Employers must ensure the terms they've negotiated result in each employee (not just the majority of employees) being better off overall than under the applicable award.
The Full Bench of the Fair Work Commission recently held that Coles' proposed enterprise agreement did not pass the better off overall test (BOOT). The Full Bench's decision in Hart v Coles Supermarkets Australia Pty Ltd and Bi-Lo Pty Limited  FWCFB 2887 highlights:
- the importance of considering the impact of the terms of a proposed agreement on each employee or class of employees, particularly those who are likely to be most disadvantaged by it; and
- that it is not sufficient that a majority of employees will be better off overall under a proposed agreement than under the applicable Award.
Coles' proposed agreement
Coles applied to the Fair Work Commission in mid-2015 for approval of its proposed enterprise agreement. The Proposed Agreement would replace a number of existing agreements and would cover over 77,00 employees. Over 36,000 employees participated in voting and nearly 33,000 voted in favour of making the Agreement.
At first instance, the Proposed Agreement was approved on the basis that Coles provided undertakings to address concerns raised by the Commission regarding the BOOT (including in relation to the casual loading and percentage pay rate for 17 and 18 year old team members).
That decision was appealed by a single employee and separately by the AMIEU in April 2016. The issue to be determined by the Full Bench of the Commission was whether the Agreement passed the BOOT.
What does the Better Off Overall Test (BOOT) require?
Under the Fair Work Act 2009 (Cth), an enterprise agreement will pass the BOOT if the Commission is satisfied, at the test time, that each award covered employee, and each prospective award covered employee, would be better off if the agreement covered the employee than if the relevant modern award covered them.
The test involves identifying terms in the agreement which are more beneficial for an employee, terms which are less beneficial for an employee, and an overall assessment of whether an employee would be better off under the agreement.
Approach adopted by the Full Bench to Coles' Proposed Agreement
Coles' Proposed Agreement provided for a higher hourly rate than the relevant award rate, but applied a lower penalty payment for evenings, weekends and public holidays. In this regard, the Full Bench observed that:
- the more hours that are worked during times when the Agreement rates are higher, the better off an employee will be
When assessing whether employees would be better off under the Proposed Agreement, the Full Bench considered:
- rosters and earnings comparisons for employees working on actual rosters at two particular Coles' stores which the Full Bench said were "generally representative of operating circumstances and rostering practices at most Coles stores" (noting that other rosters would only need to be considered in the event that the Full Bench held that employees working under these particular store rosters all passed the BOOT); and
- seven employees (who appeared to be the most disadvantaged on a wages basis because of the particular hours that they were rostered to work) for the purposes of a more detailed analysis.
Full Bench held some employees not better off overall
The Full Bench held that the Proposed Agreement failed to pass the BOOT. The Commission found that for some employees (particularly part-time and casual employees) who work primarily at times which attract lower penalty rates under the Proposed Agreement when compared to the Award:
- the loss in monetary terms was potentially significant; and
- the other benefits in the Agreement, when compared to the Award, did not make up for this deficit.
In reaching this decision, the Full Bench made a number of findings, including that:
- based on a direct wage comparison for the selected employees, the resultant impact of the Proposed Agreement was an annual loss for each of the selected employees of between $142 and $3,506;
- while wage increases available under the Proposed Agreement were a relevant consideration, only limited account should be taken of them because not all employees at test time would remain in employment during the entire period of the Proposed Agreement;
- limited value could be attributed to other benefits under the Proposed Agreement such as pre-approved leave arrangements, blood donor leave and defence service leave because they are not necessarily received by all employees (including because they are contingent on an employee's choice);
- similarly, other benefits such as accident makeup pay, carer's leave, compassionate leave, emergency services leave, natural disaster leave and redundancy pay are contingent on the circumstances that may occur and therefore their take up is highly unlikely to be universal or uniform.
The Full Bench noted that "it should not be assumed that all employees suffer a disadvantage or that disadvantages are limited to these [selected] examples", however it went on to state that "the evidence before the Commission focussed, appropriately in our view, on those employees who were likely to be among those most adversely affected".
Back to the bargaining table for Coles?
Coles refused to provide further undertakings which the Full Bench said could remedy the deficiencies identified in passing the BOOT and instead, has been subject to significant industrial pressure since the Full Bench decision in the form of industrial action and applications to terminate the existing 2011 enterprise agreement.
Lessons for employers
For many employers, the time and cost associated with negotiating a new enterprise agreement can be significant. This case therefore highlights the importance of ensuring that terms you've negotiated result in each employee (not just the majority of employees) being better off overall than under the applicable award.
The decision makes it clear that the approach sometimes taken by employees (and unions) of providing benefits to the majority of employees to the detriment of particular smaller groups of employees may result in an agreement failing to pass the BOOT.
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.