On 3 September 2012, a five member Full Bench of Fair Work
Australia (FWA) quashed a decision made by Deputy
President Sams on 8 June 2012 approving an enterprise agreement
containing an "opt-out" clause. The clause enabled
employees to opt-out and no longer be covered by the agreement. The
Full Bench held that as the group of employees to be covered by the
agreement was not geographically or operationally or
organisationally distinct and the opt-out clause is
"inimical" to the purpose and policy of the Fair Work Act
(Fair Work), it quashed DP Sams' decision.
The Full Bench decision follows a series of FWA decisions,
including Full Bench decisions, where opinion has been divided as
to whether opt-out clauses can be included in enterprise
agreements. The Full Bench held that under Fair Work, in approving
an enterprise agreement FWA must establish whether the agreement
covers all of the employees of the employer and if all the
employees are not covered, FWA must make a finding as to whether
the group of employees covered by the agreement is geographically,
operationally or organisationally distinct and determine whether
the employees were "fairly chosen" to taking that into
account. FWA must state its reasons for concluding that the group
of employees either was or was not "fairly chosen" and
absent such a finding, FWA will not have properly performed its
The Full Bench found that DP Sams made no express finding as to
whether the group of employees covered by the agreement was
geographically, operationally or organisationally distinct and
failed to adequately disclose the reasons for his conclusion that
the group of employees covered was fairly chosen.
The Full Bench then considered and held that an opt-out clause
is contrary to the purpose and policy of Fair Work. The Full Bench
held that Fair Work is directed at the provision of a fair
framework that enables collective bargaining and good faith and
sets out clear rules governing industrial action and provides for
certainty around bargain outcomes. Whilst an agreement is in
operation, it can only be varied or terminated in limited stated
circumstances and those covered by an agreement may not take
protective industrial action before the expiry date of the
agreement. The Full Bench held that an opt-out clause undermines
bargain certainty: employees who elect to opt-out of the agreement
will no longer be covered by the agreement and may take protected
industrial action and if all the employees covered by the agreement
elected to opt-out, the agreement would have no practical
Finally, the Full Bench held that Fair Work gives effect to the
object of providing a flexible framework by mandating the inclusion
of flexibility terms in agreements and opt-out clauses provide for
a form and degree of flexibility not contemplated by the statutory
framework and without the legislative protections afforded to
individual flexibility arrangements entered into pursuant to the
flexibility term mandated by Fair Work.
The recent Fair Work Legislation Review recommended that opt-out
clauses be prohibited. Following this FWA decision, opt-out clauses
in enterprise agreements are dead and buried.
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