HG Alert: Preventing rejection of your enterprise agreement - 25 Jan 2010

Preventing rejection of your enterprise agreement

A recent spate of decisions by Fair Work Australia shows that a number of enterprise agreements are being rejected by the federal regulator - many for failing to comply with what are often simple procedural requirements. This can disrupt workplaces and cause significant and unnecessary expenditure for employers. This article looks at the procedural requirements that must be met, as well as where enterprise agreements most commonly fail to meet these requirements. It also provides tips on how to avoid having your agreement knocked back by Fair Work Australia.

Enterprise agreements

Enterprise agreements were introduced by the Fair Work Act 2009 on 1 July 2009. From 1 January 2010, they are the only type of statutory agreement that can be made between employers and employees in the federal system, and are subject to approval by Fair Work Australia before they come into effect. Until 31 December 2009, enterprise agreements needed to comply with the Australian Fair Pay and Conditions Standard under the old Workplace Relations Act 1996 and the ‘no disadvantage’ test.

However, all agreements made from 1 January 2010 must comply with the National Employment Standards and are subject to the ‘better off overall’ test. This test requires that an enterprise agreement be assessed against the applicable Modern Award to ensure that each employee covered by the agreement will, under the agreement, be better off overall in comparison with their entitlements under the relevant Modern Award.

Requirements for making enterprise agreements

In order to make an enterprise agreement, employers must comply with the following procedural steps:

  • Within 14 days of the agreement-making process beginning, employees that are to be covered by the agreement must be given written notice of their right to appoint a bargaining representative (it could be themselves, a trade union or any other person they appoint in writing) to assist them in negotiations
  • Employers must then wait 21 days after the day on which employees were given notice before holding a vote where their employees determine whether to approve the agreement or not. 
  • At least seven days before the voting starts, employers must take reasonable steps to ensure that all employees who will be covered by the agreement are either given a copy of, or have access to, the agreement itself and any other materials that are incorporated into the agreement.
  • At least seven days before the vote, employees must be notified of the time and place where they will vote on the agreement and the voting method that will be used.
  • Employers must take all reasonable steps to ensure that the terms of the agreement are explained to their employees (including the effect of the terms) in a way that the employees can easily understand.
  • The agreement will be ’made‘ if and when a majority of the employees (50 percent plus one employee) who cast a vote on the agreement approve it.
  • Within 14 days of the agreement being made, it must be lodged with Fair Work Australia for approval.

Approval of enterprise agreements

Before approving an enterprise agreement, Fair Work Australia needs to satisfy itself of the following things:

  • The employer and employees genuinely agree to the agreement.
  • The group of employees covered by the agreement has been fairly chosen. 
  • The agreement does not contain any unlawful terms.
  • The agreement does not contravene the National Employment Standards. 
  • The agreement satisfies the ‘better off overall’ test. 
  • Where the agreement is a multi-enterprise agreement, it has been genuinely agreed to by each employer covered by the agreement, and no-one has been coerced or threatened to make the agreement.

In order for Fair Work Australia to approve an enterprise agreement, the agreement must contain terms dealing with the following: 

  • A nominal expiry date.
  • A term that allows Fair Work Australia or another independent arbiter to settle disputes relating to the agreement and the National Employment Standards, and that allows employees to be represented during that process.
  • Individual flexibility arrangements that can be made between an employer and individual employees.
  • Consultation about major workplace changes.

Why enterprise agreements are rejected

Many enterprise agreements are rejected by Fair Work Australia for what are essentially procedural errors, which could easily be avoided. Common errors include the following:

  • Notifications given to employees about their right to appoint a bargaining agent were not given within 14 days of the agreement process commencing. In one case, this notification was given at the same time as the agreement and notification of when voting was to occur were given to employees).
  • Voting on the agreement took place earlier than permitted. In one case it took place on the 21st day after the day on which the notice was given to employees about their right to appoint a bargaining agent, rather than 21 days after the day on which the notice was given. In another, it took place only four days after the last notice of representational rights was provided. Fair Work Australia has rejected a number of agreements because of simple calculating errors. Usually the dates are out by only a single day. 
  • Lodging the agreement late (ie more than 14 days after it was made).

Of course it is more difficult for an employer to ensure that an enterprise agreement meets content requirements, as opposed to ensuring compliance with the various procedural requirements. In many cases, agreements that are rejected contain several offending terms.

