Enterprise agreements can be made singly or across enterprises. They are approved by the Fair Work Commission if they pass the BOOT test or there are exceptional circumstances. Different procedures apply for each type of agreement. Some content is mandatory or prohibited. Entering an agreement changes the position for industrial action.
Since 1 July 2009, statutory agreements can be made under the FW Act. They are known as enterprise agreements. Under section 172 of the FW Act there are two types of statutory agreements:
1 single enterprise agreements; and
2 multi-enterprise agreements.
Single enterprise agreements can be made in two ways. First, an agreement can be made between an employer or two or more employers that are single interest employers and employees. A trade union may or may not be covered by this type of agreement. Alternatively, a single enterprise agreement can be made for a genuine new enterprise (a greenfield), between an employer or two or more employers that are single interest employers and one or more trade unions.
Multi-enterprise agreements can also be made in two ways. First, a multi-enterprise agreement can be made between two or more employers that are not single interest employers and employees. A trade union may or may not be covered by this type of agreement. Alternatively, a multi-enterprise agreement can be made for a genuine new enterprise (a “greenfields agreement”) between an employer or two or more employers that are single interest employers and one or more trade unions.
Under the FW Act an agreement comes into operation seven days after the agreement is approved by Fair Work Commission (FWC) or a later day specified in the agreement (s 54 FW Act).
Since 1 July 2009 an enterprise agreement has needed to pass the “better off overall test” (BOOT) to be approved by FWC. Agreements made prior to 27 March 2006 and between 28 March 2008 and 30 June 2009 were subject to a “no disadvantage test” before being approved. Section 193 of the FW Act provides that a non-greenfield, enterprise agreement passes the BOOT if FWC is satisfied that each employee and prospective employee would be better off overall if the agreement applied to them than if the relevant modern award applied to them.
Section 189 of the FW Act provides that if an agreement fails the BOOT, it may still be approved by FWC if it is satisfied that due to exceptional circumstances the approval would not be contrary to the public interest. An agreement approved on this basis can only have a nominal expiry date of a maximum of two years after approval.
Workplace agreements approval procedures
For each type of enterprise agreement there are different procedures for making an agreement (s 182 FW Act; see “How workplace agreements come into force”):
•For a single enterprise agreement (that is not a greenfields agreement): the agreement is made when the majority of employees cast a valid vote in favour of approving the agreement.
•For a multi-enterprise agreement (that is not a greenfields agreement): the agreement is made when the majority of employees of at least one of the employers cast a vote in favour of approving the agreement.
•For a greenfields agreement: The agreement is made when it is signed by the employer and each relevant trade union that is expressed to be covered by the agreement.
Under section 180 of the FW Act an employer must take reasonable steps prior to the agreement being voted on to ensure:
•the employees have had access to the written agreement;
•the employees are advised of how, when and where the vote will take place; and
•the terms and effect of the agreement have been explained to the employees.
Enterprise agreements come into force only once they have been approved by FWC. Before approving an enterprise agreement, FWC must be satisfied of a number of matters, including:
•that the agreement passes the BOOT, or if it fails the BOOT should be otherwise approved (see “Better off overall test”);
•that the agreement does not contravene section 55 of the FW Act, including that the agreement does not seek to exclude any provisions of the NES (s 186(2)(c) FW Act);
•that the agreement includes a nominal expiry date of not more than four years after FWC approves the agreement and a dispute resolution clause (s 186); and
•if the agreement is not a greenfields agreement, that the employees genuinely agreed to the agreement (s 186(2)(a)).
Content of enterprise agreements under the FW Act
The content of an enterprise agreement is largely a matter for the parties. However, there is some content that the FW Act requires, permits and prohibits. Under section 55 of the FW Act an enterprise agreement cannot exclude the NES or any provision of the NES (see “National Employment Standards”). Part 2-2 of the FW Act allows enterprise agreements to deal with some matters in the NES.
