Agreement allowing employees to ‘opt out’ provision approved

Analysis

Agreement allowing employees to ‘opt out’ provision approved

An appeal bench of Fair Work Australia has recently approved an enterprise agreement containing an opt-out provision that permits employees to choose to be excluded from the enterprise agreement.

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[Editor’s note: This case was overturned on appeal. See: Court orders re-hearing of agreements with ‘opt-out’ provision.]
 
An appeal bench of Fair Work Australia (FWA) has recently approved an enterprise agreement containing an opt-out provision that permits employees to choose to be excluded from the enterprise agreement.
 
[This article was prepared by Australian Business Lawyers — a law firm specialising in workplace law, as well offering corporate and commercial law services.]
 
The decision in Newlands Coal Pty Ltd v CFMEU [2010] FWAAFB 7401 is relevant because it concerned the extent to which the parties can decide who will be covered by an enterprise agreement.
 
What happened and why?
 
In May of this year, Newlands Coal Pty Ltd lodged an application with FWA for the approval of an enterprise agreement to cover 154 of its employees. The enterprise agreement contained provisions describing the employees covered and also expressly stated that it does not cover ‘Employees who at any time elect in writing not to be covered by the Agreement’.
 
The enterprise agreement was referred to a FWA commissioner for approval. The commissioner indicated that he was concerned with what he described as the ‘opt out’ provision. The commissioner took the view that a clause which allows either new or existing employees to ‘opt out’ of coverage could not be valid and that the employees to be covered by the agreement were not fairly chosen because of the existence of an undefined group of existing and potential employees who may ‘opt out’.
 
Despite Newlands offering to make undertakings, the commissioner declined to approve the enterprise agreement and dismissed the application for approval. Newlands appealed to a full bench of FWA.
 
The majority of the appeal bench found that the coverage clause was clear and comprehensible, and there was no evidentiary basis for the assertion that the clause undermined collective bargaining and the interests of other employees.
 
At paragraph 52 the majority said:
‘It is consistent with the principle of collective bargaining that, in general, the parties to collective agreements are able to determine coverage as part of their negotiations. This agreement, including its coverage clause, was negotiated and agreed to by the employer and the majority of employees. It was put to us that the existence of the opt-out provision would weaken the union’s capacity to bargain in future. Even if this were true, we query whether this in itself would necessarily render the opt-out provision inconsistent with the requirement of s.186(3). In any case, we do not consider that there is any basis to such a conclusion.’
The commissioner’s decision was overturned and the enterprise agreement approved on the condition that Newlands provide FWA with a written undertaking that prospective employees will not have their employment conditional upon agreeing to opt out.
 
Useful tips for employers
  • The decision draws attention to the capacity of parties to negotiate the extent to which a proposed enterprise agreement covers employees. It also draws attention to the importance of the mandatory pre-approval steps that must be satisfied before an application for approval can be made to FWA (eg notice of representational rights, reasonable steps to provide access to proposed agreement and to explain the effect of the proposed agreement, approval by valid majority).
  • If you are contemplating making an enterprise agreement for your business, ensure that you are fully informed about these mandatory steps.
  • Ensure that the proposed agreement contains the mandatory content as required by the Fair Work Act and ensure that the content is clear and comprehensible.
 
Source: Australian Business Lawyers & Advisors. Australian Business Lawyers & Advisors conducts a range of training courses on employment-related matters.
 
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