As the ‘better off overall’ test only came into effect on 1 January 2010, we are yet to see any decisions handed down by Fair Work Australia where assessments have been made against the new test. However, the following are examples of provisions in agreements that have recently failed the ‘no disadvantage’ test, with Fair Work Australia rejecting the agreement as a result:

  • Termination of employment on one days’ notice during the probationary period.
  • Termination of employment without notice or payment in lieu of notice where an employee is unable to met the inherent requirements of the position.
  • Provision for payment of allowances beneath the relevant award rates.
  • A clause which allows for the employer to nominate the superannuation fund for an employee rather than permit the employee to choose the fund. 
  • Work on public holidays at ordinary rates or the absence of a clause that deals with Sunday and public holiday rates

Problems with preferred hours clauses

Fair Work Australia has also rejected agreements as a result of ’preferred hours‘ clauses, where employees give up their entitlement to penalty rates in exchange for being able to work their ‘preferred hours’.

In one decision involving an agreement for an aged care provider, Bupa Care Services, Fair Work Australia considered a clause which stated that an employee would not receive overtime rates where they requested to work ’additional hours‘. Commissioner Smith concluded in his decision that the clause represented a cost saving rather than a benefit. He stated that it “would be difficult to suggest that an employee would see the benefit in being paid less than that which would ordinarily apply”. The agreement was rejected on this basis, for failing to meet the ‘no disadvantage’ test.

In a separate decision relating to an agreement involving a number of hospitality chains, including Muffin Break and Subway,Fair Work Australia considered a clause which provided that if an employee ’elects to work their preferred hours’ or agreed to swap a rostered shift with another employee, they would receive a flat hourly rate and would forgo any late night and weekend penalty rates. Commissioner Whelan noted that many employees covered by this agreement were students who may often need to change shifts because of their studies. This was, she said, a “normal incident of employment and not a special arrangement”. She rejected the agreement on the basis that the clause failed the ‘no disadvantage’ test.

Dispute resolution provisions

In a decision handed down by Fair Work Australia on 21 January 2010, an agreement for one of Woolworths Ltd’s distribution centres was rejected because the mandatory dispute resolution clause did not require disputes about the agreement or the National Employment Standards to be determined by arbitration. Rather the agreement allowed for Fair Work Australia to arbitrate a dispute on the application of the employer or an employee, but only with the other party’s consent. Commissioner Smith stated:

“[I]f Fair Work Australia is chosen then there can be no doubt about the power to arbitrate. If an independent person was chosen, the power to arbitrate may well be derived from another source. In my view this adds weight to the view that access to arbitration is a prerequisite to the approval of an agreement.” Given that the ‘better off overall’ test sets a higher bar for agreements than the ‘no disadvantage’ test, it is likely that we will only see an increase in enterprise agreements rejected by Fair Work Australia because of their content.

How to prevent your agreement from being rejected… and what to do when it is The reasons for which Fair Work Australia has recently rejected enterprise agreements are commonly procedural in nature. Frequently, the agreement fails to comply with the minimum time limits in the agreement approval process. It is therefore essential that employers strictly observe the relevant time frames. If you are in doubt about whether, for instance, the 21 day time period has passed before the vote takes place, you should err on the side of caution.

In terms of agreements that fail due to their content, it is more difficult for employers to be on the front foot in this regard - particularly as there is no agreement ’pre-approval‘ process as existed under the old regime. The best thing that you can do is to seek competent advice on whether an agreement is likely to satisfy the ‘better off overall’ test and otherwise contains the required mandatory content. In the early days of the Fair Work reforms, there will also be some uncertainty about Fair Work Australia’s approach to the ‘better off overall’ test and various other requirements of the legislation. For instance, the Woolworths decision described above appears to have concerned and surprised all relevant stakeholders, including the Government. The ALP has always promoted the fact that, with limited exceptions, compulsory arbitration of workplace disputes was not a feature of the Fair Work legislation.

If the Woolworths decision stands - and the press is reporting discussion of a proposed appeal against the decision - compulsory arbitration of disputes between parties to an enterprise agreement will become an entrenched feature of the federal industrial relations system. In our view, however, that particular issue is a storm in a teacup. Dispute resolution provisions in agreements that do not allow compulsory arbitration as a last resort will in many cases be largely ineffective. Even without the benefit of the Woolworths decision, we have always recommended including an arbitration provision in collective agreements, to apply once all other attempts to resolve the dispute have failed.


It is obviously preferable for employers that their enterprise agreements are accepted the first time around. If, however, you find yourself in a position where your agreement is likely to be rejected by Fair Work Australia, it is possible that, instead of having to go through the entire agreement approval process again, Fair Work Australia may approve the agreement if satisfied that a written undertaking meets their concerns.

Fair Work Australia will only accept a written undertaking after first seeking the views of each bargaining representative and satisfying itself that the undertaking is not likely to cause financial detriment to any employee or result in substantial changes to the agreement itself. As a result, there are no guarantees in this regard, and it would be unsafe to assume that an agreement which fails to satisfy Fair Work Australia for whatever reason can be ‘cured’ by giving an undertaking.

For more information, please contact HopgoodGanim’s Industrial and Employment Law team.