Thinking | 12 May 2021

Pre-approval requirements for enterprise agreements: hurdles preventing approval

By Melinda Bell, Jessica Kamleh and Aerin Hines

A stripped down final version of the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2021 (Bill) came into force on 26 March 2021, amending the Fair Work Act 2009 (Cth) (FW Act).

Although employers were looking forward to the proposed amendments to simplify pre-approval requirements for enterprise agreements, all of the proposed amendments relating to enterprise agreements were axed from the Bill.

As a result, employers must ensure that they comply with enterprise agreement pre-approval requirements set out in the FW Act, which in recent years have been strictly interpreted. This strict interpretation has been highlighted by two recent Fair Work Commission (FWC) decisions.

What constitutes an explanation?

In March 2021, Commissioner Johns rejected two separate applications for approval of an enterprise agreement, finding in both cases that the employer failed to take all reasonable steps to explain the terms and effect of the proposed agreement to employees in accordance with section 180(5) of the FW Act.

In Master Builders' Association of New South Wales [2021] FWC 1267 (Master Builders’ Case), other than the simple assertion that ‘the effect of [the] terms [of the agreement]’ were explained, when the agreement was lodged no information was provided about what was specifically explained to employees. Commissioner Johns stated that ‘self-serving statements’ by an employer about compliance are not sufficient to discharge the proof required by section 180(5).

The FWC focused on the actions the employer had actually taken to explain the terms of the agreement and considered whether these amounted to all the reasonable steps that should have been taken in the circumstances.

He noted that employers’ obligations under section 180(5) of the FW Act effect the integrity of the employees’ understanding, their vote and the making of the agreement.

Although in the Master Builders’ Case the employer did take certain reasonable steps to explain the agreement (for example, held a meeting, conducted a page-turn exercise and presentation) Commissioner Johns found that there were deficiencies in the explanation, and in particular, that a number of substantial changes had not been explained at all or had been inadequately explained to the employees. He found that these substantive terms were nottrifling, insignificant, or inconsequential’, and therefore required a proper explanation.

Specifically, Commissioner Johns made the following findings regarding explanations given by the employer which failed to meet the requirements of section 180(5):

The proposed change FWC's findings
At the request of the Construction, Forestry, Maritime, Mining and Energy Union (CFMMEU), the Union no longer be listed as a party. The proposed change to parties was not an inconsequential change. The effect of the CFMMEU no longer being listed as party is that it could not commence a civil penalty proceeding in respect of a breach of the Agreement. It could have in respect of the previous 2018 Agreement. This was not explained to the employees.
New nominal expiry date of 31 December 2023. The proposed change to the duration of the agreement was not an inconsequential change. The effect of a nominal expiry date is that it makes any industrial action engaged in during the life of the Agreement ‘unprotected’. Industrial action that is not protected can be the subject of a stop order by the FWC. This was not explained to the employees.
The following new ‘no extra claims’ clause was inserted:

‘a) The Employees covered by this Agreement undertake that they will not pursue any further claims against the Company during its period of operation.

b) Notwithstanding the provisions of this clause, any party to this Agreement may apply to the FWC to vary the Agreement in accordance with the relevant provisions of the FW Act. However, such variations shall be compliant with the Building Code 2016.

c) If, subject to approval of this Agreement by the FWC, any clause of this Agreement is deemed inconsistent with the Building Code 2016, the parties agree to vary the Agreement pursuant to the FW Act to address any inconsistency.’

With regard to the proposed new clause regarding no extra claims, the employer’s explanation was inadequate. The explanation given did not properly clarify the operation of the clause. No explanation was given about how agreements are varied. It is not simply a process of applying to the FWC.

Employees cannot be compelled to vary an agreement to comply with the Building Code 2016 as sub-para (c) suggests.

The FWC stated that there was little semblance between what the clause said and what was explained.

 

The failure to explain the effect of material differences between an old and new agreement meant that the employer did not ‘take all reasonable steps’ to explain the terms of the agreement or the effect of those terms to the relevant employees, resulting in the finding that the employees did not genuinely agree to the agreement.

The FWC was not satisfied that the employer was capable of retrospectively curing its non-compliance by providing undertakings, resulting in the application for approval of the agreement being dismissed.

Similarly, in VSL Australia Pty Ltd T/A VSL Australia Pty Ltd [2021] FWC 1315, other than the simple assertion that the terms of the agreement ‘were explained successfully’, no other information was provided about what was explained. Commissioner Johns reiterated that self-serving statements by an employer about compliance are not sufficient to discharge the proof required in relation to section 180(5).

A mere statement that the employer had discussed the changes in the new agreement was woefully inadequate and was not cogent evidence of what was explained to employees before they voted. Commissioner Johns found that the employer failed to explain substantive terms in the agreement. The failure to explain the effect of the terms meant that the employer did not ‘take all reasonable steps’.

In this instance, although the FWC was not satisfied that the employees genuinely agreed to the agreement, Commissioner Johns provided VSL the opportunity to provide undertakings aimed at curing this issue.

Implications for employers

The obligation imposed on employers under section 180(5) of the FW Act is of critical importance, and cannot be satisfied by employers providing self-serving statements in the Form F17 when lodging an application for approval of an enterprise agreement.

Employers must provide clear evidence of what was specifically explained to employees to demonstrate they took all reasonable steps to ensure the terms and effect of those terms of the agreement were properly explained.

Employers should also consider the effect of the proposed term when determining how detailed an explanation to provide. Where a clause is less beneficial to employees, a more comprehensive explanation is required.

Failure to meet the obligations under section 180(5) of the FW Act is likely to result in the enterprise agreement being knocked back, as generally the FWC will find that these deficiencies are unable to be rectified by the employer providing undertakings.

For assistance in drafting enterprise agreements and ensuring you comply with the pre-approval requirements set out in the FW Act, contact our team.

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