Enterprise Agreements: What are they and why make one?

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What are they?

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:

  • if an award applicable to the employer’s workforce is difficult to apply, inflexible or otherwise unsuitable for the operation of its business;
  •  when there are commercial benefits to be gained from having a standard set of employment conditions contained in a single document, for example, where employees are covered by multiple awards with various terms and conditions;
  •  to ensure, as far as possible, industrial harmony and freedom from strike action by employees seeking better employment terms and conditions;
  •  to provide greater certainty in respect of projecting and fixing future labour costs for a period of up to four years, particularly for start up projects.

Negotiating for an Enterprise Agreement – what is good faith bargaining?

Enterprise bargaining is the process of negotiation between an employer and its employees (and/or their bargaining representatives) with a view to reaching a collective agreement setting minimum wages and other terms and conditions of employment within an enterprise, i.e. a business, activity, project or undertaking.

It is a fundamental requirement for the negotiations to be consistent with good faith bargaining rules. If bargaining is not conducted in good faith the Fair Work Commission may make bargaining orders in relation to the future conduct of negotiations.

The Process

Either the employer or the employees can commence the bargaining process.

If an employee is a member of a trade union, then they will be automatically represented by the union and its officials in the bargaining process.

Both employer and employee bargaining representatives are obliged to bargain in “good faith” in accordance with the following rules:

  •  they must meet at reasonable times and participate in meetings;
  •  they are required to disclose relevant information (other than confidential or commercial sensitive information)in a timely manner;
  •  they are required to respond to proposals made by other bargaining representatives in a timely manner;
  • they are to give genuine consideration to the proposals of other bargaining representatives and explain their position in relation to those proposals;
  • they must not to engage in capricious or unfair conduct that undermines freedom of association or collective bargaining; and
  • they must recognise and bargain with other bargaining representatives for the agreement.

However, the duty to bargain and negotiate in good faith does not mean that one party must make concessions, during the bargaining process, and nor do the parties have to ultimately reach a consensus on the terms to be included in an enterprise agreement, i.e. conclude a negotiated agreement.

Enterprise Agreements: Content and procedural requirements for approval

The Fair Work Act 2009 (Cth) sets out the good faith bargaining rules and obligations which apply to the parties and their the bargaining representatives when negotiating for an enterprise agreement.

Aside from these important content rules and pre-approval steps, an employer should ensure that the negotiated enterprise agreement reflects current practices in the workplace and adequately supports the future growth and needs of the business.

Compulsory Content

An enterprise agreement must include mandatory terms dealing with the following:

  •  the nominal expiry date for the life of the agreement (no more than four years from the date of approval);
  •  a dispute settlement procedure outlining how disputes relating to either the operation of the agreement or the application of the NES are to be resolved, including a right of representation for employees and an ability for the Fair Work Commission or another independent body to settle the dispute;
  •  a flexibility term allowing for the making of individual flexibility arrangements between an individual employee and the employer to accommodate their genuine needs (if a flexibility term is not included in the agreement, the model flexibility term will apply which is contained in the Fair Work Regulations 2009 (Cth)); and
  •  a consultation term requiring the employer to consult with employees about major workplace changes which are likely to have a significant effect on them (if a consultation term is not included in the agreement, the model consultation term will apply which is also contained in the Fair Work Regulations).

Unlawful content

An enterprise agreement must not include unlawful terms containing content which:

  •  is discriminatory on the grounds of race, colour, sex, sexual preference, age, physical or mental disability, marital status, family or carer’s responsibilities, pregnancy, religion, political opinion, national extraction or social origin;
  •  is objectionable for certain specified reasons (for example, requiring or allowing for the payment of bargaining related service fees, such as, those services rendered by a trade union);
  •  allows for an employee to opt-out of the coverage of the agreement;
  • provides for an unfair dismissal remedy before the employee has completed the minimum employment period or alternatively excludes or detrimentally modifies the operation of the unfair dismissal provisions in the Fair Work Act;
  •  is inconsistent with the industrial action provisions in the Fair Work Act;
  • confers on individuals rights of entry inconsistent with the provisions in the Fair Work Act;
  • requires contributions to be made to a superannuation fund other than a fund which:
    • offers a MySuper product;
    • is an exempt public sector scheme, or
    • a fund of which a relevant employee is a defined benefit member.

The terms of an enterprise agreement cannot remove the any of minimum conditions in the NES or offer rates of pay less than award minima.

Your enterprise agreement should be what is best for your business.

An employer should consider, at least, the following questions:

  •  Who should be included and who should be excluded from the agreement?
  •  Do you want the maximum length of four years or less?
  •  What working arrangements can be improved through making the agreement?

Approval requirements

All employees who will be covered by the proposed enterprise agreement must have been formally advised of their representational rights.

The agreement cannot be made until at least 21 days after the employees were advised of their representational rights

An employer and its employees may appoint bargaining representatives and must commence bargaining in accordance with the good faith bargaining rules. Industrial & Employment Law Factsheet

The agreement must be voted on by the employees and needs to have a majority of those eligible to vote, vote in favour of accepting the agreement.

All reasonable steps must be taken to notify the employees to be covered by the agreement of the time and place of the vote, and the voting method to be used at least seven days before the voting process commences (which is called the “access period”).

Employees must be given a copy of the agreement and any material which has been incorporated into the agreement by reference along with the opportunity to discuss and have any questioned answered about the agreement.

Approval by the Fair Work Commission

The next step is usually for the employer to apply to the Commission for the approval of the enterprise agreement. This application must be lodged with the Commission within 14 days of the agreement being made by the parties.

An application form and supporting declaration (F16 and F17 forms) are required to be provided by the employer to the Commission.

For information on how to make an enterprise agreement contact Workplace Relations Specialists’ team for advice specific to your business needs.

Disclaimer

The contents of this article are not intended to be a complete statement of the law on any subject and should not be used as a substitute for legal advice in specific fact situations. Workplace Relations Specialists cannot accept any liability or responsibility for loss occurring as a result of anyone acting or refraining from acting in reliance on any material contained in this paper.

 

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