What Employers Need to Know
By Lauren Townsend, Special Counsel
The requirements that have to be met to achieve approval of an enterprise agreement from the Fair Work Commission (FWC) are many. 2016 and the early months of 2017 have seen a number of developments in this area, and they have brought into high relief the potential for enterprise agreements that have been voted up, to fall at the final FWC approval hurdle by reason of an earlier imperfection or misstep in the process.
The consequences of that happening are significant not only in terms of the cost and inconvenience involved in having to retrace steps (and possibly confront re-opened issues thought to have been settled), but also in terms of the general atmosphere of uncertainty and distraction in the workplace that can accompany enterprise bargaining and its procedural aspects.
This blog refers to and analyses several of the most significant decisions regarding those developments, and identifies some important lessons that can be derived from them for employers which are involved or which will become involved in enterprise bargaining under the Fair Work Act 2009 (Cth) (the Act).
Lesson 1: Notice of Employee Representational Rights (NERR) – getting that right!
This has been an issue for quite a while now, but it continues to trip up employers.
This is no surprise given the drafting of the relevant provisions is convoluted and laboured, and also that it can be fairly argued that the decisions on the operation of those provisions have generally been intolerant of any kind of departures from what is prescribed in the Act, arguably to a point where it might be said that there is a fair question as to whether they have paid the extent of regard to considerations of overall context and to subject matter that legal principles of statutory interpretation arguably allow.
Why and how the issue arises
Apart from requirements relating to content, for the FWC to approve an enterprise agreement it must be satisfied that a number of procedural steps have taken place. The Act is very prescriptive in terms of those procedural steps and what is involved in taking them.
The required procedural steps are basically sequential and interlocking – broadly speaking, the provisions are drafted so that each such step presupposes and/or depends upon the earlier required step(s) in the sequence having taken place and taken place perfectly. (This is the main source of the problem).
The obvious potential for one imperfectly taken step to ‘spoil’ the whole process is inherent in that scheme, and so far, decisions of the FWC and the Federal Court reflect a view, almost fatalistic, that there is just no legitimate legal means of warding off that conclusion, notwithstanding what many would think is its affront to common sense in many cases.
The NERR step
One of the first procedural steps in the bargaining process required by the Act, is that an employer must take all reasonable steps to give its current employees who would be covered by the agreement, an NERR. The Act, in s 174(1A) further requires that:
“The [NERR] must:
- contain the content prescribed by the regulations; and
- not contain any other content; and
- be in the form prescribed by the regulations” (the NERR Step).
The pre-requisite and critical nature of the NERR Step becomes apparent when, working backwards in the sequential process:
- ultimately, relevant employees will be asked to vote on the enterprise agreement (and for that vote to be successful, a requisite majority of employees must have voted to approved it); and
- that vote cannot be held until a date at least 21 days from the last date on which a NERR was issued (the Ballot Date Requirement).
Now, when it comes to approval of an enterprise agreement, the FWC must be satisfied that the enterprise agreement was ‘genuinely agreed’ to by the employees covered by the agreement. One of the elements of being satisfied of this ‘genuinely agreed to’ requirement is satisfaction that the Ballot Date Requirement has been met.
There has been a long line of decisions about what is necessary to comply with the provisions about taking all reasonable steps to give relevant employees a NERR including about issues regarding the form and content of the NERR and what the legal consequence is of a NERR not conforming in some respect with what s 174(1A) lays down.
The practical effect of the current case law is that an employer must use the NERR contained in Schedule 2.1 of the Fair Work Regulations 2009 (Cth) (FW Regulations) and save for adding only the missing information as identified in the prescribed form of NERR, not depart from it. Further, it must be provided to the relevant employees on its own without anything stapled or annexed in any way to it, all within 14 days of the ‘notification time’.