An enterprise agreement under the FW Act should contain:
•A nominal expiry date. This is the date after which the agreement may be replaced by a new agreement. Under section 186(5) of the FW Act, the date may be specified in the agreement but must, other than for ITEAs and agreements failing the BOOT but approved on the basis of special circumstances, be no later than four years after the date on which the agreement was approved by FWC. If no date is specified in a collective agreement, then the nominal expiry date is four years from the date it is approved by the FWC. For ITEAs, the nominal expiry date is the earlier of a date specified in the agreement or 31 December 2009. For agreements failing the BOOT but approved on the basis of special circumstances, the nominal expiry date is the earlier of the date in the agreement or two years after the day on which FWC approved the agreement (s 189 FW Act).
•A dispute settlement procedure. A procedure that deals with disputes about any matters arising under the agreement, and in relation to the NES, must form part of an enterprise agreement (s 186(6)).
•Minimum entitlements. Although not required to be part of a workplace agreement, the NES provides minimum entitlements to employees and cannot be excluded by an enterprise agreement (s 55). The minimum entitlements of employees can be improved in an enterprise agreement.
•A flexibility term. Under section 202 of the FW Act an enterprise agreement must contain a flexibility term that allows an employee and an employer to agree that terms of the enterprise agreement have effect in relation to the employee and the employer as if the agreement were varied by that arrangement. The flexibility term must require the employer to ensure that the employee is better off overall under the proposed flexibility arrangement. If the enterprise agreement does not contain a flexibility term, then the model flexibility term prescribed by the regulations will be taken as a term of the enterprise agreement.
•A consultation term. An enterprise agreement must contain a consultation term that requires an employer to consult with employees about major workplace change that is likely to have a significant effect on employees (s 205). If the enterprise agreement does not contain a consultation term, then the model consultation term prescribed by the regulations will be taken as a term of the enterprise agreement.
The content of a workplace agreement is substantially in the hands of the parties. For matters to be included in an enterprise agreement under the FW Act they must fall within one of the following categories:
•matters relating to the relationship between the employer(s) and the employees;
•matters relating to the relationship between the employer(s) and the relevant union(s);
•deductions from wages authorised by the employee; and
•how agreements will operate.
See section 172(1) of the FW Act.
An enterprise agreement under the FW Act must not contain a term that is an unlawful term (s 186(4) FW Act). Unlawful terms are defined in section 194 of the FW Act to include:
•discriminatory terms, being terms that discriminate on the basis of the employee’s race, colour, sex, sexual preference, age, physical or mental disability, martial status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin;
•objectionable terms, being terms that would require or permit conduct in breach of the “general protections” contained in the FW Act, (see Protection for your rights at work);
•a term that would confer additional rights on an employee to claim unfair dismissal within the minimum employment period (for a definition see “Unfair dismissals” Protection for your rights at work) or would exclude or detrimentally modify an employee’s unfair dismissal rights;
•a term inconsistent with employees’ or employers’ rights in relation to industrial action; or
•a term that modifies union officials’ rights of entry into workplaces.
Operation of workplace agreements
Under section 186(5) of the FW Act, the nominal expiry date may be specified in the agreement but must, other than for ITEAs and agreements failing the BOOT but approved on the basis of special circumstances, be no later than four years after the date on which the agreement was approved by the FWC. If no date is specified in a collective agreement, then the nominal expiry date is four years from the date it was approved by FWC.
An enterprise agreement will come into operation seven days after it is approved by the FWC or a later day specified in the agreement (s 54 FW Act). Enterprise agreements will continue to operate after their nominal expiry date until they are terminated or replaced.
It is unlawful to engage or threaten to engage in any action with the intention of coercing a person to, or not to, make a collective agreement, or to approve or vary or terminate such an agreement. However, since 1993 the law has permitted and accepted that coercion in the form of lawful industrial action may occur when agreements are being negotiated. To that end, industrial action by employers, employees and unions can be permitted and protected by the FW Act if it is applied towards the making and supporting of claims for a new agreement. Therefore, it is not unlawful to engage in protected industrial action. However, industrial action will only be protected if the procedures for protected industrial action in the FW Act are complied with (see ch 3 pt 3-3 FW Act). (See also “Industrial action”.)
An extensive discussion of the law of industrial action is beyond the scope of this chapter. Since 1993 there has been a right to engage in protected industrial action for the purposes of advancing and supporting claims in connection with a prospective workplace agreement.
