Australia: "Opt-out" clause is valid in enterprise agreements

Last Updated: 17 April 2012
Article by Joe Catanzariti

In Newlands Coal Pty Ltd v CFMEU [2010] FWA FB7401, Newlands lodged an appeal in response to Commissioner Roe's first instance decision to refuse approval of the Newlands Coal Surface Operations Enterprise Agreement 2010 which contained an opt-out clause. However, Commissioner Roe's decision was overruled by the Full Bench of Fair Work Australia (FWA) in November 2010. In that instance, the majority of the Full Bench upheld the validity of the "opt-out" clause.


Newlands attempted to conciliate with the CFMEU for an enterprise agreement to contain a coverage clause permitting its employees to choose whether or not they wish to be covered by the proposed enterprise agreement.

In particular, this agreement contained an "opt-out" clause stating that the Agreement would not apply to "employees who at any time elect in writing not to be covered by the Agreement." Hence, if an employee chose to opt out of the Agreement, the relevant modern award would apply to them instead. A majority of Newland's employees endorsed the proposed Agreement.

Subsequently, Newlands applied to FWA to have this agreement approved. However, the Fair Work Act 2009 provides that if an application for the approval of an enterprise agreement is made, under section 185 FWA must be satisfied of certain matters prior to approving the Agreement.

First Instance Decision- Fair Work Australia

Commissioner Roe held that a clause in an enterprise agreement allowing "new or existing employees to opt-out of coverage of the Agreement cannot be valid" as it would be inconsistent with the objectives of the Act. His reasons for refusing the application included:

  • Section 186(2) of the Act holds that an enterprise agreement cannot be approved unless the agreement has been genuinely agreed to by the employees covered by the agreement. Commissioner Roe held that there is some doubt that there could be a "genuine agreement" by employees to enter into an enterprise agreement for the purposes of the Act if "an undefined group of employees may at some future date be excluded from the agreement by 'opting out'."
  • Section 186(2) of the Act holds that an enterprise agreement cannot be approved unless the relevant employees will be better of under the agreement than they would under the relevant modern award. This is known as the "better off overall test" (BOOT). Commissioner Roe held that the agreement did not meet the BOOT as there was no guarantee employees who elected not to be covered would be better off than if the relevant modern award applied.
  • Section 186(3) of the Act holds that an agreement cannot be approved unless FWA is satisfied that the group of employees covered by the Agreement was "fairly chosen". Commissioner Roe held that the process of choosing which employees would be covered by the agreement was unfair, since those employees voting for the Agreement could not have known who might be covered by it in the future. In particular, the ability of existing and potential employees to opt out of an agreement means that the groups to be covered by the agreement are undefined and therefore not fairly chosen.

In reaching his decision, Roe C stated that employees are either covered by the Agreement or not, there is no capacity for conditional coverage for any employee. Consequently, FWA did not approve the Agreement.

Full Bench decision – Federal Court of Australia decision

In its decision, the Full Bench held that there was no evidentiary basis to conclude, as Roe C had found, that the choice of those employees covered undermined collective bargaining and the interests of other employees. The fact that some employees may choose to opt out did not affect the interests of those who did not. In addition, the fact that some individuals who voted for the Agreement may at a later stage elect not to be covered by the Agreement also did not alter the fact that it had been genuinely agreed to.

For a second time, the Full Bench considered the application of the BOOT. The majority held that the terms and conditions of the Agreement are superior to those contained in the relevant modern award. The effect of such a clause is that each employee has a choice to be covered by the award or to be covered by the terms and conditions contained in the Agreement.

Consequently, the Full Bench held that as long as the employee had a genuine choice, he or she would be better off than someone who was merely covered by the modern award. Accordingly, the Full Bench was satisfied that the agreement satisfied the BOOT provided in section 193.

Further, in considering whether or not the group of employees covered by the Agreement were fairly chosen, as required by sections 186(3) and (3A), the Full Bench held that a consideration of the requirement of section 183(3) ought to be focused on the time that the group of employees to be covered by the Agreement were chosen. All employees were notified and given the opportunity to agree or disagree, "the coverage of the clause was quite clear and comprehensible." Giving employees the power to decide whether or not they will be covered by the Agreement is not unreasonable, consequently, the majority held that the group of employees to be covered by the Agreement were in fact fairly chosen.

Accordingly, Senior Deputy President Hamberger and Deputy President McCarthy quashed the decision of Roe C and allowed the appeal subject to the employer providing a satisfactory written undertaking that no prospective employees would not have their employment made conditional on agreeing to opt out of the Agreement. Commissioner Blair dissented and agreed with Roe C's view that the legislation did not provide for an option to opt-out or opt-in to an Agreement.

The CFMEU challenged this decision before the Federal Court. Justice Katzmann upheld the Full Bench decision and concluded that the opt-out clause was in fact consistent with the intended purpose of the relevant provisions of the FWA and could lawfully be included in the Agreement.

The agreement will be effective from 1 February 2012 and expire on 30 January 2014.

Conclusion / implications

The decision is favourable to employers who want to have greater flexibility. However, one must keep in mind that any such term should not be implemented such that employment is conditional on opting out of the agreement.

In summary, the inclusion of an opt-out clause in an enterprise agreement will not essentially invalidate the agreement and such an agreement is capable of approval as an enterprise agreement, subject to satisfying the other approval requirements in the Act. However, when seeking to have an agreement approved, employers should be mindful that an opt-out clause will not be considered a benefit for the purpose of the BOOT (see Construction, Forestry, Mining and Energy Union v Deputy President Hamberger [2011] FCA 719).

This article was first published in the Law Society Journal, March 2012

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.