Different ways of rewarding high-performing, senior or
specialist employees can be eroded when enterprise agreements
require all covered employees to be treated in the same way. One
solution is to allow some employees to opt out of agreement
coverage in return for more attractive individual contracts.
That solution is no longer the safest option, having had mixed
responses from Fair Work Australia (FWA). A more
complex but safer route is to leave scope in the enterprise
agreement itself to provide for minimum pay but "top up"
conditions individually, or to pay within bands according to
Opt-out clauses disapproved
To expand the capacity to have direct employee engagement and
direct reward and recognition, some employers have negotiated
enterprise agreements (EAs) that allow individual
employees to opt-out of coverage altogether and go on to more
individually rewarding contract arrangements.
FWA has given conflicting decisions when asked to approve EAs
containing these opt-out clauses. Opt-out clauses and
individualisation of working conditions are often seen by unions as
a return to Australian Workplace Agreements and Work Choices. A
number of unions have fiercely resisted the approval of EAs which
include opt-out clauses, despite employees having voted to include
Most recently, in CFMEU v New Oakleigh Coal 
FWAFB 5107 the full bench of FWA delivered a split verdict on this
issue. The majority decision said that the Fair Work Act
2009 (the FW Act) promotes collective rather
than individual bargaining at the enterprise level, and for
enterprise rather than individual agreements. The majority found
that the rights, obligations and objects that the FW Act are
intended to encourage collective bargaining, are undermined by an
opt-out provision, and they rejected the application to approve the
EA. As a result, opt-out clauses have become more precarious.
Will Individual Flexibility Agreements do the job?
All EAs are required to have a process for implementing
"individual flexibility arrangements" (IFAs) in which
some conditions can be varied to meet individual circumstances.
These IFAs are one method of achieving flexibility, but they mostly
achieve only minimal variation of otherwise common conditions, and
can be terminated at will in any case.
What will work if opt-out clauses are no longer available?
If an EA covers a key group of employees to whom individualised
arrangements are an important consideration, the EA can leave scope
for that individualisation to occur.
An EA must ensure an employee is "better-off overall"
when compared with the modern award that would otherwise cover an
employee. Subject to this test being met, there is no conceptual
problem with treating the EA as the safety net of minimum
conditions that can be added to in individual cases. A number of
EAs modelled on this approach have been approved by FWA. Other EAs
modelled on setting wage bands within which employees will be paid
according to individual performance have also been approved. These
models make performance and individual reward the centrepiece of
employment in a way that "bolt-on" performance pay
provisions struggle to achieve.
Treating an EA as a safety net of conditions, rather than an
instrument to set actual (and identical) conditions for employees,
can be done in a number of ways. However there are limits.
In 2005 the Federal Court ruled as unlawful an extreme form of
this strategy. A financial institution had introduced a similar
style of agreement, but one which had little minimum limitation on
the conditions that could be introduced under individualised
arrangements within the 'shell' of the overall collective
agreement. Another trap to avoid is to ensure that the dispute
settlement provision in the EA does not extend to disputes over the
terms of individualised arrangements, while still complying with
the FW Act requirements for dispute.
An EA sets conditions for all covered employees, so to
introduce individualised arrangements either the EA coverage must
be restricted or the conditions must allow room for flexibility
within the EA itself.
Opt-out clauses may result in FWA refusing to approve an EA
– while the current uncertainty around their lawfulness
exists, they are a risky proposition.
Careful drafting may provide an EA that is a true safety net,
allowing individualised arrangements to operate. Limits on this
strategy need to be kept firmly in mind.
Expert assistance should be sought whenever the terms of an
enterprise agreement are being negotiated to ensure that the
approved agreement operates as intended.
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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