Enterprise agreements made with a small number of employees who serve as a beachhead for coverage of a larger workforce, have become a common practice in the labour hire, mining and building and construction sectors in recent years.

However, such agreements risk being overturned or not approved in the future, following a recent Federal Court decision, which set aside an enterprise agreement approved by the Fair Work Commission in 2015, on the basis that:

  • the employer failed in its obligation to take all reasonable steps to explain the terms and effect of the agreement to the three employees voting on it
  • it was not satisfied that the three workers with limited job experience were capable of reaching 'genuine agreement' on the broader coverage of the agreement.

The decision[1] shows that the Courts are willing to look behind the making of these agreements to examine whether genuine agreement has occurred, and can set aside an agreement months, or even years, after approval.

How can employers mitigate the risk

For employers who are negotiating agreements with a small employee group, care should be taken to:

  • ensure that the workforce voting on the agreement is as representative as possible of the job classifications to be covered by the agreement
  • explain the specific terms of the agreement and the relevant effect of those terms to the particular employees who are voting on the agreement.

The facts

The Respondent, One Key Workforce Pty Ltd, is part of a group of companies which operate a labour hire business previously known as RECS (Qld) Pty Ltd, which supplies labour to the black coal industry. Between March and August 2015, One Key Workforce recruited three persons as employees.

In August 2015, One Key Workforce initiated a process for the three employees to vote on the proposed RECS (Qld) Pty Ltd Enterprise Agreement 2015 (the Agreement). The Agreement was to apply to employees covered by a range of job classifications across 11 awards including mining, building and construction, road transport, hospitality and clerks.

An executive assistant of the managing director of One Key Workforce, acting as the recruitment manager, pursued the Agreement with the three employees. Her role was to ensure all the steps required under the Fair Work Act 2009 (Act) were carried out properly and in accordance with the relevant requirements for approval.

The executive assistant took the following steps during the bargaining process:

  • Emailed each employee a notice of employee representation rights and identified which 11 awards to be covered by the Agreement
  • Emailed each employee a copy of the proposed Agreement
  • Emailed each employee notifying of when the vote would take place
  • Phoned each employee and read through the terms of the Agreement
  • Emailed each employee asking them to vote Yes or No.

On 25 August 2015 each of the three employees responded 'Yes' to the email request for a vote. The proposed Agreement was then submitted to the Fair Work Commission for approval.

In order to approve the Agreement, the Fair Work Commission needed to be satisfied that:

  • the employer has complied with the pre‑approval steps in the Act, including taking all reasonable steps to ensure the terms of the agreement and the effect of those terms are explained in an appropriate manner (sections 180(5) and 188(a)(i))
  • the agreement has been genuinely agreed to by the employees covered by the agreement (section 186(2)(a)).

On 30 October 2015, Fair Work Commissioner, Julius Roe, granted approval of the Agreement . Prior to approving, the Commissioner raised questions about whether the Agreement satisfied the better off overall test, whether the Agreement was genuinely agreed to, and identified terms that disadvantaged the employees. In response to the Commissioner's concerns, One Key Workforce gave undertakings that it would not apply the five clauses identified by the Commissioner as potentially disadvantageous for employees.

Following the approval of the Agreement, the company rapidly ramped up its workforce, employing over 1000 casual staff across a range of job classifications covered by the Agreement.

Over 12 months later, in November 2016 the Construction, Forestry, Mining and Energy Union (CFMEU) filed an application in the Federal Court seeking judicial review of the Commission's decision on the grounds that the Commission had fallen into jurisdictional error by failing to give considerations to the steps taken by the employer when deciding it was satisfied with the employer's compliance with section 180(5) requirements. The CFMEU sought a declaration that the Agreement is void and of no effect, or an order quashing the approval of the Commission.

The decision

The Federal Court quashed the Agreement and set aside the approval granted by the Commission. The Court held that the Commission had fallen into jurisdictional error in approving the Agreement.

The first reason expressed by the Court as to setting aside the Agreement was that, despite the steps taken by the executive assistant during the bargaining process, there has been a manifest failure on the part of the employer to comply with the requirement that it take all reasonable steps to ensure that the terms of the agreement, and the effect of those terms were explained to the three existing employees.

The executive assistant's emails and phone calls to the employees was described as a 'mere formality', which neither individually or cumulatively satisfied the requirements, because she did little more than read the text of the Agreement with no further explanation.

Justice Geoffrey Flick, noted that the employer could have identified clauses of the Agreement which had particular application to the employees or identified particular provisions in the awards that varied from the terms in the Agreement. Such explanations would have at least notified the employees of the clauses in the Agreement to which they could give greater attention.

Justice Flick also stated what was missing from the explanation provided by the employer was guidance to the employees 'as to the manner in which the Agreement affected their personal interests'.

The second reason of the Court to set aside the Agreement was that it was never an agreement genuinely agreed to by the employees covered by the Agreement. The Court could not accept the prospect that three employees with limited employment experience and covered by a limited number of awards could approve an agreement that would cover employees falling within a diverse range of awards.

Notwithstanding that the Agreement had been on foot for over a year and the CFMEU had not sought to appeal the Commission's decision at the relevant time, the Court was not willing to refuse relief by reason of the delay in bringing the application. The Court accepted the CFMEU's evidence that it only became aware it had members impacted by the Agreement around May or June 2016.

In reaching its conclusion, the Court noted that considerable degree of diffidence was experienced in setting aside the decision of the Commission and sought to reject perceptions that it had intruded into the tasks entrusted to the Commission. However, it rejected the underlying submission advanced by One Key Workforce that the power of the Commission to approve an agreement depended merely upon the existence of a genuine agreement between an employer and employees.

This decision puts current agreements which have been made with only a limited sample of the proposed workforce at risk of challenge and invalidity. If an agreement is overturned it may well result in an employer being liable for significant workforce underpayments.