Enterprise agreements

Since 1 July 2009, statutory agreements can be made under the FW Act. These are known as enterprise agreements. Under section 172 of the FW Act there are two types of enterprise 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 who are employed at the time the agreement is made. Single interest employers are employers that are in a joint venture or common enterprise or are related corporations. They can also be employers that are authorised to be single interest employers by the FWC (e.g. franchisees or other employers where the federal Minister for Employment, Skills, Small and Family Business has made a declaration).

Alternatively, a single enterprise agreement can be a “greenfields agreement”. A greenfields agreement is an enterprise agreement that is made in relation to a new enterprise of the employer before any employees are employed. The parties to a greenfields agreement are the employer and one or more relevant employee associations (usually a trade union).

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 who are employed at the time the agreement is made. Second, a multi-enterprise agreement can be made for a genuine new enterprise (a greenfields agreement) between two or more employers (that are not all single interest employers) and one or more relevant employee associations (usually a trade union).

How enterprise agreements come into force

Under the FW Act (s 54), an agreement comes into operation seven days after the agreement is approved by the FWC, or at a later day specified in the agreement.

Better off overall test

Since 1 July 2009, an enterprise agreement has needed to pass the “better off overall test” (BOOT) to be approved by the FWC. Agreements made prior to 27 March 2006 and between 28 March 2008 and 30 June 2009 were subject to the “no disadvantage test” before being approved. Section 193 of the FW Act provides that a non-greenfields enterprise agreement passes the BOOT if the FWC is satisfied that each employee would be better off overall if the agreement applied to them than if the relevant modern award was applied. If an enterprise agreement does not pass the BOOT, the FWC can accept an undertaking from the employer to remedy the deficiencies.

Enterprise agreements approval procedures

There are different procedures for making each type of enterprise agreement (s 182 FW Act; seeHow enterprise 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 employee association (usually a trade union) expressed to be covered by the agreement.

An employer must take reasonable steps before the agreement is 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 (s 180 FW Act).

Enterprise agreements come into force only once they have been approved by the FWC. Before approving an enterprise agreement, the FWC must be satisfied of a number of matters, including:

that the pre-approval steps have been taken;

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) or contain any unlawful terms or designated outworker terms;

that the agreement includes a nominal expiry date of not more than four years after the FWC approves the agreement and a dispute resolution clause (s 186);

that the employees to be covered were fairly chosen;

that the agreement provides for dispute settlement; and

if the agreement is not a greenfields agreement, that the employees genuinely consented 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 (seeNational Employment Standards”). Part 2-2 of the FW Act allows enterprise agreements to deal with some matters in the NES.

What an agreement should contain

Under the FW Act, an enterprise agreement should contain:

A nominal expiry date. This is the date after which the agreement may be replaced by a new agreement. Under the FW Act (s 186(5)), the date may be specified in the agreement but must – other than for agreements failing the BOOT but approved on the basis of special circumstances – be no later than four years after the date 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 is approved by the FWC. 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 the FWC approved the agreement (s 189 FW Act).

A dispute settlement procedure that deals with disputes about any matters arising under the agreement and in relation to the NES (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 to an arrangement varying the effect of the enterprise agreement in order to meet the genuine needs of the employee and employer. 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.

What an agreement may contain

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.

What an agreement must not contain

An enterprise agreement under the FW Act must not contain 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, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin;

objectionable terms, being terms that 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 provides a method whereby an employer or employee may elect to not be covered by the agreement;

a term that would confer additional rights on an employee to claim unfair dismissal within the minimum employment period (for a definition, seeUnfair dismissals” in Protection for your rights at work) or would exclude or detrimentally modify an employee’s unfair dismissal rights;

an objectionable emergency management term (s 195A FW Act);

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 enterprise agreements under the FW Act

Under section 186(5) of the FW Act, the nominal expiry date may be specified in the agreement but must 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 the 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 alsoIndustrial action”.)

Industrial action

An extensive discussion of the law of industrial action is beyond the scope of this chapter.

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).

In certain circumstances, the FWC can suspend or terminate protected industrial action. An application to terminate industrial action can be made on several grounds, including that the industrial action is causing significant economic harm to a third party (s 426) or is causing significant damage to the Australian economy (s 424(1)(d)).

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.

The following is a list of possible items for inclusion in negotiations for individual agreements.

