Approving an enterprise agreement – what needs to be done?

Analysis

Approving an enterprise agreement – what needs to be done?

There are numerous conditions to be satisfied before an enterprise agreement can be approved.

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The Fair Work Act (FWAct) imposes a number of requirements on parties to a proposed enterprise agreement that must be completed before an agreement can be approved by the Fair Work Commission (FWC).

The system of approval can prove cumbersome for some employers as there are several issues that need to be addressed during the process. This article summarises the matters that need to be addressed before an agreement can be approved by the FWC.

What needs to occur for approval


Under the FWAct (s186), the Fair Work Commission (FWC) must approve an agreement if:
  • The agreement has been made with the genuine agreement of those involved;
  • The agreement passes the Better Off Overall Test (BOOT) and does not include any unlawful terms or designated outworker terms;
  • The group of employees covered by the agreement was fairly chosen; and
  • The agreement specifies a date as its nominal expiry date.
The FWC can accept undertakings where an agreement would otherwise not be approved. A union can apply to the FWC to be covered by an agreement provided it applies before the FWC approves the agreement.

Content of enterprise agreements


The FWAct applies content requirements with respect to enterprise agreements. A failure to meet these requirements can affect the agreement’s approval before the FWC.

Terms that may be included (permitted matters) are:
  • Matters pertaining to the relationship between employer/employee to be covered by the agreement;
  • Matters pertaining to the relationship employer/union to be covered by the agreement;
  • Deductions from wages where authorised by employees; and
  • How the agreement will operate.
Terms that must be included are:
  • Nominal expiry date;
  • Dispute settlement procedure;
  • Flexibility term; and
  • Consultation term.
Terms that must not be included are:
  • Terms that exclude the National Employment Standards (NES);
  • Designated outworker terms;
  • A term that allows employees to ‘opt-out’ of the agreement;
  • A term that takes away unfair dismissal rights;
  • A term that gives unfair dismissal rights before an employee has completed the minimum employment period;
  • Is a discriminatory term;
  • A term that is inconsistent with the industrial action provisions of the FWAct;
  • A term that is inconsistent with the right of entry provisions of the FWAct;
  • A term that requires or permits payment of a bargaining services fee; and
  • A term that requires or permits contravention of the general protections provision of the FWAct.

Better Off Overall Test (BOOT)


This test is based on the relevant modern award that applies to any employees covered by the proposed enterprise agreement. It requires that each award-covered employee and each prospective award-covered employee must be better off under the agreement than they would if the relevant modern award applied to them.

Any flexibility agreement made under the relevant modern award may not be taken into account for the purposes of the BOOT.

The BOOT applies equally to all employees covered by the proposed enterprise agreement, including those that may be subject to the high income threshold.

Although the BOOT requires each award-covered employee to be better off, the FWC may assume that each employee within a designated class of employees is better off if the agreement passes the BOOT when applied to that class.

The BOOT allows award conditions (but not National Employment Standards (NES) conditions) to be traded off or excluded provided the total remuneration and/or benefits received by the employee leave them better off than if the conditions remained the same.

State and territory legislation


A proposed enterprise agreement will fail the BOOT if it contravenes the applicable state or territory employment statute.

For example, a proposed agreement would fail the BOOT if it provided for the cashing out of long service leave in a state or territory whose relevant law prohibited cashing out (e.g. New South Wales and Victoria) whereas cashing out of long service leave for employees in South Australia would pass the BOOT as this is allowed under the Long Service Leave Act 1987 [SA].

Under the FWAct (s27), a state or a territory law that regulates long service leave is a non-excluded matter, meaning the FWAct does NOT override the statute’s provisions.

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