Content of enterprise agreements
The Fair Work Act 2009 (the Act) encourages collective bargaining at the enterprise level and facilitates this by providing a number of agreement options for employers and employees to enter into and operate under.
Enterprise agreements are agreements that are made on and from 1 July 2009. Enterprise agreements may cover a group of employees who are fairly chosen, usually due to their being geographically, operationally or organisationally distinct, in the form of single-enterprise, multi-enterprise and greenfields agreements.
There are strict guidelines as to what content may, and may not, be included in an enterprise agreement. Enterprise agreements:
- may only contain terms that address matters pertaining to the employment relationship; and
- must include the mandatory terms, as required by the Act; and
- must not contain any unlawful content.
Enterprise agreements are lodged with and subjected to the review and approval of the Fair Work Commission (FWC). This includes an assessment against any applicable awards that apply to employees to be covered by the agreement and the application of the better off overall test (BOOT), to ensure they are not receiving a lesser benefit than the award, prior to the content becoming operational.
To be approved, enterprise agreements must satisfy the criteria set out in section 187 of the Act and must not contravene the National Employment Standards (NES).
Agreements are required to include the following terms:
- Coverage term – a term which identifies the employer and employees to be covered by the agreement, the work to be performed by the employees and the location it will be performed at;
- Expiry date – a nominal expiry date of no more than 4 years from the day of approval by FWC;
- Flexibility term – individual flexibility arrangements that may be created between an employer and individual employees to allow for varying certain agreement terms to suit the parties;
- Consultation term – a term requiring the parties to consult on major workplace change; and
- Dispute settlement procedure – a term requiring FWC or another independent body to settle disputes that may arise under the agreement, including matters relating to the NES.
If an enterprise agreement does not include a consultation and/or a flexibility term, the Act prescribes a model term that is then taken to be a term of the agreement.
Terms of an enterprise agreement are restricted to ‘permitted matters’. The matters that are considered to be permitted are:
- matters pertaining to the relationship between an employer or employers and their employees who will be covered by the agreement
- matters pertaining to the relationship between an employer or employers and a relevant employee organisation or employee organisations that will be covered by the agreement
- deductions from wages authorised by an employee
- how the agreement will operate
The Act provides that an agreement which contains a term which is not about permitted matters will not render the agreement invalid. However, to the extent to which a term of an enterprise agreement is not about permitted matters, the term will have no effect.
The expression ‘matters pertaining to the employment relationship’ has been developed through cases before the High Court and is a well established legal principle. Essentially, for a matter to pertain to the employment relationship, the matter must be ‘connected to the relationship between an employer in [their] capacity as an employer and an employee in [their] capacity as an employee in a way that is direct and not merely consequential’ (Re Manufacturing Grocers (1986) at 353).
Cases such as Electrolux Home Products Pty Limited v The Australian Workers' Union & Ors  HCA 40 (September 2, 2004) and the full bench decision of ADJ Contracting Pty Ltd  FWA 2380 (April 28, 2011) have been handed down to clarify what constitutes a matter pertaining.
|ADJ Contracting Pty Ltd  FWA 2380 (April 28, 2011)
In October 2011, FWA approved the ADJ Contracting Enterprise Agreement that contained a clause which had the effect of preventing the employer from engaging contractors who are in receipt of less generous terms and conditions than those provided to employees of ADJ Contracting under their new enterprise agreement.
The goal of the clause was to reduce the engagement of external contractors and thus improve job security for those covered by the enterprise agreement. It was argued on appeal to the Federal Court by AIG that this was not a matter pertaining in accordance with the Act.
The Full Bench upheld the original decision, stating that securing jobs of employees covered by the agreement by preventing the use of contractors to undercut the wages of the employees may be a permitted matter as it sufficiently relates to the security of employment.
Matters that may not pertain to the employment relationship include:
- Undue limitation of the engagement of contractors or casual employees
- Corporate social responsibility provisions, including climate change initiatives
- Non-permitted deductions
- Compulsory donations to political bodies.
|Electrolux Home Products Pty Limited v The Australian Workers' Union & Ors  HCA 40 (September 2, 2004)
A provision of Electrolux’s Agreement that would have required non-union employees to pay a union bargaining fee was not deemed to deal with ‘matters pertaining to the employment relationship’. It was treated as a matter of only indirect relevance to the employment relationship on the basis of reasoning adopted in previous cases. In such cases it is suggested that matters directly related to the relationship between an individual, not as an employee, and their relevant union were not matters pertaining to the employment relationship.
Agreements are allowed to contain terms which address deductions from wages that are both, principally for the employees’ benefit and expressly authorised by the employee.
Deductions that may not pertain directly to the employment relationship such as terms dealing with salary sacrifice, payment of superannuation and the deduction of union membership fees may be found to have no effect in an enterprise agreement.
The Act permits terms that outline how the agreement will operate. For example, terms about agreement operation might include provisions that address guidelines for re-negotiation for a replacement agreement.
Enterprise agreement must not include any unlawful content. Whilst employers will not face civil remedies for proposing unlawful terms in an enterprise agreement, the FWC must not approve any agreement that contains unlawful terms.
An unlawful term may:
- be discriminatory (including, but not limited to, race, colour, sex, sexual preference, age, disability, family or carer responsibilities, pregnancy, religion or political opinion, with a very limited number of exemptions that may apply);
- be a breach of general protections provisions of the Act;
- provide for right of entry to the employer’s premises that contravene the right of entry provisions contained in the Act;
- authorise unlawful industrial action;
- exclude or modify unfair dismissal provisions to the detriment of the employee, or provide remedies for persons that have not served the prescribed minimum employment period with the employer;
- (as of 1 January 2014) nominate a default superannuation fund for employees which does not offer a MySuper product, or for which employees are not ‘defined benefit members’, or the fund is not an ‘exempt public sector superannuation scheme’.
Where an unlawful term is not eliminated through the approval process by the FWC, the term shall be unenforceable, though the agreement will remain valid.
The better off overall test (BOOT)
For an enterprise agreement to be successfully approved, it must satisfy the better off overall test (BOOT). The BOOT is passed if the FWC is satisfied that each award covered employee and each prospective award covered employee would be better off overall, if they were employed under the agreement, then they would be under the relevant modern award.
The BOOT is generally applied per classification level of employee covered or to be covered by the agreement, as prescribed within the applicable award(s).
The BOOT is an assessment indicating whether employees would be better of overall under the agreement compared to the applicable award at the time of application for approval of the agreement.
Like to know more?
Drafting an enterprise agreement is a complex process necessitating expert knowledge of the underpinning award(s) and the Act in this regard. It is always advisable to seek professional assistance in the creation and implementation of enterprise agreements. CCIWA employs a highly experienced professional Employee Relations team that can assist your business in drafting and implementing an enterprise agreement.
For more information on enterprise agreements and for support and assistance in creating an agreement for your workplace, contact the CCIWA’s Employee Relations Advice Centre on (08) 9365 7660 or email email@example.com.