Many employers will be aware of the Better Off Overall Test
("BOOT") that Fair Work Australia
("FWA") will apply from 1 January 2010
when determining whether it will approve an enterprise agreement.
In general terms the BOOT requires FWA to be satisfied that each
employee who would otherwise be covered by an award will be better
off overall under the terms of the proposed enterprise
The Fair Work (Transitional Provisions & Consequential
Amendments) Regulations 2009 were recently amended to make
provision for further matters which FWA needs to take into account
in determining whether an enterprise agreement meets the BOOT if
the modern award against which it will be assessed contains
"transitional provisions". These provisions have been
incorporated into some modern awards in order to reduce the
financial impact of increases or reductions to existing wage rates,
penalties, loadings and allowances that may arise as a result of
award modernisation. They permit employers to phase in these
changes in annual increments of 20% over 5 years (from 1 July 2010
and on 1 July in each subsequent year until 2014).
We anticipate that most employers in Victoria, ACT, NT and in
other states whose businesses have been subject to federal award
coverage will not need to rely on these transitional provisions.
The new BOOT requirements will therefore be of particular relevance
to those employers who intend to rely on these phasing in
provisions and who incorporate similar provisions into their
In respect of those employers therefore, when FWA applies the
BOOT, during the period 1 January 2010 to 31 December 2014
("the Transitional Period") it must compare the proposed
enterprise agreement against the relevant underlying modern award
on a line by line basis:
as at the time that the agreement is lodged with it; and
as the award will stand at separate (future) points in time
over the life of the agreement (i.e. on 31 July of each subsequent
year until the agreement reaches its nominal expiry date).
In considering the terms of the modern award, FWA will not have
to take into account any variations to the underlying modern award
that may be subsequently made.
The following illustrative example is derived from the
Explanatory Statement to the new Regulations:
A transitional provision in a modern award may provide the
following incremental increases in respect of casual loadings:
31 July 2010
31 July 2011
31 July 2012
An enterprise agreement may provide for the following
incremental increases in respect of casual loadings:
At the time of lodgement (between 1
January 2010 to 31 July 2011)
31 July 2011
31 July 2012
On a line-by-line comparison, an employee entitled to the casual
loading would be better off under the proposed agreement in only 2
of the 3 assessment points (i.e. on 31 July 2011 and 31 July 2012).
Therefore, the agreement would fail the modified test because that
employee will not be better off overall in the first assessment
point (i.e. 6% at the time of lodgement) which is less than the
minimum incremental increase in the modern award (i.e. 8% as at 31
In view of the above, a further layer of complexity is added to
the approval of enterprise agreements that are underpinned by a
modern award containing transitional provisions.
Parties who contemplate entering into enterprise agreements on
or after 1 January 2010 should therefore consider whether the
underlying modern award against which the BOOT will be assessed
contains transitional provisions. If so they must ensure that
employees who enter into that agreement will be better off overall
not only at the time that the agreement is lodged with Fair Work
Australia but also at each of the future points in time referred to
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