On 3 September 2012, a five member Full Bench of Fair Work Australia (FWA) quashed a decision made by Deputy President Sams on 8 June 2012 approving an enterprise agreement containing an “opt-out” clause.  The clause enabled employees to opt-out and no longer be covered by the agreement.  The Full Bench held that as the group of employees to be covered by the agreement was not geographically or operationally or organisationally distinct and the opt-out clause is “inimical” to the purpose and policy of the Fair Work Act (Fair Work), it quashed DP Sams’ decision.

The Full Bench decision follows a series of FWA decisions, including Full Bench decisions, where opinion has been divided as to whether opt-out clauses can be included in enterprise agreements.The Full Bench held that under Fair Work, in approving an enterprise agreement FWA must establish whether the agreement covers all of the employees of the employer and if all the employees are not covered, FWA must make a finding as to whether the group of employees covered by the agreement is geographically, operationally or organisationally distinct and determine whether the employees were “fairly chosen” to taking that into account.  FWA must state its reasons for concluding that the group of employees either was or was not “fairly chosen” and absent such a finding, FWA will not have properly performed its statutory task.

The Full Bench found that DP Sams made no express finding as to whether the group of employees covered by the agreement was geographically, operationally or organisationally distinct and failed to adequately disclose the reasons for his conclusion that the group of employees covered was fairly chosen.

The Full Bench then considered and held that an opt-out clause is contrary to the purpose and policy of Fair Work.  The Full Bench held that Fair Work is directed at the provision of a fair framework that enables collective bargaining and good faith and sets out clear rules governing industrial action and provides for certainty around bargain outcomes.  Whilst an agreement is in operation, it can only be varied or terminated in limited stated circumstances and those covered by an agreement may not take protective industrial action before the expiry date of the agreement.  The Full Bench held that an opt-out clause undermines bargain certainty:  employees who elect to opt-out of the agreement will no longer be covered by the agreement and may take protected industrial action and if all the employees covered by the agreement elected to opt-out, the agreement would have no practical effect.

Finally, the Full Bench held that Fair Work gives effect to the object of providing a flexible framework by mandating the inclusion of flexibility terms in agreements and opt-out clauses provide for a form and degree of flexibility not contemplated by the statutory framework and without the legislative protections afforded to individual flexibility arrangements entered into pursuant to the flexibility term mandated by Fair Work. 

Subject to any appeal, opt-out clauses in enterprise agreements appear to be “dead and buried”.