How many employees does it take to make an enterprise agreement?
Can an employer make an enterprise agreement with existing employees who will be, but are not yet, working in a new enterprise that will be covered by the agreement?
The High Court has ruled on whether an employer can make an enterprise agreement with existing employees who will be, but are not yet, working in a new enterprise that will be covered by the agreement (Aldi Foods Pty Limited as General Partner of Aldi Stores (A Limited Partnership) v Shop Distributive & Allied Employees Association & Anor [2017 HCA 53]; 6 December 2017). The High Court also considered whether the better off overall test (BOOT) had been properly applied by the Fair Work Commission.
In 2015, Aldi started internal recruitment for a new enterprise it was establishing in the Regency Park region in South Australia. It recruited seventeen existing employees and then negotiated with those employees for a new enterprise agreement to cover the new enterprise. The employees had not yet started working in the new enterprise.
Of the seventeen employees, fifteen cast a valid vote in favour of the enterprise agreement. The Fair Work Commission initially approved the agreement and its approval was then upheld by a Full Bench of the Commission when appealed by the relevant unions. However, one of the unions applied to the Full Court of the Federal Court for a review of the Commission's decision. It essentially challenged whether an enterprise agreement could be made with existing employees who did not yet work in the enterprise in question and said the agreement was not genuinely agreed (as required by the Fair Work Act) and should have been a greenfields agreement (made with the relevant unions). The Commission's application of the BOOT was also challenged.
The Full Court held that an enterprise agreement could not be made with the existing employees because they were not yet working in the new enterprise in the Regency Park region (they were, at the time of the vote, working in other parts of Aldi's operations).
The Full Court also found that the Full Bench of the Commission had erred when it found the BOOT was satisfied. The Full Bench had relied on a clause in the agreement that enabled employees to initiate a review of their payments in comparison to the modern award safety net and, if payments fell short, have total payments adjusted so they were equal to or higher than those under the modern award. It had not evaluated the agreement to identify more and less beneficial terms.
The High Court's decision on making an agreement for a new enterprise with existing employeee
Aldi appealed and, on appeal, the High Court disagreed with the Full Court of the Federal Court. It said that a new agreement for a new enterprise does not have to be a greenfields agreement. The High Court found that an employer can make an agreement for a new enterprise with two or more existing employees who will be working in the enterprise in future because the employees 'will be covered' by the agreement when it is made. The requirement for 'genuine agreement' will be met if the existing employees with whom the agreement is made are the only employees employed at the time of the vote who are to be covered by the agreement. The High Court said it is uncontroversial that, when an enterprise grows, the votes of a few original employees may eventually bind a much larger group.
The reasons for this conclusion relate to the technical distinction between when an agreement 'covers' an employee and when an agreement 'applies' to an employee and the use of these terms in the relevant provisions of the Fair Work Act. While only one agreement can 'apply' to an employee in the sense that it fixes the employee's rights and obligations in relation to work actually being performed by the employee at the time, more than one agreement can 'cover' an employee if the agreements are expressed to cover the jobs described as being within their scope.
The High Court's decision about the BOOT
The High Court agreed with the Full Court of the Federal Court on finding the Commission mis-applied the BOOT. It said the right to initiate a review and have payments adjusted does not of itself leave the employee better off overall at the time the BOOT is applied by the Commission. The Full Bench of the Commission should have considered the provisions of the modern award and the enterprise agreement that may have been more beneficial and less beneficial to employees, and then evaluated whether employees were better off overall. The question of whether the BOOT was satisfied was therefore referred back to the Full Bench of the Commission.
How does this affect you?
- If you are starting a new enterprise, you can make a new enterprise agreement for the new enterprise with two or more existing employees who have agreed to work in the new enterprise when it commences.
- The agreement must be made with all those employees employed at the time of the vote who are to be covered by the agreement for the new enterprise. It doesn't matter if they are working in another part of your business until the new enterprise is up and running.
- Whilst a greenfields agreement is required if you have no employees who will be covered by the new agreement, the High Court has confirmed the ability of employers to reach agreement directly with their existing employees who will work in the new enterprise. Of course, if those employees have a relevant union as their bargaining representative, this must be recognised and the union is entitled to participate in the bargaining process in good faith.
- Such an agreement that initially covers only a few employees may eventually bind a much larger group as your new enterprise grows.
- A 'reconciliation' mechanism in an enterprise agreement to equalise payments with the relevant modern award will not, of itself, satisfy the BOOT. The Commission must still evaluate whether employees will be better off overall after considering which provisions of the agreement are more beneficial and which provisions of the agreement are less beneficial for employees when compared to the modern award.
You may also be interested to read about another important High Court decision concerning industrial action Unions must first 'play by the rules' to take protected industrial action.
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