A Full Bench of Fair Work Australia has approved an enterprise agreement that allows the employees covered by it to “opt-out” of the agreement at any time during its period of operation.

Newlands Coal negotiated an agreement with a group of 154 production and engineering employees. The agreement contained a clause that allowed any of the group of employees (including employees engaged in future to do the work covered by the agreement) to opt‑out at any time, by electing in writing not to be covered by the Agreement. The group of employees voted in favour of the agreement. Newlands then applied to FWA for approval.

Commissioner Roe declined to approve it because he considered that the Fair Work Act does not permit an agreement that allows the employees to opt out of its coverage at a future date. In his view, the ability to opt out would undermine collective bargaining, which the Act expressly seeks to promote. He was also inclined to the view that the presence of the opt-out clause meant that the agreement failed the Better Off Overall Test (BOOT), and that the group of employees had not been fairly chosen. He therefore concluded that he was required to reject the agreement.

Newlands Coal successfully appealed against Commissioner Roe’s decision.

On appeal, the majority (SDP Hamberger and DP McCarthy) held that the agreement met all of the statutory requirements and must be approved. Commissioner Blair dissented.

The majority members did not regard the opt-out cluse as a bar to approval. Whilst acknowledging that, because of the opt-out clause, the employees who voted would not know which individuals would be covered by the agreement in the future, they said this was “quite unremarkable”, and it did not mean that the group of employees had not been fairly chosen in the first place.

The majority also rejected Commissioner Roe’s finding that the opt-out clause undermined collective bargaining. They said the fact that some employees may choose to opt out would not affect the terms and conditions of those who do not – they would continue to enjoy the benefits contained in the agreement. Furthermore, when the time came for renegotiating the agreement, any employee who had opted out would have an undiminished capacity to be involved in the negotiations.

On the question of whether the agreement passed the BOOT, the majority were satisfied that, aside from the opt-out clause, the agreement contained terms and conditions that were superior to those in the relevant modern award. They acknowledged that employees who opted out would lose their statutory right to those terms and conditions, and would instead be entitled, as a legal minimum, to the terms and conditions of the award. However, in the view of the majority, the presence of the opt-out clause gave each employee a choice between being covered by the agreement or the award, which meant that an they remained better off than someone who is simply covered by the award and has no such choice. The majority were therefore satisfied that the agreement passed the BOOT.

Ramifications of the decision

The decision published by FWA does not indicate Newlands Coal’s rationale for seeking the inclusion of the opt-out clause. One assumes that the company was wanting the ability to offer a different set of employment conditions to those employees who chose to opt out. At the practical level, those conditions would have to be attractive enough to lead an employee to prefer them to the agreement, and those conditions would still have to strictly comply with the conditions imposed by the relevant modern award.

The strategy successfully pursued by Newlands Coal may not have wide appeal to employers generally. But, given the endorsement by the Full Bench, albeit by majority, some employers may now be interested in exploring a similar strategy.

We understand that the Full Bench’s decision is being challenged in the Federal Court. We will report on the outcome in a future edition.