This current legal position can be drawn from:
- a non-legally binding part of the judgement of Katzmann J in the 2016 Full Court of the Federal Court case in Shop, Distributive & Allied Employees Association v ALDI Foods Pty Ltd (ALDI Foods). That view aligned with pre-existing FWC Full Bench authority. (White J in his judgment in the case referred to the opinion that Katzmann J’s expressed on the point and stated that they did “appear to have some force”); and
- the subsequent decision of the Full Bench of the FWC handed down on 1 February 2017 (involving appeals by the Maritime Union of Australia against three separate agreement approval decisions), in which the Full Bench decided the proper course was to apply the view expressed by Katzmann J in ALDI Foods.
Why is this so important?
This practically means that, unless and until a Full Court of the Federal Court considers the question again and arrives at a different view (or the High Court does so), a departure from the approach regarding content and form of the NERR as indicated above would prevent an enterprise agreement from receiving FWC approval because the FWC could not be satisfied of one element of the ‘genuinely agreed to’ requirement, namely, the Ballot Date Requirement.
In this respect, several enterprise agreement applications have been rejected (or decisions to approve enterprise agreements overturned on appeal) where an employer has not strictly complied with the NERR form and content requirements, for example, by including an incorrect website or an incorrect telephone number in the part of the NERR designed to explain to employees where they can get more information about the NERR or enterprise bargaining.
Also it is to be noted that in Uniline Australia Limited, the Full Bench of the FWC upheld the decision of Roe C at first instance to reject the employer’s application for approval of an enterprise agreement because it provided the NERR more than 14 days after the ‘notification time’ (and took no reasonable steps to comply with the requirement prior to the expiration of the 14 days), and in those circumstances the Commissioner could not be satisfied that the agreement was ‘genuinely agreed to’.
Changes on the horizon
Following the most recent 1 February 2017 FWC Full Bench decision to reject an enterprise agreement approval application due to the inclusion of an incorrect telephone number, Minister for Employment Michaelia Cash has confirmed the Government will introduce legislation to amend the NERR provisions of the Act so that passes ‘the common-sense test’ i.e. that departures in form and content that can clearly be seen to be inconsequential do not invalidate the step leading to failure on the genuinely agreed to requirement.
So far, this has resulted in changes to the prescribed form of the NERR in Schedule 2.1 of the FW Regulations, which will take effect on 3 April 2017. One of the more significant changes is to remove the margin for employer error in the part of the NERR designed to explain to employees where they can get more information about the NERR or enterprise bargaining.
Whereas the NERR currently provides (and will provide up until 3 April 2017):
If you have any questions about this notice or about enterprise bargaining, please speak to either your employer, bargaining representative, go to www.fairwork.gov.au, or contact the Fair Work Commission Infoline on [insert number],
from 3 April 2017, the NERR will read as follows:
If you have any questions about this notice or about enterprise bargaining, please speak to your employer or bargaining representative, or contact the Fair Work Ombudsman or the Fair Work Commission.
Lesson 2: Make sure the employees that you ask to vote on a proposed enterprise agreement, are actually covered by that agreement.
This lesson relates to another aspect of the requirement that the FWC must be satisfied that the enterprise agreement ‘genuinely agreed to’ before it can approve the agreement.
Following the recent Full Court of the Federal Court decision in ALDI Foods, employers should note that a threshold requirement for the ‘genuinely agreed to’ test will only be held to be reached where the employees who have voted on a proposed enterprise agreement were at that time:
- employed by the employer in the employer’s enterprise that will be covered by the agreement; and
- employed in a position or classification that is within the scope of the agreement (however that is expressed in the agreement). That is, those employees cannot work in some other part of an employer’s business that is regulated by a different enterprise agreement, or be employed to and actually performing work which would not be covered by the new enterprise agreement when it commences operation.
In ALDI Foods, ALDI ran afoul of this requirement by asking only existing employees of ALDI who were at that time employed in and undertaking work in other geographical ‘regions’, to approve an enterprise agreement that would apply in respect of employment in a new ‘region’ that was being set up and would commence operation in the future.
