The impact of the COVID-19 pandemic is wreaking havoc on financial viability of businesses globally. While legislation that will provide some financial certainty is in the pipeline, flexibility may be achieved by recourse to some existing industrial mechanisms including varying terms under enterprise agreements.
Variations to enterprise agreements to preserve business financial viability
On 31 March 2020, CVSG Electrical Construction Pty Ltd (CSVG) applied to the Fair Work Commission (FWC) pursuant to section 210 of the Fair Work Act 2009 (Act) to vary the CVSG Electrical Construction Enterprise Agreement 2017-2021 (Agreement) in order to withhold pay increases due under the Agreement.
The Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia (CEPU) opposed the variation on the grounds that the government's JobKeeper initiative had not been announced at the point when employees had agreed to the proposal and that the variation was not in the public interest.
The Full Bench of the Commission agree with the employer and varied the agreement to withhold previously agreed pay increases. Reasons given by the FWC included:
whether employees have genuinely agreed to an agreement or
variation must be considered at the time that they gave their
agreement, events occurring subsequently to an approval of a
variation (ie the introduction of the JobKeeper payments) do not
vitiate the genuineness of the agreement; and
- public interest grounds did not outweigh the variation in the employer's favour because:
- the JobKeeper initiative is to last for six months, whereas the variation that was approved by employees removes a wage increase applicable to a 12-month period;
- it is not clear to what extent the JobKeeper initiative would ameliorate the expected financial and operational strain on the business; and
- there are other serious economic pressures on CSVG outside of wage expenditure, including supply chain constraints, the weakening Australian dollar and expected decrease in tenders over the next three to six months.
- The FWC approved the variation withholding pay increases to employees, subject to a number of undertakings.
Take away tips
Drastic times call for drastic measures. The variation of enterprise agreements to withhold or reduce pay increases under an enterprise agreement may be an option for some employers in response to the impact of COVID-19. However, employers should seek advice as to how government initiatives such as the JobKeeper payments may impact their operations and consider how the better off overall test and public interest grounds can be met if any application is made to the FWC.
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.