Key points

• Undertakings will be insufficient if they do not grant employees enforceable rights to payment of any shortfall in wages under an enterprise agreement as compared to an applicable modern award.

• Employers should be mindful not to offer undertakings which merely give employees the right to review whether or not their wages under an enterprise agreement would fall short of their minimum entitlements under an applicable modern award.

Approval of beechworth bakery enterprise agreement overturned on appeal

Background

After having its enterprise agreement approved by the Fair Work Commission (Commission) in December 2016, Beechworth Bakery (Bakery) found itself without an approved enterprise agreement after a decision of the Full Bench of the Commission (Full Bench) overturned the approval.

The Beechworth Bakery Employee Co Pty Ltd Enterprise Agreement 2016 (Agreement) was initially approved by the Commission after accepting certain undertakings given by the Bakery regarding the operation of the Agreement. The undertakings were required as the Commission was concerned that, without them, the Agreement did not pass the “better off overall test”, i.e. that employees would be “better off overall” under the Agreement than if the modern award applied to their employment (the BOOT).

The Shop, Distributive and Allied Employees Association (SDA) challenged the decision to approve the Agreement to a Full Bench of the Commission. The grounds of challenge included that the accepted undertaking was not capable of satisfying any concern that the Agreement did not pass the BOOT. The SDA took particular issue with part of the undertaking which provided as follows:

“Where an Employee considers that over a four (4) month period they are not better off overall under this Agreement than under the applicable Award, they may request a comparison of the wages received for that roster cycle under this Agreement and the wages they would otherwise have been provided with under the Award. Any shortfall in wages which would otherwise be payable under the Award plus an additional amount equal to 1.5% of the total shortfall will be paid to the Employee in the next pay period after the review is completed.”

Findings of the Full Bench

The Full Bench of the Commission agreed with the SDA’s argument that the undertakings were insufficient to address concerns that the Agreement passed the BOOT for the following reasons.

First, the undertaking did not give employees an automatic right to payment of any shortfall — it only provided the employees with the right to request a review of whether the payments they had received under the Agreement were greater than the payments that they would receive under the modern award. Where an employee requested a review, and the review identified a shortfall, the undertaking provided that the employee would be entitled to be paid the amount of the shortfall, plus an additional 1.5%. 

The Full Bench noted that it was possible that employees would not request a review, whether through ignorance or because they were short on time. If the employee did not request a review, the undertaking did not impose any obligation on the Bakery to conduct its own review, let alone “make good” on any shortfall in payments that had arisen.

Second, the undertaking provided an employee could only request a review every four months, resulting in a delay in payment of any shortfall to an employee. That delay could potentially be significant if disputes arose about the quantum of the shortfall. In these circumstances, the Full Bench was not satisfied that a 1.5% increase to the amount of the underpayment would compensate an employee for a shortfall which could potentially have been substantial and have extended over a lengthy and indeterminate period.

Accordingly, the Full Bench held that the undertaking could not address the Commission’s initial concern that the Agreement did not pass the BOOT.

Bottom line for employers

If an employer is concerned that a given employee may not be better off under a proposed enterprise agreement than under an applicable modern award, any undertaking offered by the employer which grants the employee a right to a review of their wages should:

• include an enforceable right to payment of any shortfall, including an obligation on the employer to conduct audits to identify any shortfalls; and

• require the review to be completed and any shortfall to be paid within clearly identified and reasonable time frames.