Enterprise bargaining, in some shape or form, has been a part of the Australian Industrial Relations framework since 1993. However, if the trends reported in recent data about agreement making are any indicator, enterprise bargaining is now facing a period of decline.

Enterprise Agreements (EAs) have become less popular in terms of their numbers and the numbers of employees covered by them. This can be demonstrated by the fall in the number of EAs that are being approved by the Fair Work Commission (FWC) as outlined in the following table:

So why is this happening and what does it mean for employers? Recent cases concerning the termination of EAs and the Better Off Overall Test (BOOT) provide some insight into the apparent decline in popularity of EAs and their effectiveness in providing real enterprise flexibility in the workplace.

Termination of (nominally) expired Enterprise Agreements

Section 225 of the Fair Work Act 2009 (Cth) (FWA) concerns the termination of an EA after its nominal expiry date, by an employer, employee or employee organisation covered by the EA. Further, section 226 of the FWA provides that the Fair Work Commission (FWC) must terminate an EA after its nominal expiry date if it is satisfied that it is not contrary to the public interest to do so and it is appropriate in all the circumstances (which includes a consideration of the views and circumstances of those covered by the EA).

The number of expired EAs terminated in the FWC increased from 156 in 2014, to 517 in 2016.

The latest in a line of employers to make an application to terminate their EAs in the FWC is the Port Kembla Coal Terminal (PKCT), south of Wollongong. The PKCT bargaining dispute made national headlines in early January 2018 when PKCT locked out their employees.

However, PKCT are not alone in their desire to terminate their EA. There have been a number of significant decisions in the last three or so years that have seen employers successfully terminate EAs, including Aurizon Operations Limited, Griffin Coal Mining Company Pty Ltd, Peabody Energy Australia, PCI Mine Management Pty Ltd and AGL Loy Yang Pty Ltd.

It appears that the Full Bench of the FWC’s decision to terminate Aurizon’s EA1 on 22 April 2015, during Aurizon’s enterprise bargaining negotiations, may have set a precedent. As recently as the end of 2017, Murdoch University successfully applied to the FWC to terminate its EA because it argued the EA locked in unsustainable rates of pay and practices.2

Importantly, before employers threaten to terminate their EA as a bargaining tactic, they should carefully consider whether such a threat could be considered ‘bad faith’ bargaining. Decisions to terminate expired EAs reveal that successful applications have some shared characteristics in that they often involve:

  • prolonged (usually more than 18 months) and acrimonious negotiations;
  • multiple proceedings before the FWC to try and resolve what have essentially become bargaining deadlocks;
  • industrial action having been taken by employees; and
  • a compelling case for the need to change based on business operational and financial constraints.

Increased scrutiny under the BOOT

The FWC has recently increased its scrutiny of the BOOT when assessing newly made EAs following a number of high profile cases.

One of the earliest decisions concerning the proper application of the BOOT by the FWC was the FWC Full Bench decision in the Coles Store Team Enterprise Agreement 2014-17.3 In the Coles EA case, a part-time Coles employee appealed the approval of the Coles EA as it left the employee, and a number of others, worse off than they would have been under the Award as a result of a ‘rolled up’ hourly rate and no penalties. The Full Bench agreed and determined that the Coles EA should not have been approved on the basis that it did not pass the BOOT.

Aldi Foods v SDA [2017] HCA 53

The approach applied by the Full Bench of the FWC in the Coles EA case was recently confirmed as correct by the High Court in Aldi Foods v SDA [2017] HCA 53.

Aldi had included a clause in their EA that stated that if any employee ended up being paid less than the Award because of the rolled-up rates in the EA, Aldi would pay them the equivalent of what they would have been paid under the relevant Award.

In finding that the FWC had erroneously found that the Aldi EA passed the BOOT, the High Court held that:

  • The clause guaranteeing payment under the Award in the Aldi EA was insufficient for an agreement to pass the BOOT test.
  • The test in section 172 of the FWA expressly requires that employees be ‘better off’ under the EA and not simply experience ‘no disadvantage’, as was the requirement under the previous legislative structure.
  • The BOOT test requires a comparison between the terms of the relevant Award and the EA and ‘requires the identification of terms which are more beneficial for an employee, terms which are less beneficial and an overall assessment of whether an employee would be better off under the agreement’.
  • The right to equalisation did not leave the employees better off under the Aldi EA at the time the BOOT was considered. While a possible benefit given by this clause (i.e. entitlements that are higher than those given by the EA if provided for in the Award later on) could be taken into account in a BOOT assessment, there was no evidence such an assessment had taken place.

The High Court referred the Aldi EA to the Full Bench of the FWC to be reheard.

In turn, Aldi has indicated an intention to run further arguments in the rehearing of the Aldi EA in terms of the BOOT, including:

  • arguments about the relevance of non-monetary benefits; and
  • justifying lower wage rates for trainee managers on the basis that employees would accept reduced wages in order to accept managerial bonuses in the future.

The Full Bench of the FWC is likely to consider all arguments put forward by Aldi and the Union in relation to the BOOT very carefully. The decision will also provide guidance about the BOOT and, in particular, rolled up rates and non-monetary benefits.

Special Full Bench of the Fair Work Commission considers loaded rates in Enterprise Agreements

As a result of the Aldi High Court decision and eight other EAs seeking approval with proposed loaded or rolled up rates, a special Full Bench of the FWC has been constituted to consider how the BOOT should be applied to EAs with roll up penalty rate payments and other benefits loaded into rates of pay.

Written submissions were received from a number of parties including unions, government and industry groups in 2017, and a preliminary hearing occurred on 15 November 2017.

At the conclusion of the preliminary hearing, Vice President Hatcher advised that it would be:

premature to reserve our decision. I think the Full Bench will need to consider the submissions that have been made to date before it advises the parties of what further steps, if any, need to be taken in the proceedings.4