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The Decline in Enterprise Agreements


What benefits do they have to your business & how does the ALP hope to change the landscape?

The controversy around Enterprise Agreements

There has evidently been a long-term decline in Enterprise Agreement coverage. Where agreements once covered 25% of the private sector workforce in 2010, coverage for the same group has now dropped to less than 11%.

There are a few factors which can give reason to the long-term decline in agreement coverage and the controversy which surrounds the relevance of implementing agreements. These include the costs and time associated with negotiating agreements, the heightened influence and pressure from union representatives as well as the requirement for employees to be better off overall when compared to the Fairwork Act and the relevant award. As such, it can be difficult to incentivize the establishment of an enterprise agreement.

What is an Enterprise Agreement (“EA”)?

Enterprise agreements are agreements which have been negotiated to replace the modern awards and are specifically tailored to meet the operational needs of the enterprise. This is unlike Modern Awards which provide minimum employment conditions across an entire industry or occupation. Enterprise agreements are implemented with employment conditions that are assessed by the Fairwork Commission to be better off overall when compared to the underpinning award. This also means that the agreements cannot contain unlawful or objectionable terms or terms which contravene the Fairwork Act.

What does it mean to be Better off Overall?

The better off overall test (“BOOT”) is an assessment of the agreement terms completed by the Fairwork Commission. The assessment is not a line by line comparison between the award and agreement, rather it is a global test. In this sense, the Commission considers the terms which are more beneficial and less beneficial than the award and an overall assessment is made which examines whether the employees are better off overall under the agreement when compared to the underlying award. This means that an agreement may pass the BOOT even where some award terms have been reduced, as long as the reductions have been more than offset by the benefits of the agreement and leave the employees better off overall.

What are the Benefits?

A successfully negotiated agreement should result in long term benefits for all parties involved. This includes long term benefits for the enterprise through its promotion of simplicity, flexibility and modernization.

Enterprises who have controlled the agreement process should expect to see benefits like:

1. Custom employment terms and conditions

Modern awards provide a “one size fits all” approach to the industry or occupation they cover. In many cases, businesses operating in the covered industries will indeed operate similarly. However, agreements provide an added level of flexibility to implement terms which specifically fit the operational needs of the enterprise. This also gives the enterprise an opportunity to include additional terms which reflect the way that the enterprise operates.  

2. Efficient future planning

The ability to pre-determine wages and other monetary entitlements for the entire length of an agreement provides enterprises with certainty as to future wage growth, giving them the opportunity to efficiently plan and budget for future labour costs. This is unlike Modern Awards which will generally have unpredictable increases each financial year.

3. Improved compliance with the Fairwork Act

An agreement that is customized to an enterprise will generally have clear intentions that can be easily interpreted and applied by the employer. Additionally, unlike Awards which are ever changing, updates made to an enterprise agreement will occur rarely and only with the knowledge of the enterprise. This makes compliance straight forward.

4. Competitive and attractive entitlements for new job applicants

Like Modern Awards, Enterprise Agreements are publicly available and can be easily located on the Fair Work Commission’s website. Enterprises can showcase the terms and conditions of employment offered by their business in a way that is not generally possible in a job advertisement or an interview. A good enterprise agreement will also reflect and promote the business’ culture and values and provide competitive entitlements when compared to other businesses in the same or similar industries. This can set a business apart from its competitors when new applicants are considering job opportunities.

How does the ALP hope to change things for Agreements?

The consistent decline in the number of active enterprise agreements has demanded the introduction of more creative approaches to the bargaining process. Earlier this month, the Federal Government announced new Industrial Relations legislation which is part of a broader effort by the Australian Labor Party to promote job security, closing the gender pay gap and creating opportunities for wage growth to occur.

The changes proposed in the Fair Work Legislation Amendment (Secure Jobs, Better Pay) Bill 2022 are not law just yet, however, its success showed some promise when it moved through the House of Representatives earlier this month.

One of the fundamental reforms includes the changes to enterprise bargaining. Some of the proposed changes aim to simplify the establishment and approval process of the agreement. For instance, the removal of the pre-approval steps to create a new enterprise agreement as well as the broader discretion awarded to the Fair Work Commission when approving a new agreement where the employee have ‘genuinely agreed’ to the terms.

We can also expect to see the sunsetting of agreements made prior to 2009 (commonly known as “zombie agreements”) and a push from bargaining representatives to commence bargaining once an agreement has passed its nominal expiry date even where the employer is not ready or willing to do so.

Perhaps the most significant change to enterprise bargaining will be the introduction of the Multi-Employer Enterprise Agreement which aims to increase accessibility of collective bargaining by allowing employees working across similar organizations or organization with “single interest” to collectively negotiate enterprise agreements. The geographic location, regulatory regime as well as the nature of the enterprises to which the agreement will relate and the terms of and conditions of employment in those enterprises will be considered when factoring in whether the organizations can be regarded as single interest. If approved, the change is also likely to result in increased wages and employment conditions for employees covered by multi-employer bargaining agreements because larger groups of employees will generally come with Increased leverage and bargaining power.

Interested to learn more?

If you would like more information on how to create a new enterprise agreement, or the impacts of the new IR reforms, please connect with us here and a Mapien Workplace Strategist will be in touch within 24 hours.