Freezing pay increases: varying an Enterprise Agreement

Update – The temporary measure to shorten the access period was withdrawn on 11 June 2020. The access period has been restored to seven calendar days.

In response to the pressures of COVID-19, some employers are entering into arrangements with employees to temporarily reduce hours of work and salaries/wages. But employers covered by enterprise agreements have less freedom to do this, leading the Federal Government to introduce legislative changes to assist.

Employers who are covered by enterprise agreements are restricted in their ability to take measures such as temporarily reducing hours of work and salaries/wages of their employees, with most enterprise agreements prescribing automatic wage increases that must be passed on to employees irrespective of any other arrangement entered into.

To ‘freeze’ such pay increases, employers must vary their enterprise agreement to either remove or defer the relevant pay increase, but this can be a lengthy and complex process.

Therefore, key changes have been made to minimise the time taken to vary an enterprise agreement in recognition of the needs of employers to respond quickly to the challenges of COVID-19.

Amendments to Fair Work Regulations

On 16 April 2020, the Fair Work Amendment (Variation of Enterprise Agreements) Regulations 2020 was passed to shorten the period employees must have access to a proposed variation of an enterprise agreement before being requested to vote on the proposed variation (access period).

The access period has been shortened from seven calendar days to one calendar day.

This amendment will operate for six months.

While the Government has implemented the amendments to enable employers to swiftly respond to the challenges of COVID-19, both Labour and the Greens have disapproved of the amendment.

Shadow Minister for Industrial Relations (IR) Tony Burke has expressed concerns regarding the permanent impact such variations will have on employees. In particular, he has questioned the ability of employees to genuinely consider the impact of such variations in only one day.

Greens IR spokesman Adam Bandt has announced he will be seeking a disallowance of the amendment when Parliament resumes (which is intended to be next month).

Fair Work Commission process changes

Last month, in anticipation of an influx of applications to vary enterprise agreements to 'freeze' pay increases in response to the consequences of COVID-19, the Fair Work Commission (FWC) established a dedicated email account for urgent applications.

This additional resource should result in applications to vary enterprise agreements being allocated to a Commissioner more promptly.

Key things to remember when varying an enterprise agreement

Despite the above changes, when varying an enterprise agreement employers must still ensure that the pre-approval steps under the Fair Work Act 2009 (Cth) are met to minimise the risk that a variation application will be refused by the FWC.

In addition to the pre-approval steps, the requirements for approving a varied enterprise agreement are similar to the requirements for approving a new enterprise agreement. This includes the FWC being satisfied that the enterprise agreement as varied (ie the entire enterprise agreement) passes the better off overall test (BOOT). While this BOOT analysis may be simpler for newer enterprise agreements, it could prove problematic for those enterprise agreements which are nearing three or four-year nominal expiry dates.