Thinking | 8 July 2020

Full Bench clarifies when undertakings can be accepted in approving an enterprise agreement

By Aaron Dearden and Matthew Peterson

In a significant decision on agreement-making, a Full Bench of the Fair Work Commission has clarified when the Commission can accept an undertaking in the context of an application for approval of an enterprise agreement.

During these uncertain times, employers will take comfort in Commission’s pragmatic approach with the Full Bench emphasising the focus is on the nature of the resulting changes rather than the number of undertakings given or the number of changes arising from any particular undertaking.

The status of enterprise bargaining in Australia

The calls to reform Australia’s industrial relations system have been growing louder and louder In recent times, with both employer groups and unions claiming enterprise bargaining in Australia is “inefficient” and “broken”.

These calls are supported by data from the Fair Work Commission with its latest quarterly report revealing[1]:

  • there were 737 applications for the approval of enterprise agreements made in the period 1 January 2020 to 31 March 2020 (compared with 1987 applications[2] made in the equivalent period in 2012 - a staggering decline of around 63%); and
  • of the 962 enterprise agreements approved in the period 1 January 2020 to 31 March 2020, 522 (ie around 54%) were approved with undertakings.
Number of applicants for approval of an enterprise agreement

Fair Work Commission Quarterly Report to the Minister

Percentage approved with undertakings

Fair Work Commission Quarterly Report to the Minister

Why are so many agreements approved with undertakings?

Before the Commission can approve an enterprise agreement, there are a number of pre-approval requirements that must be met. For example, the Commission must be satisfied that the terms of the agreement do not contravene the National Employment Standards, that the agreement does not contain any unlawful terms and that the agreement passes the Better Off Overall Test (BOOT).

The application of the BOOT has been an obstacle to many agreements receiving approval from the Commission. To pass the BOOT, the Commission must be satisfied that each award covered employee (and each prospective award covered employee) would be better off overall if the agreement applied to the employee than if the relevant modern award applied. This requires the Commission to identify those terms of the agreement which are more beneficial as well as those terms which are less beneficial, and then conduct an overall assessment whether each employee would be better off under the agreement than under the relevant award.

If the enterprise agreement fails to meet the pre-approval requirements in the Fair Work Act, the Commission may accept an undertaking which addresses these requirements. For example, an undertaking can be used to clarify the operation of specific terms of the agreement, exclude any unlawful terms or provide slightly higher rates of pay (in some cases as little as a few cents per hour) in order to ensure the agreement passes the BOOT.

In our experience, very few agreements get through the approval process without some questions from the Commission and a request to provide undertakings. In some instances, the request to provide an undertaking reflects a pedantic and overly narrow interpretation of the agreement against the relevant award. In other instances, the request to provide an undertaking cures an unintended oversight which could result in the parties having to return to the worksite and conduct another vote in future.

The meaning of “substantial” - quality over quantity

Before accepting an undertaking, the Commission must be satisfied that it will not cause financial detriment to any employee covered by the agreement or result in substantial changes to the agreement. As another Full Bench observed in Kaefer[3]the legislative concern is to avoid imposing on employees arrangements that they have not approved”.

In some instances, Commission members have expressed concern about the number of undertakings that have to be provided in order to obtain approval of the agreement.

In drawing on Kaefer, the Full Bench in CFMMEU v C&H Acquisition Pty Ltd [2020] FWCFB 3134 held the word “substantial”, in the context of agreement-making, is concerned with the quality of the changes resulting from an undertaking rather than the number of undertakings given or the number of changes arising from the undertaking.

Whilst reiterating the importance of considering the facts and circumstances of each case, the Full Bench confirmed an undertaking is not likely to result in substantial changes to an agreement (and may therefore be permissible) if it simply:

  • increases the quantum of various benefits already provided for in the agreement;
  • clarifies one or more ambiguous provisions in the agreement in accordance with the intention of the parties;
  • provides an assurance that an employer will continue to maintain its practices which are not captured by the agreement;
  • ensures that the National Employment Standards prevail over the terms of the agreement to the extent that they are more beneficial to employees;
  • ensures that the dispute settlement term in the agreement complies with s.186(6) of the Fair Work Act;
  • excludes the operation of an unlawful term or a designated outworker term in the agreement; or
  • narrows the coverage of the agreement where the coverage clause in the agreement does not reflect the coverage of the proposed agreement that was identified in the notice of employee representational rights, the explanation given to employees, or the composition of the cohort of employees who were requested to vote to approve the agreement.

On the other hand, an undertaking that would alter the essence or nature of the agreement is not permissible as it would raise concern that change may have affected the way in which employees chose to vote in approving the agreement. To this end, the Full Bench confirmed that an undertaking is likely to result in substantial changes to an agreement if it:

  • results in the wholesale reshaping of the agreement, so that it bears no resemblance to the pre-undertaking agreement approved by employees;
  • alters the remuneration structure of the agreement in a significant way (for example, a move from loaded rates to lower base rates with additional allowances);
  • seeks to reintroduce award-based benefits that were otherwise excluded by the agreement, where these benefits are likely to have a significant bearing on working arrangements; or
  • purports to alter the coverage of an agreement by excluding classes of persons who, on the face of the agreement, are covered by it.

Take home for employers

For those employers who are currently bargaining for an enterprise agreement, or who may consider bargaining in future, the decision of the Full Bench in CFMMEU v C&H Acquisition Pty Ltd [2020] FWCFB 3134 provides useful guidance as to the types of matters which an undertaking may be used to address.

Hall & Wilcox has experience advising on all aspects of the agreement making process including:

  • undertaking pre-bargaining BOOT assessments of enterprise agreements;
  • providing strategic advice and facilitating project planning;
  • developing and implementing consultation and communication strategies;
  • drafting enterprise agreements;
  • conducting negotiations with unions and other representative bodies;
  • representing employers in applications for approval or variation of enterprise agreements;
  • providing strategic advice regarding the prevention, management and resolution of disputes including appearing before the Fair Work Commission;
  • obtaining orders to stop or prevent unlawful industrial action; and
  • obtaining orders regarding transferring industrial instruments.

While undertakings can cure defects in enterprise agreements, in most cases good pre-planning and analysis of the operation of the agreement will mean they are approved by the Commission without fail.

[1] Fair Work Commission Quarterly Report to the Minister for the period Jan-March 2020, 3rd quarter 2019-20.
[2] Fair Work Commission Quarterly Report to the Minister for the period Jan-March 2012, 3rd quarter 2011-12.
[3] CFMEU v KAEFER Integrated Services Pty Ltd [2017] FWCFB 5630 at [40]

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