Australia: The Coles Agreement decision and what it means for enterprise bargaining

In Hart v Coles Supermarkets Australia Pty Ltd and Bi-Lo Pty Ltd [2016] FWCFB 2887 (31 May 2016), a Full Bench of the Fair Work Commission (FWC) refused to approve an enterprise agreement for Coles Supermarkets on the basis that it did not pass the 'better off overall test' (BOOT). The decision has significant implications for employers, particularly when negotiating and seeking approval of agreements to cover a large and disparate workforce.

Background

The enterprise agreement sought to be put in place by Coles would have covered approximately 78,000 "wages paid" employees at its supermarkets around Australia. The agreement was approved by an overwhelming majority of employees who voted, and was supported by the main union covering the Coles workforce (the Shop, Distributive and Allied Employees' Association (SDA)).

Like many agreements submitted for approval before the FWC, the proposed Coles agreement included some terms that were more beneficial and others less beneficial than the relevant award.  Also, like many workplace deals in the current economic environment, the proposed Coles agreement included some terms and conditions that were at the level of or close to the underlying award.

It was in this context that concerns were raised by the FWC at first instance about whether the proposed agreement passed the "better off overall test" (BOOT) (see sections 186(2)(d) and 193 of the Fair Work Act 2009 (Cth) (FW Act)).  As events transpired, the concerns raised at first instance were addressed by Coles giving certain undertakings (see section 190).  Consequently, at first instance, the proposed agreement was approved by the FWC.1

The Full Bench Appeal Decision

A part-time employee and another union bargaining representative, the Australasian Meat Industry Employees Union (AMIEU), then appealed the decision to approve the agreement. The principal ground of the appeal was that some employees, in particular those who were rostered to work a high proportion of shifts that attracted penalty rates, would be disadvantaged under the proposed agreement.

The appeal decision is relatively unremarkable in the sense that it is clear under the FW Act and relevant case law  that, absent undertakings by an employer correcting any shortfalls, an agreement cannot be approved by the FWC if an employee covered by it will not be "better off overall" when compared to the relevant award.

What the decision demonstrates, though, is that while the BOOT is a global test and all entitlements in the agreement are taken into account, it can be hard to satisfy the BOOT if the means of doing so is to seek to offset deficiencies in monetary entitlements (such as award penalty rates) with improved contingent entitlements (such as improved leave entitlements).

In this case, the problem was that certain penalty rates in the agreement were less beneficial than in the award.  In circumstances where the usual wages paid were insufficient to cover the shortfall, the exercise then became one of assessing whether the value of the contingent entitlements was sufficient to cover the gap. 

The Full Bench did not accept the evidence put forward by Coles and the SDA to the effect that the value of the contingent entitlements was sufficient to cover the gap. In large part this was because, by their very nature, contingent entitlements depend on other things happening (e.g. an employee actually seeking to take blood donor leave or defence services leave, or suffering an accident that attracts accident pay). The Full Bench did not accept the same value attributed to the contingent entitlements as that put forward by Coles and the SDA. Further, it was considered that these benefits would make only a minor difference to the circumstances of the relevant employees on whose behalf the objections to the agreement were taken.

In addition, when given details of actual shifts to be worked by certain employees and the award penalty rates these would attract, albeit that rosters such as these may not be particularly common among the 78,000 employees to be covered, the FWC determined that the value of the award penalty rates meant that some employees would not be "better off overall". As the asserted benefits did not outweigh these potential reductions, the agreement did not pass the BOOT and could not be approved.

Accordingly, Coles was invited to provide further undertakings remedying the deficiency. The provision of such undertakings would have enabled the FWC to approve the agreement despite its concerns about the BOOT. Coles indicated on 9 June that it was not prepared to do so. Therefore, the agreement was found to have failed the BOOT and the original decision approving the agreement was quashed.

This means that the supermarket chain's large workforce will remain subject to terms and conditions of employment negotiated under a 2011 agreement. More recently, the representative of the disaffected Coles workers has indicated that this group may seek to terminate the 2011 agreement, as they would be better off under the retail award; while the AMIEU is seeking to negotiate a specific new agreement for the Coles workers it represents.

What does the Coles decision mean for employers?

It remains the case that employers need to present material to the FWC that demonstrates that each employee covered by a proposed agreement will be "better off overall" when compared to the relevant award. Employers who do this, and present the material in an easy to understand and comprehensive way, put themselves in a good position to have their agreements approved.

However, for employers who through their enterprise agreements seek to pay award rates or rates very close to the award, care must be taken when seeking to offset deficiencies in monetary entitlements with improved contingent entitlements. 

A number of practices have developed over recent years in this respect.

For example, provisions that supposedly "buy out" sundry award allowances with an all up "BOOT"-style allowance are relatively common in enterprise agreements in the labour hire industry.  More widespread are practices, like at Coles, where employers seek to change what are considered by many to be outdated penalty rate systems, particularly for weekend or after hours work.

Conceptually, enterprise agreements that seek to do these things can be implemented successfully.  Like many things though, it is a question of balance.  Ultimately, the proposed agreement must provide for every employee covered by it to be "better off overall" when compared to the underlying award.

In an increasingly competitive market where most employers are looking closely at their employment costs, the Coles decision demonstrates that in enterprise bargaining, this can be a challenging exercise.

The decision is also important as it signals that a small group of well-organised employees can obstruct enterprise agreements covering large national employers, against the wishes of the vast bulk of the workforce. Employers therefore need to be careful to ensure that new agreements contain sufficient benefits for all categories of workers, so that the BOOT will be met and the agreement approved

Footnotes

1 [2015] FWCA 4136.

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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