The Full Court of the Federal Court held that in those circumstances, the FWC should not have approved the enterprise agreement (despite the fact that each of the relevant employees had signed contracts with ALDI to commence employment in the new region at the appropriate time in the future, i.e. the new employment would be effective at the time the relevant infrastructure in the new region became operational unless relevant tasks such as training were required to be undertaken prior to that time).
The Full Court by majority essentially held that there is in an inherent requirement in the opening words of s 188 of the Act (which deals with the ‘genuinely agreed to requirement’) that the employees who voted on the agreement were at that time, ‘covered by’ it, i.e. actually employed in the enterprise and work to which the enterprise agreement applied. That requirement was not met in ALDI Foods because the employees who voted on the agreement were not then actually employed in the region – the new enterprise agreement did therefore not cover them.
ALDI Foods does not disturb existing Full Court of the Federal Court authority in CFMEU v John Holland Pty Ltd that, provided all other statutory tests are satisfied, a single-enterprise agreement may be made with (i.e. voted on and agreed to) only a very small number of employees covered by that agreement, and approved by the FWC, even in circumstances where:
- the enterprise agreement is expressed to (and would on approval) cover employees who come to be employed in other classifications specified in the enterprise agreement; and
- the number of persons employed in those classifications may be at the time the agreement is voted on predicted to be large (and it be seen that their employment is critical to the enterprise).
(In the John Holland case, the agreement was voted on by three employees, and the Act itself implicitly requires that there be two or more employees who have voted to approve an agreement).
A word of caution about non-operative enterprises
ALDI Foods did not decide the question of whether an employer could employ employees in classifications or positions that are within the scope of a proposed enterprise agreement that is voted on and ‘made’ before the enterprise which it is expressed to cover actually commences business/operation. In this respect, White J expressed a non-binding opinion that an argument could be made that the Act requires an enterprise agreement to be ‘made’ “in relation to existing enterprises [i.e. businesses, projects or undertakings] and with existing employees working in them”.
In light of this, unless and until that matter is settled through case law or legislative amendment, employers might think it prudent to adopt a conservative approach of only asking employees to vote on a proposed enterprise agreement in circumstances where it can be demonstrated that those voting have in a substantive sense begun to do work related to a classification in the enterprise that is expressed to be covered by the agreement. Of course, employers should seek legal advice specific to their circumstances on such matters, including as whether the situation calls for a greenfields agreement.
Lesson 3: Make sure your proposed agreement is capable of passing the BOOT (and arm the FWC with all relevant information it needs to consider when making a decision about that).
Another statutory test that the FWC must be satisfied of when deciding whether to approve an enterprise agreement, is that the agreement passes the ‘better off overall test’ (the BOOT). In a well-publicised 2016 decision, a Full Bench of the FWC on appeal quashed a 2015 FWC decision to approve the Coles Store Team Enterprise Agreement 2014-2017 on the basis that that agreement did not satisfy the BOOT.
In arriving at that decision, the Full Bench conducted a thorough analysis of a comparison of the monetary and non-monetary benefits conferred by that agreement compared to the relevant modern award, and made its findings on balance of those factors. Importantly, in relation to the monetary benefits, the Full Bench received and took account of evidence regarding actual rosters worked under the enterprise agreement by employees at two Coles stores. Prior to the Full Bench’s decision to quash the agreement, the agreement had applied to and regulated the entitlements of around 77,000 Coles employees for several months.
Similarly in ALDI Foods, after the relevant enterprise agreement had commenced operation the Full Bench of the FWC allowed new evidence adduced by the appellant union about rosters actually worked by staff covered by the agreement to show that some staff were financially worse off under the agreement than they would have been had the relevant modern award applied to their employment (and the decision to allow that evidence was not disturbed by the Full Court of the Federal Court in the appeal decision).
After these cases, employers may be asking themselves what evidence they are required to and/or should put before the FWC about the BOOT when making an application for approval of an enterprise agreement.
What does the Act say?
