In a decision which considered agreement making for “start ups”, the Fair Work Commission has held that there was nothing unusual or untoward in a relatively new business making an enterprise agreement early in its life with a small number of employees with an expectation that the business will grow and eventually employ a much larger number of employees who would then be covered by the agreement.

Was the group of employees fairly chosen?

In this case the Applicants (CEPU and AMWU) submitted to a Full Bench of the Fair Work Commission that the Deputy President at first instance had made an error in finding that the group of employees covered by the Main People Pty Ltd Agreement (Agreement) was fairly chosen.

Under clause 3, the Agreement applied to employees in 17 different classifications. The Agreement did not apply to employees in management, supervision and office based roles.

The Agreement was made by three casual employees (a boiler maker and two trade assistants). All of the employees worked in Karratha, Western Australia.

The Applicants argued that although only three employees had bargained for the new Agreement, it would apply to a larger group of employees in different classifications, States and Territories. They said the employer must have known that it would need more than the three casual employees it employed at the time of making the Agreement and therefore the Deputy President could not be satisfied that the group of employees had been fairly chosen.

In its decision, the Full Bench stated that under the Fair Work Act (a majority of) the employees employed at the time an enterprise agreement is made can agree to terms and conditions of employment that will then bind future employees employed under the terms of that agreement. There is also nothing in the Fair Work Act to prevent employees voting to approve an agreement that will affect employees in classifications or geographic locations other than their own (unless a relevant scope order has been made).

Where not all employees of the employer are covered by the agreement, the Commission must take into account whether the group is geographically, operationally or organisationally distinct. The Full Bench found there was a clear organisational distinction between “blue collar” workers (covered by the Agreement) and “white collar” workers who were not covered by it.

The Full Bench concluded that no error had been made by the Deputy President in finding that employees had been “fairly chosen”.

Agreement failed the Better Off Overall Test

However, while the Agreement passed the fairly chosen requirement, the Full Bench found that it had not passed the “better off overall test” (known as the BOOT).

In applying the BOOT, the Deputy President had to be satisfied that employees covered by the Agreement were better off overall under that Agreement than they would be under the relevant modern award.

The BOOT applies both to employees who are covered by an enterprise agreement at the time the application for approval of the agreement is made and to prospective employees who, if they had been employed at the time the application for approval of the agreement had been made, would have been covered by it.

The Full Bench found that the Deputy President had not taken into account all of the relevant underpinning modern awards and that there was insufficient material before the Deputy President for him to be satisfied that the agreement passed the BOOT.

The application for approval was referred to another member of the Commission so that the employer would have the opportunity to provide suitable undertakings to address the BOOT.

This post was also contributed by Rebecca Louey (Graduate)