Australia: Fair Work Australia (FWA) rejects McDonald's Enterprise Agreement

Legal Update
Last Updated: 27 May 2010
Article by Kathy M. Dalton, Mark Howard, Peter Lupson and Gerard Phillips

Wednesday 26 May 2010

FWA has demonstrated in no uncertain terms that it is not willing to rubber stamp enterprise agreements that fail to satisfy the pre-approval requirements and the better off overall test (BOOT test) under the Fair Work Act 2009 (FW Act).

In a rebuke for McDonald's and the Shop Distributive and Allied Employees Union (SDA), Commissioner Donna McKenna rejected a deal between McDonald's and the SDA, which would have seen standardised conditions for 80,000 McDonald's employees across all Australian states and territories, including in respect of rostering, penalty rates and entitlements (Agreement).

Commissioner McKenna found that the application, lodged by McDonald's in December 2009, failed to meet the statutory requirements on a number of levels, each of which in isolation, she said, would have justified her rejecting it.

Failure to meet pre-approval requirements

Commissioner McKenna found that McDonald's had failed to meet the pre-approval requirements for making an enterprise agreement, including:

  • Inadequate communication to employees of the time and place for voting and the method of voting (section 180(3)).

    Although FWA acknowledged that McDonald's had provided some material to employees during the seven day period prior to voting, including conducting employee information sessions, providing online information and posters, and had proffered "hearsay" evidence that its franchisees and restaurant managers had advised employees about the voting process, the low voting turnout - just 44% nationally - was deemed demonstrative of deficiencies in the company's communications.

  • Deficient explanation of the terms of the Agreement and effect of those terms on employees (section 180(5)(a)).

    FWA found that McDonald's failed to provide employees with relevant access to information despite posting information via its "Metime" intranet tool and could not delegate responsibility for provision of the Agreement to employees to the SDA.

  • Failure to explain the Agreement in an appropriate manner (section 180(5)(b)).

    McDonald's had failed to "differentiate" its approach in its presentation of information to young employees (the Agreement was proposed to cover 65,600 employees aged under 21) or to make specific arrangements in respect of its 2,400 employees with disabilities and 28,000 employees from non-English speaking backgrounds.

  • The Agreement was not genuinely agreed to (section 186(2(a)).

    Commissioner McKenna found that Tasmanian employees could not have genuinely agreed to wage rates in the Agreement, which were below the federal minimum wage. Further, she found that the summary materials were "misleading" and put the "best gloss" on the Agreement, rather than providing objective information to employees.

  • Failure to provide material to employees that is incorporated by reference into the Agreement (section 180(2)(a)(ii).

    Commissioner McKenna found that there was no evidence that McDonald's had provided employees with a copy of the National Employment Standards (NES) or the Fast Food Industry Award 2010.

Failure to satisfy the BOOT test

In dealing with the issue of whether the Agreement passed the BOOT test (section 186 (2)(d)), Commissioner McKenna was not satisfied that the "multitude of disadvantages presented by the Agreement [was] offset by its marginal advantages" but was also concerned that "on various levels [it] significantly compromised industrial standards that would be expected for agreement reliant employees."

In considering the BOOT test, Commissioner McKenna had regard to the previous industrial instruments applicable to McDonald's throughout the states and territories (Reference Instruments).

Having regard to the Reference Instruments, Commissioner McKenna found that the Agreement did not pass the BOOT test for a number of reasons, including that the Agreement:

  • allowed "quite exploitative" arrangements for rostering employees
  • only provided flat hourly rates for territory employees, resulting in a significant financial disadvantage of 20% as against the Reference Instruments
  • appeared to "displace, remove, omit or reduce conditions" that would have applied under the Reference Instruments
  • left open the possibility of McDonald's employees completing shifts with no breaks
  • would have seen employees in New South Wales, Victoria and Queensland receive pay rises below the minimum pay increases over the three year duration of the Agreement
  • provided for wage rates in Tasmania, with the exception of junior employees, below the minimum level.

As a parting blow, Commissioner McKenna referred a copy of the decision to the Fair Work Ombudsman (FWO) to investigate her concerns that McDonald's had been underpaying some employees.

McDonald's has indicated it intends to appeal Commissioner McKenna's decision.

Implications for employers

Employers and their representatives must be careful to follow the provisions of the FW Act when making and lodging enterprise agreements. Employers who fail to do so risk having their proposed agreements rejected by FWA, and face the costly and time consuming process of re-drafting their agreements and repeating the agreement making process.

In addition, a poorly drafted or ill-considered agreement may expose employers to a potential investigation by the FWO in circumstances where an FWA assessment of their proposed agreement raises suspicions regarding the underpayment of wages and other entitlements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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