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An enterprise agreement sets out the collectively agreed terms and conditions of employment between an employer and a group of employees, normally reached following good faith bargaining negotiations between the employees, their bargaining representatives (often involving a trade union) and the employer. There are three types of enterprise agreements – single-enterprise, multi-enterprise and greenfields agreements (which can either be a single or multi-enterprise agreement), each of which are discussed below. Single-Enterprise Agreements Single-enterprise agreements are the most common type of collectively bargained agreement and are normally used where an employer conducting an existing “enterprise" enters into an agreement with its employees – an “enterprise” is broadly defined to include a business, activity, project or undertaking. An employer may have separate enterprise agreements with different groups of employees, with terms and conditions tailored specifically to that group. However, the groups of employees must be fairly chosen taking into account geographical, operational and organisational characteristics. Single-enterprise agreements can also be used by “single interest” employers, i.e. employers engaged in joint ventures or another type of common undertaking, e.g. business franchise operators may apply to the Fair Work Commission for an authorisation to make a single-enterprise agreement. Multi-Enterprise Agreements Multi-enterprise agreements are far less common and are made between two or more employers that are not single interest employers. While parties seeking to negotiate a multi-enterprise agreement are, in theory, subject to good faith bargaining obligations, bargaining orders cannot be obtained from the Fair Work Commission to enforce those obligations. Protected industrial action cannot be taken in pursuit of a multi-enterprise agreement, but employee approval requirements are more onerous than in respect of single-enterprise agreements. Greenfields Agreements A greenfields agreement may be made for a genuine new enterprise that a single employer or multiple employers are establishing or propose to establish. These types of enterprise agreements must be made with, at least, one trade union and prior to employing any persons covered by the agreement. Any trade union a party to the agreement must be able to represent the majority of the employees who will be covered by it. Importantly, the Fair Work Act’s good faith bargaining obligations do not, at the moment, apply to negotiating for a greenfields agreement, which does give a trade union involved in the bargaining process considerable leverage. Prospective employers seeking to develop a new project should carefully consider as part of their industrial strategy which trade unions have potential coverage rights and may be more amenable to reaching a greenfields agreement on better and more advantageous terms for its business. Why make an enterprise agreement? There are a number of reasons why an employer might consider making an enterprise agreement, namely:
“We don’t want to pay award rates, can’t we just have an enterprise agreement?” Well no, it’s not that simple. What is an enterprise agreement (sometimes called an EBA)? An enterprise agreement (“EA”) is a legislatively sanctioned agreement between an employer and a group of employees which takes the place of an applicable industrial award during its life. An EA must be negotiated with and approved by a majority of employees and approved by the Fair Work Commission (“FWC”) which must consider whether employees are better off overall (known as the “BOO test” or “BOOT” for short) under the proposed EA than the applicable industrial award. Employees cannot be worse off under an EA than under a benchmark award. An EA has several key features:
B. EA Advantages and Disadvantages for EmployersGenerally speaking, an enterprise agreement has the following advantages:
However, an enterprise agreement also has several potential disadvantages:
Of the above, the major disincentive for an employer is disadvantage no 1 – unfortunately, the employer cannot get to the end of the first EA time frame and say, “thanks we enjoyed that experience, but we don’t want to do this anymore”. It is difficult to obtain orders from the FWC to discharge an expired EA without it being replaced by a further EA. Further, union demands can become more strident the second time around and once they know they have a foothold. C. EA Advantages and Disadvantages for EmployeesFrom am employee point of view, EAs also have advantages and disadvantages. The advantages are that an EA:
However:
D. Do we have to bargain for an EA if we don’t want to?There is no obligation on an employer to enter into negotiations for an EA with employees or a union if it does not want to. However, if an employer refuses to bargain formally, then it is up to the employees (usually through their union) whether they back away or seek orders from the FWC for a formal ballot to be conducted of support for the enterprise bargaining process amongst employees. If a majority of employees vote in favour of enterprise bargaining, then the FWC will issue a majority support determination and the employer is then required to bargain in good faith. It is also open to the employees to seek orders from the FWC approving the taking of industrial action (eg a strike, or a work to rule campaign). If you agree to bargain, then the employer must send a notice to each employee giving them the opportunity to bargain individually or through a bargaining representative. For employees who are union members, their union is their default representative if they do not give a notice themselves. They may appoint their union as bargaining representative or they may choose to be party to the bargaining themselves or they may appoint another person as their representative. The employer must bargain in good faith with all bargaining representatives (not just the union) although there is no obligation to reach agreement. This means responding reasonably to proposals by the bargaining representatives including providing financial information to back any assertions made about financial imperatives of the organisation. E. How is an EA terminated?Old EAs can be terminated on application to the FWC by agreement of the employer and the employees or on the application of the employer alone. It has historically been difficult to get approval from the FWC to terminate an old EA without the agreement of employees. Under the Fair Work Act, the FWC must consider the public interest in considering whether to terminate an agreement. The FWC has a broad discretionary power to look at both the objects of the Act and, importantly, the effects that termination will have on employers and employees and their ability to bargain effectively. F. OK, what is the process for making an EA?In summary:
G. The Alternative – Common Law Contracts subject to an Industrial AwardIn our view, EAs are often not worth the trouble under the current legislative regime. We think it is generally preferable to have a common law contract regime subject to any overriding industrial award provisions. This means that:
However, it is necessary to keep on top of the individual terms and conditions of individual employees rather than simply deferring to the EA and the employer is stuck with the terms of the applicable industrial award which may contain some impractical provisions. From an employee point of view, a common law contract with an underlying award allows an employee to keep their remuneration and conditions confidential if they wish and to negotiate with an employer according to their own needs and wishes. It also allows for conditions to be changed by agreement (by variation of contract). However, on the minus side it is harder to enforce a contractual obligation than an EA obligation. Of course, sometimes entry into an EA can be a requirement by a head contractor before granting a contract to perform work, particularly on large building sites. This sort of requirement is controversial as are “site agreements” which are agreed with a union but which are not approved by the FWC. A final point on contracts is that it may be desirable for some matters to be addressed in employer policy rather than in a formal contract. Policies can be changed unilaterally by an employer on giving reasonable notice to employees whereas contracts can only be varied by agreement (express or implied). H. So which one is the best?At AWL, we think most small-medium employers would be better off having a flexible common law contract regime subject to any overriding industrial award conditions but this does depend on the situation of the particular employer. The starting place is really to sit down with the applicable industrial award and ask whether an EA is really necessary or whether the same outcome can be achieved by other means, such as using a common law contract “set off” clause with an annualised salary arrangement. Lastly, employers adopt “template” EAs or EAs drafted by unions (sometimes called pattern bargaining) at their own peril. It pays to spend some time establishing an EA that suits the particular needs of your business. |