Under the Act, an enterprise agreement will pass the BOOT if, at the time the application for approval of the enterprise agreement was lodged with the FWC, each relevant employee who was at that time or would in the future be covered by a modern award, would be better off overall if the agreement applied to their employment instead of that modern award.
The Act further clarifies that:
- “if a class of employees to which a particular employee belongs would be better off if the agreement applied to that class than if a relevant modern award applied to that class, the FWC is entitled to assume, in the absence of evidence to the contrary, that the employee would be better off overall if the agreement applied to that employee” (emphasis added);
- if the FWC considers that the only reason it should not approve an enterprise agreement is because it fails the BOOT (i.e. all other statutory tests are satisfied), then it may approve the enterprise agreement where there are exceptional circumstances that would mean that it is within the public interest that the agreement is approved; and
- if the BOOT is not favourable to the relevant employees, then the FWC may nonetheless exercise its discretion to approve the enterprise agreement with a legally binding written undertaking by the employer. Generally, the written undertakings require the employer to apply the enterprise agreement in a particular way or provide additional requirements to satisfy particular concerns of the FWC for example with respect to particular monetary entitlements.
What do the FWC enterprise agreement application forms require?
The Form F17, which is a statutory declaration required to be made by the employer and lodged together with the enterprise agreement approval application, requires employers to identify the terms of the enterprise agreement that are:
- more beneficial than the relevant modern award;
- less beneficial than the relevant modern award; and
- not conferred by the relevant modern award,
and to identify the groups of employees affected by those matters.
So, just how much BOOT-related detail should an employer include in the Form F17?
The starting point is that an employer must complete the relevant provisions of the Form F17 truthfully and by providing at least the minimum amount of information called for by the Form F17. As to how much detail over and above the bare minimum requirements should be provided in the Form F17, this will likely depend on the circumstances. For example:
- if that enterprise agreement contains salary levels which are very clearly so far in excess of the minimum wages, penalties, allowances and other monetary entitlements under the award in respect of all employees covered by the agreement, then it may only be necessary for the employer to identify the relevant clauses and groups of affected employees noted above in a simplistic way (whilst nonetheless satisfying the requirements of the Form F17); however
- if the salary levels in the enterprise agreement are not necessarily so far in excess of all the monetary entitlements conferred by the relevant modern award such that the analysis of non-monetary benefits will assume a far greater importance in conducting the balancing exercise, or if employees will be financially worse off under the agreement, or if there is a complicated rostering system whereby it is difficult to determine at a high level whether employees will be financially better or worse off, then it may be in the employer’s interests to provide far greater detail of its own analysis to the FWC (including potentially, by analysing the monetary entitlements of groups of employees working under different roster systems). Whether this is done through the Form F17 or in response to a request by the FWC should be determined on a case by case basis and we recommend an employer seeks legal advice about that.
Generally, in all cases, it will be in an employer’s best interests to ensure that sufficient evidence of all the factors relevant to the BOOT is before the FWC at the stage of the original application for approval of an agreement so as to minimise the risk of the FWC approving an agreement, and it coming into operation and regulating the entitlements of the workforce, only to have that decision overturned on appeal down the track.
It is somewhat heartening to note that, despite reliance on the evidence of rosters actually worked by staff to whom an enterprise agreement has applied in appeal decisions post-agreement approval and commencement in cases such as Coles and ALDI Foods, in two recent enterprise agreement approval decisions of FWC presidential member DP Sams, his Honour commented that the Act does not require the FWC to undertake “line-by-line” comparison exercises, or an analysis of individual rosters or employee circumstances (or hypothetical rosters or circumstances), between the enterprise agreement and the relevant modern award.
A word of caution about ‘make-good’ or reconciliation clauses
The relevant enterprise agreement under consideration in ALDI Foods contained a clause which permitted an employee who considered that they were not better off overall under the agreement compared to the relevant award, to refer the matter to ALDI and if a shortfall was found that would be rectified in the next pay (or if there was no agreement reached about the matter the dispute resolution clause would apply and the matter could be referred to the FWC for arbitration) (the make-good clause). The Full Bench of the FWC originally determined that the make-good clause created an enforceable right to payments at the level conferred in the relevant award and therefore there was no BOOT issue from a financial perspective.
