A recent Fair Work Commission decision has clarified certain requirements for the approval of an enterprise agreement. Importantly, the decision indicates that an employer must consider individual employees (rather than its workforce as a whole) when assessing whether the agreement leaves the employees “better of overall” than they would have been, under the relevant award. This decision is likely to have implications for employers engaging in enterprise bargaining and seeking to have an enterprise agreement approved. We look at key aspects of the ruling and how the decision is likely to affect employers.

The Agreement

In 2015, Coles Supermarkets and the retail workers’ union, the Shop, Distributive & Allied Employees’ Association (SDA), agreed on the terms of an enterprise agreement (Coles Agreement) (1). The Coles Agreement was to cover tens of thousands of supermarket workers, if approved. The Coles Agreement was put to Coles workers and endorsed by a majority vote. Coles then sought approval of the agreement from the Fair Work Commission (Commission).

The BOOT The Commission must be satisfied of a number of matters, prior to approving any enterprise agreement. Amongst other things, the Commission must be satisfied that the agreement passes the “better off overall test” (BOOT) (2). A proposed enterprise agreement passes the BOOT if the Commission is satisfied that each employee (and each prospective employee) would be better off overall if the proposed agreement applied, rather than the relevant award which would have otherwise applied (3). This assessment requires a comparison of the terms of the proposed agreement, as against the relevant award, to determine whether employees will be better off overall.

The Coles Case

The Commission initially determined that the Coles Agreement passed the BOOT, subject to certain undertakings by Coles (4). Some terms of the Coles Agreement were not as favourable as the terms in the relevant award (the General Retail Industry Award 2010 (Retail Award)). However, other terms were more favourable, and the Commission initially reached the view that employees would be better off overall under the Coles Agreement, than under the Retail Award.

That decision was appealed by Mr Duncan Hart, a Coles trolley worker, who was later joined by the Australian Meat Industry Employees Union (AMIEU). Mr Hart and the AMIEU argued the Coles Agreement did not pass the BOOT because many employees would be financially worse off under the Agreement as compared to the Retail Award.

On 31 May 2016, a Full Bench of the Commission handed down its decision, finding that the Coles Agreement did not pass the BOOT and should not have been approved (5).

Basis for the Commission’s decision The difference in monetary benefits under the relevant agreement and award is a significant factor in whether or not an agreement passes the BOOT. The Coles Agreement provided a higher base hourly rate than the Retail Award, but applied lower penalty payments for evenings, weekends and public holidays.

Mr Hart and the AMIEU presented analyses showing the wage loss for employees who would be disadvantaged by the Agreement because of the days and hours on which they were rostered to work. Employees who worked more non-standard hours (such as nights or weekends) were better off under the Retail Award than under the Coles Agreement. The higher hourly base rate under the Agreement did not compensate these employees for the lower penalty rates.

Direct wage comparisons are only part of the necessary analysis for whether or not an agreement passes the BOOT (6). The Commission also took other benefits under the Agreement into account, including provisions relating to rest and meal breaks and annual leave payment. The Commission noted, however, that these provisions would not necessarily result in a net monetary advantage for employees who were disadvantaged by the penalty rates, such as Mr Hart.

Coles argued that other benefits under the Coles Agreement, which were not available under the Award, should be taken into account in the assessment (such as blood donor leave and defence service leave). The Commission rejected this argument because there were groups of employees who, because of their individual circumstances and decisions, would receive no benefit from these provisions.

The Commission stated that the same could be said of other benefits that are contingent on circumstances that may or may not occur, including accident make-up pay, carer’s leave, compassionate leave, emergency services leave, natural disaster leave and redundancy pay. Coles submitted these benefits should be valued on the assumption that 50% of each benefit would be accessed each year, but the Commission found there was no justification for this figure. If such benefits are to be attributed financial value, the Commission said, they should be valued on the assumption that less than 10% of each benefit is accessed each year. Other benefits the Commission said should be ‘taken into account’ but which were ‘almost impossible to quantify’ included support for employee wellbeing, support for non-work activities, domestic violence support and care responsibility support (7).

Ultimately, the Commission found that the Agreement did not pass the BOOT. Despite acknowledging that the Agreement contained some benefits not available under the Award that ought to be taken into account, the Commission found that Coles had failed to justify the value of those benefits and how frequently they were accessed. The lower penalty rates under the Coles Agreement appear to be the critical factor in the Commission’s reasoning, with the Commission also accepting that the level of income is critical for access to study, caring and other life choices (8).

What’s next for the Coles Agreement?

The Commission stated in its decision that the failure to pass the BOOT could be remedied by an undertaking that provided for an adjustment in payments to employees who work a sufficiently high proportion of penalty shifts, as to suffer financial disadvantage (9).

As reported by Fairfax media, Coles has elected not to provide such undertakings (10). This means that the Coles Agreement has not been approved and Coles workers will continue to be covered by any previous applicable agreement. This is interesting because any previously approved agreement may very well reflect the same issues, as those which have arisen in the Coles case.

An employee recently made an application to the Commission to terminate a previous agreement. If accepted, this would have likely resulted in employees falling back to the Retail Award. The application was dismissed by consent, because it was lodged prior to the Commission issuing orders in relation to the proposed Coles Agreement (11). However, it is expected that a further application will be made, now that Commission has made a ruling in relation to the proposed agreement.

Coles may also seek to appeal the Commission’s decision.

What does this mean for employers?

The decision appears to indicate that the BOOT must be assessed with reference to individual employees rather than the workforce as a whole.

This may impose significant burden during the bargaining and approval process. An assessment of the general terms in the proposed agreement, as against the relevant award, is unlikely to be sufficient. It will likely be necessary to calculate monetary benefits for employees working certain hours, based on actual rosters (particularly where employers have large workforces and employees work at different times).

An exception may arise where all benefits in the proposed agreement (including the base rates, percentage penalties/loadings and allowances) are clearly in excess of the relevant award. However, this is unlikely to arise in many instances.

Further, although the Commission referred to various benefits as relevant factors for the purpose of the BOOT, its decision suggests that benefits that cannot be readily quantified in financial terms are less important than those that can.

Employers should carefully consider these issues and put in place a clear strategy, prior to entering into enterprise agreement negotiations. Employers should also carefully consider the analysis and evidence which they may need to produce to the Commission, particularly in relation to quantifiable benefits, in seeking to have an enterprise agreement approved.