ER Strategies

Enterprise Agreements? Are They Worth The Trouble?

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Enterprise agreements under the Fair Work Act? Our question to you would be, "Why would you want to do one?". The cost and aggravation might significantly outweigh the benefits, particularly as uncertainty under the system has grown significantly.

Author: Steve Champion
Date Published: 02/06/2010

Our experience with enterprise bargaining under the Fair Work Act has been, so say the least, highly variable, depending on which member of FWA is dealing with your agreement.

The majority thankfully take the same practical, pragmatic approach as their forebears in the Australian Industrial Relations Commission. However, a significant minority appear to us to be taking an extremely pedantic, and sometimes bordering political, approach to their role.

Some examples -

One agreement rejected in a lengthy decision for various reasons which included that it hadn't been the subject of extensive discussions and negotiation with the employees it covered and which therefore breached international labour conventions. The employer was a country cafe with 5 casual staff. 3 identical agreements to the one rejected were approved by other members of the Commission around the same time.

The Commissioner said, "I doubt that there was any collective bargaining or negotiating process prior to employees being provided with a document and being advised as to when and how they would vote on it. Approval of the Agreement would undermine good faith bargaining (Section 187(2))." We note that s.187(2) deals with agreements where scope orders have been made.

Whilst we acknowledge that there were other reasons advanced for why the agreement failed the then no disadvantage test, few if any of these concerned practically possible rosters. The Commissioner refused undertakings that would have rectified any theoretical problems.
In another rejected agreement, a Commissioner involved refused to even consider accepting undertakings as an option - irrespective of the reason for the rejection of the agreement - despite specific provision made for them under the legislation.

A union official has confided that the union prefers not to lodge agreements in one particular city to avoid its agreements being dealt with by that same Commissioner due to the pedantic approach taken by that Commissioner.

Why Do An Agreement?

In determining whether it is worthwhile doing an enterprise agreement under the current legislation, there have been a variety of changes introduced in recent times we have identified which need to be factored in to any decision to make an agreement. We are very experienced in helping clients decide which is best for them -

Industrial Action - an important reason for negotiating an enterprise agreement is to avoid the likelihood of employees taking industrial action during its life. Strikes are effectively banned during the life of an enrterprise agreement (this change introduced by the former Howard Government has been kept in place under the Rudd-Gillard Fair Work legislation. In most workplaces, staff are highly unlikely to ever want to do this anyway, so what's the point?
Overcome Inflexible Awards - whilst this has certainly been a key consideration in the past, the new modern awards have actually removed a lot of the inflexibility that creeped in over decades under the old award system. Often there are work-arounds that can provide a reasonable degree of certainty outside of an enterprise agreement.
Reduce Labour Costs - any agreement must leave employees 'Better Off Overall' (the 'BOOT' Test) than the award that would otherwise apply. In most cases, this will mean paying employees more than under the award. In low-margin industries where labour is a large component of overall costs such as hospitality, fast food, cleaning and security etc, this can offset any advantages in doing an enterprise agreement. And we have little caselaw or principles as yet as to what constitutes 'better off', adding to the uncertainty where the agreement offers minor improvements over the award.
Loaded Rate to Avoid Penalty Rate Complexities - under the BOOT, no employee or future employee can be worse off than under the award. This would seem to rule out paying loaded rates unless a process of rotating rosters for all employees is introduced. Whilst SDP Richards has however shown some flexibility in permitting "preferred hours" clauses in the Horticultural industry (where employees may elect to work without penalty rates at certain times), we doubt his approach will be mirrored by other Commissioners in other industries. The BUPA case - where a Full Bench agreed that such clauses were unlikely to pass the BOOT - seemed to confirm this (although the Full Bench accepted undertakings from the employers not to refer to or rely upon the preferred hour clauses in the subject agreements).
Are You In the Building and Construction or Related Industries? - under the Implementation Guidelines for the Building and Construction industries, it has become pretty much a requirement of major contractors that sub-contractor employers have in place a compliant enterprise agreement.
Are You Paying Over Award Rates? - in many industries where trade unions are well-organised and militant, it may be a fact of life that an enterprise agreement is required to avoid the possible threat of industrial action. Meeting the BOOT is not really an issue because of the high level of overaward payments in the industry.
Confirm Award Coverage - we have a client which has franchised operations that make it unclear which modern award should cover its operations. Approximately half its business could be characterised to be under one award and the other half under another award. Making an agreement would assist in providing greater certainty as to what conditions to apply and probably wages, although we have a concern wage rates could remain technically uncertain (agreement rates can never be less than the award rates for a particular classification).
Good Faith Bargaining Obligations - you may be compelled to negotiate an agreement with a union under good faith bargaining obligations, although it is generally unlikely an employer will be compelled to reach an agreement. There are exceptions, such as in 'low-paid' industries where agreements don't exist, or where a dispute is causing damage to the economy and the participants. However, we have had clients where negotiations have gone on for 14 months and the union seemed more intent on trying to increase union membership through disrupting the workplace via malicious communications, than actually reaching an agreement.See our separate summary of 'GFB'.