However, on appeal, the Full Court of the Federal Court by majority relevantly held that the Act requires employees to be ‘better off’ than the relevant award, whereas the make-good clause in the ALDI agreement only required employees to receive monetary entitlements that were equivalent to (but not better than) the relevant award. Further, the relevant award conferred entitlements to payments in an immediate sense (i.e. in the pay cycle during which they accrued) whereas the mechanism under the make-good clause delay the making of such payments and was therefore detrimental to employees in its operation. In those circumstances, the Full Bench of the FWC should have analysed whether there were other “counter-balancing and superior” entitlements in the agreement that would on balance have allowed the FWC to determine that the BOOT was satisfied.
That element of the ALDI Foods decision serves as a good reminder that in applying the BOOT, all factors (quantitative and qualitative) should be weighed up by the FWC. A make-good clause, or a clause requiring periodic reconciliations to be undertaken by employers regarding earnings of employees under an enterprise agreement compared to what they would have earnt under a modern award (and if issues are found, correcting any shortfalls), will not necessarily rectify an impediment to passing the BOOT in circumstances where the qualitative benefits under the agreement do not on balance leave employees better off overall under the agreement.
 Which must occur, at the latest, 14 days after the ‘notification time’ for the agreement as defined in the Act (which can be, for example, when the employer agrees to bargain or when a majority support determination comes into operation) – Fair Work Act 2009 (Cth) s 173(3).
 Fair Work Act 2009 (Cth) s 173(1). The legislation requires that the NERR step must be completed by, at the latest, 14 days after the ‘notification time’ for the agreement as defined in the Act (which can be, for example, when the employer agrees to bargain or when a majority support determination comes into operation).
 Fair Work Act 2009 (Cth) s 182.
 Fair Work Act 2009 (Cth) s 181(2).
 Fair Work Act 2009 (Cth) ss 186(2)(a) and 188.
 Peabody Moorvale Pty Ltd v CFMEU  FWCFB 2042 and other subsequent decisions.
  FCAFC 161.
 NB: ALDI Foods Pty Ltd has applied for special leave to appeal to the High Court against the orders made in this decision.
 Jessup J expressed a (non-legally binding) different view, namely, that in certain circumstances (such as in the ALDI Foods case) it could be appropriate for the employer to alter the wording of the NERR in a way that does not actually depart from the prescribed form.
 MUA v MMA Offshore Logistics Pty Ltd t/a MMA Offshore Logistics (C2016/4902); MUA v DOF Management Australia Pty Ltd (C2016/4903); MUA v Smit Lamnalco Australia Pty Ltd (C2016/4904)  FWCFB 660.
 Transit (NSW) Services Pty Ltd  FWC 2742.
 Above note 10.
  FWCFB 4969.
  FCAFC 16.
 Fair Work Act s 172(6).
 Shop, Distributive & Allied Employees Association v ALDI Foods Pty Ltd  FCAFC 161 at .
 Fair Work Act 2009 (Cth) s 186(d).
 See Hart v Coles Supermarkets Australia Pty Ltd and Bi-Lo Pty Limited T/A Coles and Bi Lo  FWCFB 2887.
 In circumstances where Coles declined to provide what the Full Bench considered were the necessary undertakings that would have remedied the BOOT issues.
 Fair Work Act 2009 (Cth) s 193.
 Fair Work Act 2009 (Cth) s 193(7).
 Fair Work Act 2009 (Cth) s 189.
 Fair Work Act 2009 (Cth) s 190.
 Australian Rail Track Corporation New South Wales (NSW) Enterprise Agreement 2016  FWCA 7012 and Beechworth Bakery Employee Co Enterprise Agreement 2016  FWCA 8862.