1 Award/NES conditions

An employee should not agree to a term in an individual agreement that excludes or modifies NES or award conditions without first obtaining advice (seeNational 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.

2 Overtime rates

Where overtime may be required to be worked, the rate or rates of pay applicable to the overtime hours should be specified.

3 Penalty rates

Some consideration should be given to an additional loading if the hours worked are outside ordinary business hours.

4 Flexi-time or time in lieu

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.

5 Salary review

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. 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, is that the economic condition specified may not improve at a desirable rate.

6 Accident make-up pay

Changes to the workers compensation system (WorkCover) 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 WorkCover. “Make-up pay” is an amount making up all or some of the difference between the WorkCover payment and the normal time earnings.

7 Allowances

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 may 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:

1 as a fixed amount per day, week or event; or

2 by agreeing to reimburse for expenses incurred.

8 Non-standard terms

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 it is not otherwise prohibited content) it may be included.

9 Leave

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 which vary 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 may undertake work-related or other types of study, in which case study leave may be necessary. Some other examples of different types of leave are:

blood donor leave;

fire-fighting leave;

leave for those who are Australian Defence Force reservists;

unpaid leave;

leave to participate in union elections or decision-making bodies;

leave while 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 must attend, even though the trial may run for many weeks or months. An employer cannot lawfully dismiss an employee called for jury duty. For more information, seeJuries” in An introduction to the courts.

10  Ordinary hours

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”).

11  Meal breaks and rest breaks

Meal breaks and rest breaks are not part of the NES or FW Act but may be contained in modern awards. Such provisions can be incorporated into enterprise agreements 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.

12  Termination of the agreement

Issues of termination and redundancy are the most frequent sources of dispute and should be carefully considered (see furtherTermination of employment” in Protection for your rights at work).

13  Required termination period

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 (seeNational Employment Standards”) now have 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.

14  Grounds for instant dismissal

Many employers seek to include in the contract a catalogue of events as “serious misconduct” warranting dismissal. That approach is generally not beneficial either to the employer, who may fail to comprehensively list all events constituting “misconduct”, 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, gross 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.

Case study

In Rankin v Marine Power International Pty Ltd [2001] 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 FWC have determined that even fighting in the workplace must be looked at in its context before it can be said to justify summary dismissal.

15  Redundancy

A redundancy arises where the duties performed by the employee are no longer required to be performed or the employer becomes insolvent or bankrupt. The NES in the FW Act (seeNational Employment Standards”) now provides for an employer to make a redundancy severance 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, policy or contract. If an employee did not have a right to a redundancy severance payment before 1 January 2010, only their service after 1 January 2010 is taken into account. Small businesses (being those that employ fewer than 15 people) do not have to pay redundancy pay (see ss 121, 123 FW Act). In determining how many employees a business has, the employees of all associated entities (as defined in section 50AAA of the Corporations Act 2001 (Cth)) of the business are taken into account.

16  Trade secrets and restraint of trade

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 depends on the terms and the circumstances of employment.

During the employment, the employee has a duty of fidelity and good faith 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 void unless they go no further than is reasonably necessary to protect the employer’s legitimate commercial interests.

17  Employer policy

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, “Employees must take annual leave when [the employer’s] business shuts down annually, usually during the Christmas and New Year period”.

18  Superannuation

Under the Superannuation Guarantee (Administration) Act 1992 (Cth) and other related legislation, an employer is required to contribute a percentage of an employee’s earnings into a complying superannuation fund. If the employer fails to contribute to a fund, the “shortfall” is assessed and the employer must pay a charge or tax, which is more than what the compulsory contribution would have been. There are certain exemptions from the superannuation scheme, which include employees who earn less than $450 in a month, people who are paid to do work of a domestic nature for not more than 30 hours per week, and part-time employees under 18 years of age working 30 hours or less per week.

Legislation has come into effect that increases the Superannuation Guarantee percentage progressively from 2013 until it reaches 12 per cent in 2025. The first increase to 9.25 per cent occurred on 1 July 2013 and the second increase to 9.5 per cent occurred on 1 July 2014. The Superannuation Guarantee remained at 9.5 per cent on 1 July 2017. Based on revised laws, the Superannuation Guarantee will remain at 9.5 per cent for another four years, increasing to 10 per cent from July 2021, and eventually increasing to 12 per cent from July 2025.