In SDAEA v Beechworth Bakery Employee Co Pty Ltd t/a Beechworth Bakery [2017] FWCFB 1664, a Full Bench of the Fair Work Commission (FWC) upheld the union’s appeal against approval of an enterprise agreement.

At first instance, the overturning of the decision centred on an undertaking given by the employer to ensure reconciliation of any shortfall in payment under the agreement compared with the underpinning award.

In this article, we examine the decision as well as its implications for employers in ensuring that agreements meet the ‘better off overall test’ (BOOT) for approval by the FWC.

The Background of the Case

Deputy President Sams approved the Beechworth Bakery Employee Co Pty Ltd Enterprise Agreement 2016 (Agreement) on 9 December 2016. The Agreement was to cover 232 employees across six locations in Victoria and NSW, and was approved on the basis of undertakings given by the employer to address concerns that the Agreement did not pass the BOOT, including in relation to pay rates on Sundays and public holidays.

The undertakings were to the effect that employees working only on a Sunday or public holiday would be entitled to the award rate plus 1.5%. Further, if an employee considered that over a four month period, they were not better off under the Agreement than the applicable award, they could seek a comparison and be paid the amount of the shortfall plus 1.5%. The dispute resolution procedure in the Agreement would be utilised where the employer and employee could not agree on the amount that should be paid.

The union opposed the approval of the Agreement, arguing that the undertaking relating to reconciliation of any shortfalls in payment was inconsistent with the decision of a majority of the Full Federal Court in SDAEA v ALDI Foods Pty Ltd [2016] FCAFC 161 (SDAEA v ALDI). In that case, the majority questioned the effectiveness of a proposed ‘make good’ clause in an agreement, and found that a Full Bench of the FWC had not properly analysed whether the clause would leave employees ‘better off overall’.

Deputy President Sams rejected the union’s argument and accepted that the undertakings provided a sufficient basis for approval of the Agreement.[1]

The Full Bench Decision on Appeal

The FWC Full Bench (Hatcher VP, Gostencnik DP Bissett C) then noted that the power to approve an enterprise agreement with undertakings is enlivened only when the Commission has a concern that the agreement does not meet the requirements of ss 186-187 of the Fair Work Act 2009 (Cth) (FW Act).

A concern about an agreement’s failure to meet the BOOT properly empowers the FWC to consider any undertaking offered, and approve the agreement with the undertaking, under s 190.[2]

In this case, the Full Bench found that Deputy President Sams had sufficiently indicated his concerns about whether the Agreement passed the BOOT and this enlivened the FWC’s jurisdiction about provision of undertakings to address those concerns.[3] Relevantly, he then gave the parties the opportunity to address the decision in SDAEA v ALDI, which in turn resulted in revised undertakings being given by the relevant employer.[4]

However, according to the Full Bench, the part of the undertaking setting out the process for resolving any shortfall in payment was not capable of satisfying any concern that Deputy President Sams had about the application of the BOOT.[5] The Full Bench outlined two principal reasons for reaching this conclusion.

1. No enforceable obligation[6]

Firstly, the reconciliation provision did not require the employer to review whether or not an employee was better off under the Agreement and, if so, to correct it. Instead, the onus was on the employee not only to be aware of the potential disadvantage, but also to bring it to the employer’s attention. This was held to be incapable of relieving concerns about the satisfaction of the BOOT.

The Full Bench reasoned that the undertaking needs to be capable of enforcement as a term of the Agreement, and in order to achieve this, it needs to be expressed in a way that is sufficiently certain and unambiguous. The provision for a request by an employee was found to have fallen short of this standard.

2. Delay[7]

Secondly, the Full Bench highlighted that the structure of the reconciliation provision could result in significant payment delays to employees. A request for a review of a four-month period meant that such requests can only be made three times per year. Coupled with a dispute resolution process in cases where there is no agreement on the amount to be paid, the employee could have to wait a ‘potentially lengthy and indeterminate period’[8] before receiving any shortfall payment. A payment of 1.5% on top of the identified shortfall could not clearly be considered adequate compensation for the delay.

The Full Bench therefore concluded that the Agreement had been approved erroneously, and remitted the approval application to the Deputy President for determination in accordance with the Full Bench’s decision.

What are the implications for employers?

The Beechworth Bakery decision highlights the ongoing difficulties for employers in ensuring that enterprise agreements are approved by the FWC in circumstances where pay rates and other terms and conditions are at or close to the relevant award.

It follows last year’s rejection of the Coles Supermarkets agreement based on a strict interpretation of the BOOT[9], and many other decisions where employers have tripped up on the requirements to give employees notices of representation rights at the commencement of bargaining.[10]

In light of this Full Bench decision, employers need to be careful when seeking to include a reconciliation clause in an enterprise agreement or by way of an undertaking given to address concerns about the BOOT. In particular, a reconciliation provision:

  • must be sufficiently certain; and

  • should avoid matters that must be satisfied before enlivening an enforceable obligation by the employer.

Further, with regard to the period of time an employee must wait for a reconciliation to be made, either:

  • the intervals should be frequent enough so as not to cause inordinate delay; or

  • any payment to be made in addition to a shortfall should be sufficient to compensate for the delay.