an existing collective agreement, unless it is after an employer has requested the employees to approve the proposed agreement. If there is no existing enterprise agreement in operation, an application may be made at any time.

Serious breach declaration

If FWA believes that there have been serious and sustained breaches of bargaining orders by a bargaining representative and those breaches have significantly undermined bargaining for the agreement, FWA will have the power to make a workplace determination.

However, FWA will only make a workplace determination as a last resort. Therefore they must be satisfied that all other reasonable alternatives to reach agreement have been exhausted and that agreement will not be reached in the foreseeable future.

Majority support determination

If an employer has not agreed to bargain with its employees, an employee bargaining representative can apply to FWA for a majority support determination. These determinations are only available in relation to single-enterprise agreements.

If FWA determines that there is majority support for collective bargaining and an employer continues to not participate in bargaining, a bargaining representative for the employees may seek a bargaining order to require the employer to bargain.

Scope orders

A bargaining representative for a single enterprise agreement can apply for a scope order if the representative has concerns that bargaining for the proposed enterprise agreement is not proceeding efficiently or fairly because the agreement will not cover the appropriate employees.

The scope order must specify which classes or groups of employees are to be covered by a proposed enterprise agreement. For example, a scope order may require an employer to include a class of employees in bargaining for a proposed agreement or exclude a class of employees from bargaining for an agreement.

When FWA makes a scope order it may also amend existing bargaining orders and make or vary other orders and determinations made by FWA.

Consent arbitration of bargaining disputes

A bargaining representative may apply to FWA for assistance if there is a dispute about the making of an enterprise agreement which cannot be resolved by the bargaining representatives.

If agreed to by the bargaining representatives, FWA may deal with the dispute by mediation or conciliation, by making a recommendation or expressing an opinion.

Low paid authorisation

Bargaining representatives may apply to FWA on behalf of employers or employees for a low paid authorisation. This allows FWA to facilitate bargaining for a specified list of employers who are low paid and who have not historically had access to the benefits of collective bargaining. These employees include, for example, certain employees in the community services sector and the cleaning and child care industries.

In assessing whether to make an authorisation, FWA must be satisfied that the employees are low paid employees who either have not had access to collective bargaining or who face substantial difficulty bargaining at the enterprise level. FWA will also have regard to the history of bargaining in the industry where the employees work and whether the granting of the authorisation would assist in identifying improvements to productivity and service delivery at the places to which the agreement relates.

FWA can hear objections from individual employers and exclude them from the application before making a low-paid authorisation. For example, an employer might object on the ground that it has a history of successful collective bargaining arrangements or that they have been bargaining with their employees and prepared to bargain for a single-enterprise agreement.

Single interest employer authorisation

Single-interest employers are employers who operate in a related way or share a common interest that they may bargain together for a single-enterprise agreement.

If two or more employers are engaged in a joint venture or common enterprise they will be able to bargain for a single-enterprise agreement without the need for authorisation.

Other employers having a close connection may be permitted to bargain for a single enterprise agreement if they obtain a single interest employer authorisation. However, FWA will only make such an authorisation if satisfied that the employers have the requisite close connection.

The types of employers that may apply for a single interest employer authorisation are franchisees, and where approved by a Ministerial declaration, employers such as schools in a common education system and public entities providing health services.

A single interest employer authorisation comes into operation on the day on which it is made. It ceases to operate on the earlier of the following:

• the day on which the enterprise agreement to which the authorisation relates is made; or
• 12 months after the day on which the authorisation is made.