Published April 2023
Employer Quick Guide – Enterprise Agreements
This Practical Guide has been designed to help Australian employers understand whether an enterprise agreement is right for them, and assists with the agreement making and negotiation process, through to submission.
This is a must read for all businesses that intend to make an enterprise agreement or re-negotiate one.
1. WHAT IS AN ENTERPISE AGREEMENT?
An Enterprise Agreement (EA) is an agreement made at the enterprise (business) level that contains terms and conditions of employment for some or all employees, including wages, for a period of up to 4 years. It is a popular tool for many employees, employers and unions to set in place a legally binding set of employment standards, entitlements, conditions, and protections.
There are 2 main types of enterprise agreements that can be made under the Fair Work Act:
- a single-enterprise agreement: An employer, or two or more employers that are single interest employers, may make an enterprise agreement with the employees who are employed at the time the agreement is made and who will be covered by the agreement; or
- a multi-enterprise agreement: Two or more employers that are not single interest employers may make an enterprise agreement with the employees who are employed at the time the agreement is made and who will be covered by the agreement.
A greenfields agreement is an enterprise agreement relating to a genuine new enterprise (including a new business, activity, project or undertaking) which is made at a time when the employer or employers have not yet employed any of the persons who will be necessary for the normal conduct of the enterprise and who will be covered by the agreement.
2. IS AN EA SUITABLE FOR US?
This section will help you understand whether an Enterprise Agreement (EA) is suitable for your business.
- Key Advantages of an EA
- With the right advice and following the right process, an EA provides a set off employment terms and conditions specific to your business, industry and way of operating;
- There is certainty around rates, increases, work hours and the like, that by nature, are better off compared to the applicable award conditions – employees have the same certainty for the life of the EA;
- Payroll may be simplified (depending on what you agree on!);
- Your operations may be simplified if your team is covered by one industrial agreement (the EA) rather than multiple awards applying to different employees;
- There may be some competitive advantages when tendering for work;
- Reduced risk of industrial disputes if a union has been part of the negotiations.
- Key Disadvantages of an EA
- An EA takes time to plan, implement and maintain, and needs to be renegotiated at the end of its life;
- A strict, formal process must be followed or there is a risk that the Fair Work Commission will not approve the EA or require undertakings;
- Often is it beneficial for external advice to be sought, which will likely add to costs;
- Employees covered by the agreement have the right to involve a union if they wish to;
- The employer has limited control over the outcome of the vote and union involvement;
- There is a formal process for variations and termination, which usually require agreement of the employees covered.
- Considerations & Implications
Before making a decision, employers should ask themselves some questions and consider some key implications, such as:
- What do we want to achieve by having an EA?
- Does the applicable award(s) suit our business? If not, why not?
- We operate under multiple awards, and we want better consistency of conditions. Employers can spend less time and energy interpreting and applying complex industry awards and employees are overall, better off than they would be under the relevant award. Is having an EA the answer for this?
- Can our payroll system handle the complexity of the pay conditions in the applicable award(s)?
- Do we need our employment conditions locked into a win contract or tender?
- If we have an EA, which employees will it cover in which locations? (It is common to have different EA’s for different groups of employees who are covered by different award or operate in different locations or different types of operations within the same business).
There are many topics that should be considered in determining whether an EA will be suitable for your business, including those listed below. However, these are also examples of considerations that should not be used in isolation to determine suitability:
- Is our business or industry a target for multi-employer bargaining?
- Would the EA improve our business culture?
- Our competitors have an EA that seems to work well for them
3. WHAT IS THE AGREEMENT MAKING PROCESS?
- Plan to make an agreement
- Understand the process timeframes to follow;
- Review the F16 and F17 forms to understand the information you must submit at application stage (so you don’t miss anything along the way);
- Plan how to communicate with employees;
- Plan coverage (which employees in which areas/locations);
- Plan who will: negotiate with employees, set the bargaining meeting rules, manage the timelines, minutes, debriefing, coordinate with stakeholders involved, update/track changes to EA, complete award mapping and BOOT calculations etc;
- Consider the voting method available to you;
- Plan how all records will be kept at every step of the process (meeting minutes, signed forms, reps details, all correspondence, log of claims etc).
- Start Bargaining Process
- Follow the process to create and distribute the NERR – if specific steps or timeframes are missed, that can jeopardise entire EA;
- Appoint bargaining representatives;
- Make sure employer and representatives bargain in good faith and there is fair representation of employee groups.
- Develop the Agreement (may commence prior to step 2)
- Know what you must include or exclude;
- Check the agreement makes employees ‘better off overall’ (for example, mapping each award against the EA and completing comprehensive BOOT calculations);
- Avoid common errors when you write the agreement (refer to section 7 for more info);
- Negotiate terms through meetings with the bargaining reps;
- Consider whether any modifications will be needed to the payroll system, and plan for these.
- Prepare to Vote / Access Period
- Provide employees with the proposed EA;
- Explain the terms of the agreement to the employees it covers;
- Give employees other specific information during the access period;
- Tell employees how and when to vote by the start of the access period (7 clear days before vote);
- Advise employees of how and when to vote, send reminders as appropriate;
- Apply for Approval
- Complete the correct forms;
- Lodge online;
- EA must be lodged within 14 days of approval (date agreement was voted in).
- Commission issues a decision
- BOOT ( Better off overall test);
- Commission approves it or may ask for an undertaking to correct a minor issue or defect before approval;
- Commission approves it and agreement is active.
- Plan to make an agreement
Employers must follow the required steps and timelines when negotiating an Enterprise Agreement (and the above is not a comprehensive outline of these). If the process and steps are not followed, you could jeopardise the entire agreement negotiation process and the EA may not be approved or may require undertakings.
