The Full Bench of the Fair Work Commission decided this week that an enterprise agreement applying to over 77,000 employees does not pass the better off overall test. The much-publicised decision in Hart v Coles Supermarkets Australia Pty Ltd and Bi-Lo Pty Limited (31 May 2016) now casts doubt over the validity of the enterprise agreements of some of Australia’s major employers.

The Coles decision also serves as a reminder to employers of the importance of getting your enterprise agreement right.

Enterprise agreements must meet the “better off overall test” (BOOT), which requires that an agreement leaves each employee or future employee better off overall than they would have been under an applicable award. The Commission must be satisfied that an agreement passes the BOOT before it approves the agreement.

Background

In 2015, a single member of the Commission approved the Coles Store Team Enterprise Agreement 2014-2017 (Agreement).

Duncan Hart, a part-time Coles supermarket worker, appealed the decision to approve the agreement. Mr Hart argued that the Agreement provided a higher hourly rate than the relevant award, but lowered the penalty rates for evening, weekend and public holiday work, with the result that a significant part of the Coles workforce were now worse off than if they were still employed under the award.

In determining whether the Agreement passed the BOOT, the Full Bench considered evidence regarding the rosters and earnings comparisons for employees under the Agreement and the award. It also considered other employee benefits under the Agreement, and compared these benefits to those under the award (where relevant). These included rest and meal breaks, pre-approved leave arrangements, carer’s leave, blood donor leave and emergency services leave.

The Full Bench found that the Agreement did not pass the BOOT. It held that some employees, particularly part-time and casual employees who mostly work at times that attracted the Agreement’s lower penalty rates, were likely to suffer a significant monetary loss under the Agreement compared to the award.

The Full Bench was not persuaded by Coles’ argument that other employee benefits contained in the Agreement counterbalanced its cuts to the penalty rates. This was because some of the benefits were conditional, and many employees were unable to access them. For example, the rest breaks available under the Agreement were only available to employees working shifts longer than four hours. Most of Mr Hart’s shifts during September 2015 were exactly four hours, so he was not able to take advantage of the rest break provisions in the Agreement. Under the award, Mr Hart would have received a rest break for his 4 hour shifts.

The outcome of this decision is that Coles has been invited to provide an undertaking that addresses the Commission’s concerns – either by compensating disadvantaged employees, or rearranging its rosters. If Coles fails to provide an undertaking acceptable to the Commission by 10 June 2016, the Commission will quash its original approval of the Agreement. This would most likely result in Coles having to restart negotiations for the employment conditions of its workforce.

Lessons for employers

The Commission’s decision reinforces the importance of having a well-negotiated and appropriately drafted enterprise agreement that passes the BOOT.

In preparing an enterprise agreement, employers should ensure that the agreement is tailored to the requirements of the business, and the specific features of its workforce, rather than adopting a ‘one size fits all’ approach. In doing so, employers need to ensure that that the agreement reflects its actual practices. In particular, provisions related to employee rosters and working hours should reflect the normal rostering practices of the employer. As the Coles decision shows, having a weekly day rate which compensates employees for the loss of weekend entitlements only works if the employees work enough hours during the week.

We recommend that employers seek legal advice before finalising an enterprise agreement, preferably before it is too late in the negotiations to make changes to compliance with the Fair Work Act 2009.