Major Australian retailer struggles to give employees ‘better off overall’ under new agreement

In a blow for Coles, its new landmark enterprise agreement has been rejected by the Fair Work Commission for failing to pass the Better Off Overall Test (BOOT).

Under the Fair Work Act 2009 (Cth), an enterprise agreement will only pass the BOOT if the Commission is satisfied that each award-covered employee (and each prospective award-covered employee) would be ‘better off overall’ under the agreement, when compared to the relevant modern award.

At first instance, the Commission raised concerns about pay rates for junior and casual employees in the agreement. Coles provided undertakings to satisfy the Commission’s concerns, including an undertaking to give employees a right to seek a ‘reconciliation’ to ensure the employee’s take-home pay in a roster cycle was greater than what they would be entitled to receive under the relevant award.

On the basis of the undertakings provided by Coles, the agreement was subsequently approved.

Shortly afterwards, an individual employee sought leave to appeal the approval decision on grounds including that:

• the agreement did not meet the BOOT and the non-financial benefits under the agreement were not favourable enough to offset a negative wage outcome for employees
• a clause dealing with pay rates for part-timers who accepted additional hours constituted a ‘clear detriment’ to part-time employees
• the ‘reconciliation process’ undertaking given by Coles was only triggered upon the request of an employee and, in any event, did not create an enforceable pay entitlement for employees.

Despite Coles’ objection, a Full Bench of the Commission allowed the appeal, citing the fundamental importance of ensuring that the agreement passed the BOOT given the large number of employees (approximately 77,500) who could be disadvantaged if the BOOT was not properly satisfied.

The Full Bench decided that Coles’ agreement did not pass the BOOT and Coles was given until 10 June 2016 to provide fresh undertakings to address the Commission’s concerns. However, Coles did not provide those undertakings and the agreement has now been quashed, despite reports of strong support from employees. As such, tens of thousands of Coles’ employees who would have been covered by the agreement have now fallen back under the previous 2011 agreement until a new enterprise agreement (which meets the BOOT) can be negotiated.

Lessons for employers

It is important that employers remain mindful of the BOOT analysis at each stage of the negotiation and drafting process, in order to identify which terms are likely to attract the scrutiny of the Commission and to consider how any such detriments might be effectively offset.

While direct wages comparisons (as compared to the relevant modern award) remain an essential part of the BOOT analysis, employers must also take care when attempting to assess the value of non‑financial benefits. This is especially important when assessing the value of benefits that may not be taken up by all employees (for example, in Coles’ case, blood donor leave and defence service leave) or benefits contingent on certain circumstances arising (eg redundancy pay).