Enterprise bargaining: rumours of the Fair Work Act’s demise have been greatly exaggerated

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Recent publicity directed at employers who access the provisions of the Fair Work Act to terminate expired enterprise agreements has focused on exaggerated and one-sided union claims about a “broken” system. It overlooks the important balance this mechanism creates within Australia’s system of enterprise bargaining.

Among the unhelpful union rhetoric are claims of employees being at risk of immediate and significant pay cuts, and employers using the threat of unilateral agreement termination as a commonplace bargaining tactic to claw back conditions of employment.

Such claims are both overstated and incorrect.

The ability of an employer to apply to unilaterally terminate an enterprise agreement that has passed its nominal expiry date is not new; in fact, it has been a feature of our enterprise bargaining system since the pre-WorkChoices Workplace Relations Act 1996.

Under the Fair Work Act, any party – including a Union (and indeed there are presently a number of high profile Union applications before the Fair Work Commission [Commission]) – may apply to the Commission to terminate an enterprise agreement once it has passed its nominal expiry date. Once an application is made, the Commission must terminate the agreement if it is satisfied that it is not contrary to the public interest to do so, and that termination would be appropriate – taking into account all of the circumstances, including the positions of employees, unions and the employer.

There have been a number of significant decisions in the last two years that have seen employers successfully terminate their enterprise agreements. These included Aurizon Operations Limited in 2015, followed by Griffin Coal Mining Company Pty Ltd, Peabody Energy Australia PCI Mine Management Pty Ltd and AGL Loy Yang Pty Ltd. But each year, on average, 17,000 enterprise agreements are approved by the Commission. The handful of successful applications, therefore, cannot legitimately be asserted as a seismic shift in the manner employers are generally approaching enterprise bargaining.

As employers embroiled in enterprise bargaining consider their options to resolve the deadlock, a range of factors should be considered in determining whether termination of an expired enterprise agreement is a viable option.

Firstly, the Fair Work Act does in fact set a high bar to unilaterally terminate an expired enterprise agreement. While Union rhetoric has suggested the contrary, those applications which have been successfully made by employers have been after:

  • protracted negotiations (usually more than 18 months);
  • multiple proceedings before the Commission to try and resolve the bargaining impasse;
  • industrial action taken by employees; and
  • a compelling case for operational change is made within the business (in Aurizon it was antiquated and outdated agreements; in Peabody it was the threat of site closure without a reduction in the operational cost base).

It is very unlikely without the right accumulation of circumstances that a termination application will be successful, and employers should obtain advice in relation to their circumstances before they suggest to their employees or the Union that they may seek to terminate their enterprise agreement.

Secondly, the decision of an employer to terminate an agreement is likely to face strong opposition from unions and employees. Employers considering termination of their expired enterprise agreement as an option to break a bargaining deadlock or to achieve transformative change in their business need to accept that it is very likely that this strategy will be met with such opposition.

Each of the most recent successful contested terminations of enterprise agreements were hard fought in the Commission. In addition to lengthy proceedings in the first instance, they were also the subject of appeal applications by the unions.

Accordingly, these applications are not only a long road (ordinarily also requiring protracted unsuccessful bargaining as a pre-cursor to the application) but can also be expensive, and they will escalate the industrial temperature within a business. This may lead to protracted protected industrial action, spurious allegations in relation to workplace safety, covert industrial action, negative social media campaigns and conventional media pressure (just to name a few likely challenges).

An employer needs to go in with its ‘eyes open’ to these realities and decide: first, does it have the appetite for such a course; and second, what additional contingency planning does it need to undertake to manage the escalation of tensions as a result of such an application?

Thirdly, a successful termination application does not mean that an employer must or indeed can automatically revert existing employees back to Award wages. Despite the fact that the rhetoric surrounding these successful employer applications is that employee wages will be “dragged back to the Award”, the reality is that this scarcely (if ever) happens.

The reasons for this are generally threefold. One, while employees’ terms and conditions might be regulated by an enterprise agreement, it is not uncommon for a contract of employment (which usually includes a rate of pay for the employee) to operate in parallel. The termination of an enterprise agreement by the Commission will not give an employer the right to unilaterally vary the terms and conditions which may be contained in an employee’s contract of employment.

Two, there is the ability for an employer to offer “undertakings” (to maintain certain terms and conditions under the enterprise agreement) as part of the termination proceedings. Commonly, employers offer such undertakings, including the maintenance of base rates of pay to improve their prospects of being successful in the termination of the enterprise agreement. In three of the four recently successful contested employer applications, undertakings were offered to maintain wages which were significantly higher than those provided for under the relevant Award in the event of the enterprise agreement being terminated.

Three, the practical realities of market rates of pay means that if an employer were to reduce an employee’s rate of pay to something significantly behind that of the market, it would likely result in the employee leaving to find new employment.

For the above reasons, it is important for employers to obtain advice in relation to their enterprise bargaining strategy, including what might be achieved if their enterprise agreement is terminated. But clearly, the rumours of the Fair Work Act’s demise have been greatly exaggerated.

Michael Mead will be joined by Katherine Dennis, Senior Lawyer at Ai Group Workplace Lawyers, in a free live and interactive online event, ‘Building Better Bargaining’, on 22 June (11am-12pm). They will outline current trends, opportunities and tactics to build better enterprise bargaining and show you how to achieve an outcome that enhances the success of your business. Find out more and register now.

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Michael Mead
As Head of Workplace Relations Consulting Services, Michael Mead leads Ai Group’s national team of more than 30 workplace relations lawyers and specialist practitioners which delivers exceptional and practical workplace relations services to members. Michael is also a legal practitioner director of Ai Group’s national law firm, Ai Group Workplace Lawyers. Prior to assuming national responsibility for consulting services Michael was Ai Group’s National Advocate working alongside Stephen Smith and representing members’ interests in major Test Cases before the Fair Work Commission, government inquiries and significant appeals and industrial disputes.

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