Australia: Enterprise Agreements – What are they and what are the benefits?

Last Updated: 14 February 2017
Article by Brian Powles

Introduction – What are Enterprise Agreements?

Where modern awards provide base employment standards for whole industries or occupations, enterprise agreements are tailored agreements that meet the needs of a particular enterprise. These collective agreements are made between employers and employees and usually address the terms and conditions of employment for all. Enterprise agreements can be made between one or more employers and two or more employees with their chosen representatives. They will usually address a broad range of matters, including employment conditions, rates of pay and dispute resolution procedures. These agreements cannot include unlawful content, like discriminatory or objectionable terms.

Background – Why Bargaining can be Controversial

Collective Bargaining has been a feature of the employment relationship since the industrial revolution. It has also been a political battleground throughout the western world: the political right, led by industry, have argued for deregulation, providing greater freedoms for employers to bargain directly with their workforce; the political left, led by unions, have fought to maintain and improve a safety net of standards for their workers. Like all 'bargaining' contexts, the incentive to participate in bargaining for all parties has always been provided by the prospect of improving their position.

In Australia, the debate reached fever pitch in 2005 with the Coalition's Work Choices reforms, leading to one of the biggest and most important High Court decisions in modern times. The Federal Government successfully wrestled control of the bulk of industrial relations law away from the states, in order to provide employers with a virtually unfettered freedom to bargain directly with individual employees. For the Howard government, this was a legal triumph but a political disaster, contributing to their landslide loss at the 2007 election.

The ALP's subsequent enactment, the Fair Work Act 2009 (Cth), restored significant regulation to agreement making. The Act included the National Employment Standards, reintroducing a meaningful statutory 'safety net' for national system employment. These standards cannot be contracted out of, or bargained away, by employers. Enterprise Bargaining Agreements (EBAs), as well as Individual Flexibility Agreements (IFAs) are now also subject to the 'Better Off Overall Test' ('BOOT'). An EBA will not be approved by the Fair Work Commission unless they are satisfied that the employees are better off overall under the agreement, than they would be under the relevant modern award.

However, this has led to many employers questioning whether there are any remaining benefits to the Enterprise Bargaining Process. If employers are stuck with the National Employment Standards, and if every agreement results in employees being better off, does this mean that an agreement is required to make the employer worse off? Where is the 'bargain' in this? What is the incentive for employers to participate?

Under the Fair Work Act, a more creative approach to bargaining is now required, but with a proactive and careful approach it is still possible for enterprise agreements to be hugely beneficial.

What are the benefits?

If an employer takes control of the bargaining process, an Enterprise Agreement can offer additional benefits to employees, while at the same time promoting flexibility, simplicity, and innovation. Potentially, an enterprise agreement can also ensure compliance, while increasing productivity and reducing administrative costs.

Enterprise agreements can and should be tailored to the particular business. A successful enterprise agreement will ultimately increase productivity and meet the needs of both employees and employers. Cooperative enterprise bargaining should result in long term benefits and rewards for all parties.

Possible outcomes of successful bargaining can include things like:

  • A simplification of the onerous and complex Modern Award provisions, which reduces cost, improves compliance, and aids employees in achieving a proper understanding of workplace rights. This promotes harmony at work;
  • More flexible hours and rosters to meet the exact operational requirements of the business;
  • Improved talent retention, due to the ability to direct resources appropriately to the target employees;
  • Broader job classifications, and classifications that can be tailored to the exact roles performed in the business;
  • Agreement to achieve efficiency gains such as new production targets or a reduction in waste;
  • Improved service delivery to achieve greater client satisfaction;
  • Improved procedures for handling employee grievances or consulting on workplace issues.

As organisations become more diverse and the workforce is more likely to move across numerous job types and business areas, enterprise agreements can be very useful for employers that operate under a number of awards. They enable a business to define its own classification structures, rather than limiting staff movement according to award coverage or the complex system of classifications across multiple awards. This makes compliance easier. The vast majority of workplace disputes concerning underpayment are due to the generalised nature of modern award classifications. It can be difficult for employers and employees to exactly correlate the very general award classifications to the very specific roles performed in the business. A well drafted agreement removes this hurdle.
The follow on effects from this simplification can be a reduction in payroll administration time and cost, as well as a reduction in compliance risk. Furthermore, as the employees are actually engaged in the bargaining and approval process, agreements are likely to identify issues that can be addressed and will speak to long-term employee commitment to the organisation. Employers who have successfully implemented agreements at work also report that the existence of an agreement, as well as the process of bargaining, can add value to the wider workplace culture.

The process

Best practice enterprise bargaining should see employers and employees working cooperatively in good faith, as equal partners working towards a common goal. However, the employer taking a proactive role is key. Developing the agreement also allows employers to remain on the front foot: instigating and negotiating at a time that suits them, unlike when a union seeks an agreement and the organisation is not prepared or has limited resources to invest in the process.

The FWC plays an important role at all stages of an enterprise agreement: providing information on the process, assessing and approving finalised agreements and dealing with disputes that may occur over the terms.

  1. Bargaining
    The first stage in any enterprise agreement is the bargaining process. Representatives of the company and the employees will meet and discuss the scope and terms of the potential agreement. At the end of this stage, a proposed agreement should be ready for the FWC approval process.
  2. Employer completes pre-approval process
    • Explain terms
      The employer must ensure reasonable steps are taken to ensure that the terms of the agreement, including their effect, are explained to all employees in an appropriate manner.
    • Notice and voting process
      A majority of employees who will be covered by the proposed agreement must approve it through a vote.
    • A successful vote
      Depending on the type of proposed agreement, there are different criteria for a successful vote. More information can be found at the FWC website.
    • Agreement content
      The employer must ensure that the proposed agreement does not contain unlawful content, such as discriminatory and objectionable terms, terms that would enable an employee to 'opt out' of the agreement and terms that modify or exclude the application of unfair dismissal provisions in a detrimental way.
  3. Applying to the Commission for approval
    A bargaining representative for the agreement must apply to the Commission for approval in an approved format, usually within 14 days of the agreement being made. The Commission will then assess the agreement and make a decision.

To find out more about Enterprise Agreements, and how they could potentially work for your business, call one of the team of solicitors at PCC Lawyers for a no obligation meeting.

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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Brian Powles
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