Industrial action is a broad and defined term covering a range of activities engaged in by the parties to an industrial dispute. Most frequently, it is used to describe the activities of employees and their unions, and involves action taken to disrupt work. The action may take the form of strikes, a refusal to work as directed by the employer, or the imposition of a ban on certain activities, or some other limitation or restriction on work performed. On the employer side, industrial action usually takes the form of what is known as a “lockout”, which is action that prevents (or locks out) the employees from performing their work and receiving their usual remuneration.
Industrial action is dealt with by the FW Act (ch 3 pt 3–3). The FW Act prescribes requirements for industrial action to be protected industrial action. Those requirements include the holding of a protected action ballot to determine whether employees wish to engage in particular protected industrial action for the proposed workplace agreement. No action lies against a party taking protected industrial action unless the action involves personal injury or wilful and reckless damage to property (s 415).
Industrial action that does not meet the requirements of part 3–3 of the FW Act is not protected and is unlawful. In those circumstances, the FWC has the power to order that industrial action ceases (s 418). Also, those who participate in such action may be subject to civil liability, including damages and injunctions.
Further terms and conditions for negotiation in individual agreements
An individual agreement can take the form of a common law contract of employment. An individual employee negotiating an individual agreement is often at a disadvantage. Typically employees have less bargaining power than employers. Often they also have fewer resources, including knowledge of what they may be entitled to under other industrial instruments, such as awards or certified agreements or prevailing conditions with other employers.
Following is a list of possible items for inclusion in negotiations for individual agreements.
An employee should not agree to a term in an individual agreement that seeks to exclude or modify NES or award conditions without first obtaining advice (see “National Employment Standards”). A term contained in a common law employment contract that purports to exclude or remove NES or award conditions is not effective unless expressly authorised by a section of the FW Act. It is, however, recommended that advice be sought.
Where overtime may be required to be worked, the rate or rates of pay applicable to the overtime hours should be specified.
Some consideration should be given to an additional loading if the hours worked are outside ordinary business hours.
As an alternative to overtime or penalty rates of pay, the parties may agree to some form of compensation for extra time worked beyond the agreed hours based on flexi-time or time in lieu.
Another aspect that should not be overlooked is some form of salary or wage review, unless it is agreed that the salary should be fixed for the term of the agreement. Note that, in the case of ITEAs, once in force an ITEA can only be varied by means of the procedure set out in the WRA. However, if the ITEA itself contains a procedure for review and adjustment, there is no need to resort to the variation procedure in the Act.
A scale of pay based on, for example, years of service, experience or acquired qualifications could be inserted in an agreement or award to avoid the need for variation. The risk in linking pay increases to improving economic conditions, such as a change in the consumer price index (CPI), is that the economic condition specified may not improve at a desirable rate.
Changes to the workers compensation system (WorkSafe) have substantially reduced the benefits payable to the majority of injured workers. Consideration should therefore be given to agreement on make-up pay in the event that the employee is injured and placed on WorkSafe. “Make-up pay” is an amount making up all or some of the difference between the WorkSafe payment and the normal time earnings. Typical provisions under pre-1996 awards provided for make-up pay to be payable in the first 26 weeks of absence from work because of injury sustained at work.
It is not uncommon for an employee to incur expenses in the course of their employment, and under the old award system these expenses would be compensated for by way of an allowance. So, for example:
•a meal allowance might be payable where the employee was required to work extensive overtime;
•a tool allowance might be payable where the employee used their own equipment on the job, to compensate for the costs of its maintenance and replacement;
•a uniform or protective clothing allowance might be payable where the employee was required to purchase and/or maintain these items;
•a travel allowance might be payable to compensate for costs incurred when the employee was required to travel while carrying out duties on behalf of the employer; and
•a vehicle allowance might be payable to compensate for vehicle wear and tear where the employee used their own vehicle while carrying out duties on behalf of the employer,
and so on. An employee who is likely to incur expenses of a similar nature in the course of their employment should not take reimbursement for granted, but should negotiate for specific payment to be included in the agreement.
Allowances can be dealt with in two ways: first, as a fixed amount per day, week or event and second, by agreeing to reimburse for the actually expenses incurred.
There is scope to include terms in contracts that are non-standard. For instance, an employer may encourage its employees to ride bicycles to work, in which case a term of the agreement may be that the employer provides showers. Provided there is a connection between the content of the term and the employment relationship (and is not otherwise prohibited content) it may be included.
