High Court rules on enterprise agreement coverage

Cases

High Court rules on enterprise agreement coverage

An enterprise agreement can validly cover a workforce even if the new business to which it will apply is not yet operational, the High Court has ruled.

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An enterprise agreement covers an employer and its employees at a new enterprise once that agreement is made… even if the workers haven’t started work because the enterprise hasn’t begun operations, the High Court held this morning. 

It also upheld the rule that the BOOT (better off overall test) should be applied when the Fair Work Commission is considering whether or not to approve an enterprise agreement. 

The High Court of Australia is this country’s final court from which there is no further appeal; through its interpretation of the law, it effectively determines what the law is in in Australia. 

Background


Food retailer Aldi was setting up a new a new business at Regency Park in South Australia back in 2015. It asked existing employees if they wanted to work at the new site and 17 employees were subsequently offered new jobs. 

Aldi made an enterprise agreement with the future Regency Park workforce in advance of that new business actually beginning trading. Bargaining was done and agreement was reached with the Regency Park workforce without the involvement of any unions.

Aldi then had the new agreement approved by the Fair Work Commission. However, the Shop, Distributive & Allied Employees Association ("the SDA") and the Transport Workers' Union of Australia intervened, arguing that the Commission should not approve the agreement. They launched an appeal to the Full Bench of the Fair Work Commission. That was in turn appealed to the Full Court of the Federal Court and, latterly, there was another appeal to the High Court. 

Dispute


They argued the agreement was invalid as it should have been made as a “greenfields” agreement under s172(2)(b). That section says that an employer may make an enterprise agreement with a relevant employee organisation if it is about a genuine new enterprise and that the employer has not employed any of the workers necessary for the normal business of the new enterprise who would be “covered” by the agreement. 

As Aldi was setting up a new enterprise, and the workers who had voted for the new agreement weren’t actually working in the new enterprise when the agreement was made, the agreement should not be approved according to the union. 

Later, as the case wound its wound its way through the court system, the Full Court of the Federal Court of Australia considered section 186 of the Fair Work Act. Section 186 states that an agreement can only be approved if it is “genuinely agreed to” by employees “covered” by the agreement. The Full Court of the Federal Court ruled the agreement could not be genuinely agreed to as no employee could be “covered” by an agreement until it comes into operation, which would be when the new Regency Park enterprise started trading. 

It was also considered by the Full Court of the Federal Court that the new enterprise agreement did not pass the BOOT, which allows a valid enterprise agreement to displace the modern awards that would otherwise cover and apply to a workforce. 

The coverage issue


In a unanimous decision from seven High Court Justices (including the Chief Justice), the plain and ordinary meaning of words of the Fair Work Act were given effect. 

The justices pointed to s52 and s53, and s172 of the Fair Work Act. Section 52 says that an enterprise agreement applies when the agreement is in operation and if the agreement covers the employee and employer. Section 53 says that an agreement covers an employee and employer if it so states.

There is an important distinction between “apply” and “cover”. The Fair Work Act does not appear to define “cover” but under s51 an enterprise agreement can only impose obligations and grant entitlements if it “applies” to a person.

“It is evident from… the Act that an enterprise agreement may "cover" an employee even though it does not yet "apply" to that employee in the sense of imposing obligations on the employee and the employer,” the High Court said.

Meanwhile, s172(2) says that an employer may make an enterprise agreement with employees who are employed at the time of the agreement. 

It was therefore held that once an enterprise agreement is made between an employer and employee they are then covered by it even though it does not “apply” in the sense that it does not yet create rights and obligations in respect of work actually being done. 

The BOOT test


The High Court noted that the Full Bench of the Fair Work Commission had considered a particular clause in the enterprise agreement that gave employees a right to payment of any shortfall in what they would have been paid under the modern award. The Full Bench of the Fair Work Commission had ruled that the clause showed that the enterprise agreement had passed the BOOT test.
 
However, the High Court held, this was a mistake. The enterprise agreement should have been compared to the modern award and the BOOT applied.

Held by the High Court


The High Court sent the case back to the Full Bench of the Fair Work Commission to be re-heard in the light of its rulings that:
  • once an enterprise agreement is made then an employer and employee are covered by it even though it does not “apply”;
  • that the BOOT should be properly applied. 
Read the full case here.
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