Employment Law

How are workplace enterprise agreements created?

Published in: July 2017

Modern awards are set up to ensure fairness for employees who may not be in a position to bargain for better pay rates or conditions. In instances where employees and employers reach an agreement on improved conditions, or exchange one benefit in lieu of another, enterprise agreements are generally used which are enforceable documents that take precedence over a modern award.

How does an enterprise agreement become enforceable?

For an enterprise agreement to become enforceable, it must be approved by the Fair Work Commission (FWC), and pass the “better off overall test”. The test requires that every employee covered by the agreement is better off overall when compared to the relevant modern award. Additionally, enterprise agreements must not contravene the National Employee Standards (NES), however, the terms included may be supplementary to the NES.

How are enterprise agreements made?

Upon the conclusion of the bargaining process and a draft agreement has been created, a number of steps are to be followed to ensure the validity of the agreement.

  • Explanation of terms: the terms of the agreement and its effects are to be explained to employees, and must be provided in the appropriate manner;
  • Voting on the agreement: the agreement must be endorsed by employees via a vote, and the vote must not occur until at least 21 days after employees were provided notice of their representative rights. During the seven day period before the vote, the employer must provide a copy to employees of the agreement and any other material incorporated by reference in the agreement. Additionally, information of the time of the vote, the location, and the voting method to be used must also be provided.  
  • Making the agreement: an agreement is made when a majority of employees vote in favour for the agreement, however, the process will differ depending on the type of enterprise agreement:
    • single-enterprise agreements (single employer or a joint enterprise)
    • multi-enterprise agreements (at least two employees that are not single interest employees
    • Greenfields agreement (one or more employers make a proposal for an enterprise agreement, but have not engaged with employees. Greenfields agreements are agreed between the employer and unions.

An application will then be made to the FWC for approval. For an enterprise agreement to receive approval from the FWC, it must consider a number of requirements, such as the agreement were genuinely made with those involved, and that it satisfies the “better off overall test” for example.

What content is unlawful in relation to enterprise agreements?

Enterprise agreements should not include some of the following:

·         terms that are discriminatory;

·         terms that are objectionable;

·         terms that would enable either an employee or employer to ‘opt out’ of the agreement;

·         terms that bestows an entitlement or remedy related to unfair dismissal prior to the completion of the minimum employment period;

·         terms that excludes, or modifies unfair dismissal provisions in a manner that is detrimental to, or in relation to, a person;

·         terms that provides for an entitlement to right of entry that does not conform with Part 3-4 of the Fair Work Act 2009 (Cth) (the Act);

·         terms that provides for the exercise of a state or territory OHS right other than in accordance with Part 3-4 of the Act.;

·         cannot include terms that require superannuation contributions for default fund employees to be made to a fund, unless it offers a MySuper product, is an exempt public scheme, or is a fund that an employee is a defined benefit member. 

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