As Australian businesses get ready for the introduction of the Rudd Government’s Fair Work Act 2009 (Cth) (FW Act) and its agreement-making provisions, one area that remains uncertain is how the new “better off overall” test (BOOT), will be applied to enterprise agreements under the new Act.

Whilst the bulk of the FW Act (including the new agreement making provisions) will come into force on 1 July 2009, the BOOT will not come into operation until 1 January 2010.

This means that in the interim period between 1 July 2009 (when the FW Act commences) and 1 January 2010 (when modern awards are introduced), any enterprise agreements lodged will be assessed against the no-disadvantage test (NDT) and any applicable common rule award. From 1 January 2010 onwards, enterprise agreements will instead be assessed against the BOOT, as against the new modern awards.

So what is the difference between the NDT and the BOOT?

Whilst at first glance the two tests may appear similar in nature – since they both compare a set of proposed terms against a set of minimum conditions (for example, an award), much of the difference lies in what they purport to achieve. The NDT seeks to ensure that employees will “not be disadvantaged” as against an applicable award, whereas the BOOT requires that the employees are in fact “better off overall”. This distinction alone would suggest that the BOOT test is intended to be a higher bar than its predecessor.

An enterprise agreement passes the BOOT if the new testing body Fair Work Australia is satisfied, as at the test time, that each award covered employee (and prospective award covered employee) would be better off overall if the agreement applied than if the applicable modern award applied to the employee.

The test time is the time the application for approval of an agreement is made.

Fair Work Australia also retains the discretion to approve an agreement which does not pass the BOOT if it is satisfied that, because of exceptional circumstances, approval would not be contrary to the public interest.

In an interesting last minute amendment to the legislation, Fair Work Australia will be allowed to test “classes of employees”, rather than each and every employee (or prospective employee). The FW Act also provides for an assumption that unless evidence is provided to the contrary, if a “class” of employees’ passes the BOOT, then each individual is assumed to pass.

Additional key issues to note with regard to agreements

  • the nominal life of an agreement will be reduced to 4 years (rather than a possible 5 years for collective agreements);
  • any agreements entered into from the commencement of the FW Act will be subject to good faith bargaining requirements and notification requirements; and
  • employers must ensure that from 1 January 2010 that the agreements provide no less than the base rate of pay from the modern awards and incorporate the new National Employment Standards