Any form of leave an employee may think desirable must be bargained for with the employer, unless it is a form of leave provided for under the NES or a form of leave that may be, and is, included in an applicable award.
There are many forms of leave, the significance and relevance of any particular form varies with the nature of the employment and the circumstances of the employee. For instance, an employee may be a member of the CFA and live in a fire prone area, in which case some form of fire-fighting leave may be necessary. Many employees are part-time tertiary students, in which case study leave may be necessary. Some examples follow:
•blood donor leave;
•leave for those who are Australian Defence Force reservists;
•leave to participate in union elections or decision-making bodies;
•leave whilst serving as an elected union official;
•additional annual leave;
•jury service leave;
•additional personal or compassionate leave, including the extension of the circumstances in which such leave may be taken; and
•additional parental leave, including any part of parental leave that is to be paid.
As for jury service, unless specifically exempted, a person called for jury duty is compelled to attend, notwithstanding that the trial may run for many weeks or months. The allowance paid for attendance for jury duty ranges from $40 per day (for the first six days) to $80 (after the first six days) to $144 per day (where the trial exceeds 12 months). An employer cannot dismiss an employee called for jury duty. An employee dismissed for that reason should seek advice immediately. The Juries Act 2000 (Vic) requires the employer to make up any difference between the allowance and the employee’s normal pay.
The NES in the FW Act contains a maximum hours of work standard. However, the maximum under the standard is capable of manipulation. Accordingly, employees would be advised to reach agreement on the number of hours to be worked each week, and identify when the hours are to be worked. With some industries moving to round-the-clock production, the employee should not make assumptions about the hours in which they will be called upon to work. Hours could be included in the agreement by reference to a roster or some other arrangement. Note the comments about penalty rates (at “3 Penalty rates”).
The WRA provides that an employer must not require an employee to work for more than five hours continuously without an interval of 30 minutes. Such a provision is not part of the NES or FW Act but is contained in modern awards. Such a provision can be incorporated into workplace agreements (collective or individual) to have certain application. Note that the parties may agree to a longer interval without a break.
While occupational health and safety legislation or regulations may apply to some classifications of work to provide for breaks from repetitive work, consideration should be given to the inclusion of rest breaks in the employment agreement.
Issues of termination and redundancy are the most frequent sources of dispute, and should be carefully considered (see further “Termination of employment” in Protection for your rights at work).
The period of notice each party is required to give to the other to end the agreement or contract should be specified. In the absence of any specified period, the common law requires “reasonable notice”, but this can be difficult to interpret in any given case. To avoid expensive legal battles, the parties should specify the period of notice required. The agreement should further confirm that normal wages are payable in lieu of notice.
In negotiating a period of notice issues such as the seniority and remuneration of the employee, the relocation or other personal commitments required by an employee to the new position (among other things) may indicate that a longer period of notice should be sought by the employee.
The minimum notice periods in the NES (see “National Employment Standards”) now have a wide application to employees in the national system. As the period of notice specified in the NES is a minimum period, the parties are able to agree to include a contractual term for a greater period of notice.
Many employers seek to include in the contract a catalogue of events as “misconduct” warranting dismissal. That approach is generally not beneficial either to the employer, who may miss something off the list, or to the employee, who may be intimidated or resentful.
At common law, an employer may dismiss an employee without notice or wages in lieu of notice where the conduct of the employee is serious and justifies summary dismissal.
Examples of conduct justifying summary dismissal are: serious misconduct, incompetence, neglect of duty, wilful refusal to obey lawful and reasonable commands of the employer. Misconduct is active conduct of a serious nature that indicates that an employee rejects the contract of employment, for example, by repeated drunkenness, persistent absenteeism or dishonesty. The breaches must usually be substantial or persistent.
In Rankin v Marine Power International Pty Ltd  VSC 150 (21 May 2001) Justice Gillard in the Supreme Court of Victoria held that there was no rule that defined the degree of misconduct that would justify dismissal without notice; such an assessment was a question of fact. The courts and the AIRC have determined that even fighting in the workplace must be looked at in its context before it can be said to justify summary dismissal.