Employers must also bargain in ‘good faith’ – this means employers:
- must recognise the Bargaining Representatives;
- should attend and participate in negotiations at reasonable times;
- should give genuine consideration of the proposals of the other bargaining representatives and providing reasons for responses;
- respond to proposals;
- should not undermine freedom of association of collective bargaining.
4. AGREEMENT CONTENT
There are 5 mandatory inclusions for an EA:
- Duration and Expiry;
- Dispute resolution term;
- Flexibility term;
- Consultation term.
- Terms that cannot be included in an EA:
- Terms that exclude the National Employment Standards: An enterprise agreement cannot contain a term that excludes the National Employment Standards (NES) or any provision of the NES;
- Unlawful terms include: a discriminatory term, an objectionable term, a term that requires or permits superannuation contributions for a default fund employee to be made to a superannuation fund that does not satisfy one of the following:
- offers a MySuper product;
- is an exempt public sector scheme; or
- is a fund of which a relevant employee is a defined benefit member.
- Terms that cannot be included in an EA:
Employers should refrain from including operational matters in their EA, such as policies (or topics that would typically be covered in a policy), WHS, internal procedures, recruitment, performance management, performance pay and business improvement. Try to keep those items out of your EA, as an EA is a legal document and cannot be easily updated until re-negotiated. If you have a policy is easy to update compared to re-negotiating an EA.
5. Which award applies?
Coverage in most modern awards is defined according to industry, however, some modern awards may apply on an occupational basis. Modern awards contain interaction rules which govern situations where more than one award may appear to cover an employee.
The relevant modern award can be determined by considering the industry the employer operates in and comparing the duties performed by the employees to the classification definitions in the modern award – be sure to read both the coverage and classification clauses when working through this.
6. Better Off Overall Test
An enterprise agreement passes the better off overall test (BOOT) if the Fair Work Commission is satisfied, at the test time, that each award covered employee, and each prospective award covered employee, would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee. It is not sufficient that the majority of the employees would be better off.
Performing the BOOT requires the identification of those terms of an agreement that are more beneficial and those that are less beneficial to an employee than the relevant award. This includes an assessment of both monetary and non-monetary conditions.
An agreement may pass the BOOT even if some award entitlements have been reduced, as long as overall those reductions are more than offset by the benefits of the agreement. Each employee must be better off under the agreement, not just receive benefits equivalent to what they would have received under the relevant award.
Where an award entitlement has no counterpart in the agreement or the corresponding entitlement under the agreement is less beneficial or more restricted in application than in the award, this will affect the Commission’s assessment of whether the agreement passes the BOOT.
7. Common Defects
Here’s a brief run down of the common defects that jeopardise agreement applications before the Fair Work Commission:
- National Employment Standards (NES) – Before approving an agreement, the Fair Work Commission must be satisfied that the terms of the agreement do not exclude the NES or any provision of the NES. For example, if the agreement expresses the personal leave as 2 weeks, this should be changed to reflect the 10 days available under the NES.
- Mandatory terms – are not sufficiently covered – refer to section 4 to understand what’s required.
- Pre-approval requirements – In deciding whether to approve an agreement, the Fair Work Commission will consider whether the prescribed pre-approval steps, including the provision of a valid notice of employee representational rights (NERR), were taken in accordance with statutory timeframes. Where there is a major technical or procedural error, the EA may not be approved.
Since 12 December 2018, the Commission may be satisfied that an agreement has been genuinely agreed to, despite minor procedural or technical errors in relation to certain pre-approval requirements including the form of the NERR and certain legislative timeframes, if it is satisfied that the employees covered by the agreement were not likely to have been disadvantaged by the errors. This will be considered on a case-by-case basis depending on the circumstances of the matter.
- Forms and lodgement – An application for the Fair Work Commission to approve an enterprise agreement must be made to the Commission within 14 days after the agreement is made.
The agreement is made when a majority of those employees who cast a valid vote approve the agreement. The application must include the Form F16 application, a signed copy of the agreement and the Form F17 employer declaration (and its attachments). It may also be accompanied by other documents.
To avoid delays in the Commission’s processing of the application, it is important that these documents are properly completed and lodged on time.
8. WHO CAN VOTE?
The employees who can participate in the vote for a proposed enterprise agreement must be employed by the employer at the time of the vote, and covered by the proposed enterprise agreement, as per s.181 of the Fair Work Act 2009.
Casual employees are able to be covered by enterprise agreements and must be included in votes to approve agreements.
9. APPROVAL PROCESS
Your application must be submitted to the Fair Work Commission online within 14 days of approval (date agreement was voted in).
Once submitted to the Commission, the application could take 20 to 45 working days on average to approve an agreement. Agreement should come into operation 7 days after the Commission has approved it and this will be noted on the Decision attached to the front page.
Once approved, all employees should be informed and provided a written confirmation of their new classification and pay rate. Your payroll system should also be updated accordingly.
10. RESOURCES AVAILABLE
Enterprise Agreements are a useful tool for employers but the process is very structured and time consuming. It’s important that employers thoroughly consider their options and plan ahead of time if they wish to negotiate or re-negotiate an EA.
Additional resources can be found below:
- Fair Work Commission website
- Enterprise agreement Benchbook
- Find an Award
- Mandatory EA terms
- Common Defects and Issues
Edwards HR can assist you with every step of the agreement making process, making the whole process seamless and compliant. Whether you are re-negotiating an agreement or considering making an agreement with your team, contact Edwards HR to find out how we can help.
For more guidance about this update, or to find out how Edwards HR can support your business, contact our team today on 07 3568 0866.
Feel free to share this update with others in your network.