A redundancy arises where the duties performed by the employee are no longer required to be performed or are no longer required to be performed by that employee. The NES in the FW Act (see “National Employment Standards”) now provides for an employer to make a redundancy payment when an employee in the national system is terminated due to redundancy. Consideration should be given to whether a specific redundancy clause should be included that provides a more beneficial entitlement to the employee.
Prior to the commencement of the NES (on 1 January 2010) there was no general legal requirement that an employer pay a redundancy payment. An employer was only required to make such a payment if a specific obligation existed, usually in an award, collective agreement or contract.
Employers sometimes seek to include clauses in the contract to protect trade secrets, and to limit the use by an employee of skills and knowledge acquired during the period of employment. The enforceability of such clauses will depend very much on their terms and the circumstances of employment.
During the employment, the employee has a duty of fidelity to the employer and the employee would likely breach that duty if they provided vital trade secrets to a competitor, or carried on a business competing with their employer.
Clauses that limit where a person may work, or that impose a time limit during which the ex-employee may not carry on a similar business, or which limit the use to which certain information can be put (restraint of trade clauses) are considered unenforceable unless they go no further than is reasonably necessary to protect the employer’s interests.
As indicated earlier (see “What an agreement should contain”), the FW Act makes it mandatory to include in a workplace agreement a procedure to settle or prevent disputes or grievances that arise during the life of the agreement.
An agreement may enshrine rights of representation for employees, subject to some qualifications. The agreement may entitle a trade union to represent an employee in a dispute or grievance procedure only if such rights are couched in terms of the employee’s choice. For example, an agreement cannot contain a term that automatically requires the involvement of a trade union in a dispute or grievance procedure, and the agreement may not lawfully expressly exclude the involvement of a union. It is lawful though for the agreement to say that a union may represent an employee if that is the employee’s choice.
An increasingly common term in individual agreements is one that expresses a term of the agreement as subject to the employer’s policies. For example, “[the employee] will be paid an overtime allowance of $… subject to [the employer’s] policy”.
A term cast in such a form provides the employer with an in-built means of changing the content of the term, or perhaps effectively excluding it, without the need to obtain the employee’s consent. The words “subject to policy” operate to qualify the term by reference to an external document or process that is solely within the control and discretion of the employer.
It is highly recommended that employees not agree to terms of this kind.
The Superannuation Guarantee Scheme was enacted by the Commonwealth Government in 1992 under the Superannuation Guarantee Charge Act 1992 (Cth) and the Superannuation Guarantee (Administration) Act 1992 (Cth). The scheme is intended to complement existing award superannuation entitlements that remain in force. Employers must meet the minimum levels of contribution to a superannuation fund as set out in the Superannuation Guarantee legislation.
Employers must contribute a minimum percentage of each employee’s base earnings. There is a tax penalty for failure by an employer to make the contributions required by the legislation.
There are some exemptions from the scheme, including:
•employees who earn less than $450 per month;
•persons who are paid to do work of a domestic nature for not more than 30 hours per week;
•employees under 18 years of age working 30 hours or less per week; and
•employees over 70 years of age.
The legislation is administered by the Commissioner of Taxation, and the tax is calculated by the employer’s self-assessment (see Superannuation). The Commissioner enforces payment under Superannuation Guarantee legislation. Employees do not have a right to commence proceedings for the recovery of unpaid superannuation under Superannuation Guarantee legislation. Employees can make complaints to Australian Taxation Office (ATO) about unpaid superannuation, which the ATO should investigate.
In addition to the minimum superannuation requirements referred to above, an employer and employee can agree that the employer pay more superannuation or can agree to a term of the contract that the employer will pay the Superannuation Guarantee legislation amount. There is no reason why such an agreement cannot be included in an individual agreement as a term. However, the additional obligation is not administered by the Commissioner for Taxation. It is enforceable in the same way as any other term of the individual agreement.
Whatever the source of the superannuation obligation, once it is paid by an employer as superannuation into the employee’s nominated fund the employer’s contributions are not available to the employee until he or she reaches the age of 55, with limited exceptions.
Legislation has come into effect that increases the Superannuation Guarantee percentage progressively from 2013 until it reaches 12% in 2020 (the current federal government has proposed delaying this timetable). The first increase to 9.25% occurred on 1 July 2013 and the second increase to 9.5% occurred on 1 July 2014.