28 February, 2020
What you need to know
Compliance with enterprise bargaining and pre-approval processes will remain a priority in 2020 for employers seeking to make enterprise agreements.
What you need to do
Ensure the people managing your enterprise agreement process are aware of the latest developments. This includes knowing who can vote on an agreement; requirements when explaining the agreement to those voting on it; and common defects in agreement content. Managing these requirements will reduce the risk of your agreement (or parts of it) being found to be invalid.
For employers wanting to make enterprise agreements, compliance with enterprise bargaining and pre-approval processes has been an increasingly detailed and challenging area. It will remain a priority for 2020 for those who engage in enterprise bargaining, so that their agreements are properly made and able to be approved by the Fair Work Commission and not subject to challenges as to its validity.
Minor procedural or technical errors
Many employers have been discouraged from engaging in enterprise bargaining because of the rigid rules that apply to enterprise agreement approvals. An amendment to the Fair Work Act 2009 (Cth) in late 2018, however, lowered the bar for agreements to be approved by the FWC despite "minor procedural or technical errors" made in relation to the pre-approval steps or the Notice of Employee Representational Rights (NERR), provided the FWC is still satisfied that the agreement was "genuinely agreed" to by the employees. The amendment followed a serious of cases where agreements were found not to be "genuinely agreed" because of NERR defects such as Uniline Australia Limited [2016] FWCFB 4969 (see our Employment Alert) and SDAEA v ALDI Foods Pty Ltd [2016] FCAFC 161 (see our Employment Alert)).
The limits of those curative provisions was tested in 2019, and are expected to be relied upon and further tested in the year to come.
In Huntsman Chemical Company Australia Pty Limited T/A RMAX Rigid Cellular Plastics & Others [2019] FWCFB 318, the Full Bench gave employers some guidance on what constitutes a "minor procedural or technical error".
A procedural error is the failure to comply with a procedural requirement. A procedural requirement is an obligation to follow a particular process or course of action, for example providing employees with a NERR as soon as practicable and not later than 14 days after the notification time, or ensuring there are at least seven clear days between notifying employees of the voting process and the commencement of that process. A technical error is the failure to comply with a technical requirement, such as the obligation to comply strictly with the form and content of the NERR.
What constitutes a "minor" error will depend on the relevant circumstances and the nature of the requirement that has not been complied with. For example, informing the employees of the time and place at which the vote will occur and the voting method that will be used just after the start of the access period is likely to be a "minor error" in most cases, particularly if the voting turnout demonstrates that all or a significant majority of eligible employees voted on the agreement. However, if it is the first agreement at the enterprise, the bargaining representatives are inexperienced and the employees are predominantly from a non-English speaking background, then it may not be a "minor error". Further, the need to inform employees of the time and date of the vote is more significant than informing them of the voting method – the first requirement may impact on the employees’ capacity to participate in the voting process, the second may not.
The FWC cautioned that some species of error are unlikely to be classified as "minor", for example, the deletion of the prescribed text of the NERR which deals with an employee’s right to appoint a bargaining representative and the role of the unions as the default bargaining representatives.
Whilst employers should continue to strive for strict compliance with all pre-approval requirements, we are seeing that common procedural or technical errors – like issuing the NERR on company letterhead – are now less likely to preclude the approval of an agreement.
Who can vote?
Employers with fluctuating workforces have faced difficulties in determining who will be covered by a proposed enterprise agreement – and critically, who can then vote on the agreement, particularly where the workforce changes during the holding of the vote (which may take place over an extended period for large workforces). That has recently been clarified by a Full Bench in Appeal by Kmart Australia Limited t/a Kmart and others [2019] FWCFB 7599.
The Full Bench rejected the approach taken by the employer, of allowing employees first engaged after the commencement of the voting period to vote on the agreement. The Full Bench described it as "logically nonsensical" to allow newly-engaged employees to vote who had not been given access to the proposed agreement or had the agreement explained to them, and highlighted the practical difficulties that would arise if employers were required to continually add to the roll of voters during the period of a vote and up until the end of voting.
Instead, the Full Bench held that the employees who are eligible to vote on a proposed enterprise agreement are those employees who were employed during the access period and before the commencement of the voting period.
Explaining the agreement
A key pre-approval step for enterprise agreements is the explanation of its terms and effects to employees prior to a vote. The manner of this explanation and its sufficiency has been challenged recently, and should continue to be a focus for employers.
The recent case of CFMEU v Ditchfield Mining Services Pty limited [2019] FWCFB 4022 has shed some light on the steps an employer must take to explain the agreement to employees. The Full Bench found that section 180(5) of the Fair Work Act contains a twofold requirement to explain the terms of the agreement and the effect of those terms. Whether the explanation is satisfactory depends on the circumstances of the particular case.
In this case, the Black Coal Mining Award 2010 applied to the employees at the time of the vote. Previously, an enterprise agreement had applied to these employees when they were employed by the parent company. In explaining the terms and effect of the proposed agreement to the employees, the employer used the parent company enterprise agreement as a reference point rather than the Award.
In the particular circumstances of this case, the reasonable steps to explain the terms of the agreement and the effect of those terms included an explanation of the less beneficial terms of the proposed agreement compared with the employees' existing terms and conditions under the Award. As there was no evidence that the company had taken those steps, there was no proper basis for the Commission to be satisfied that such an explanation had been given. The Commission quashed the original approval of the enterprise agreement and remitted it for reconsideration.
The Full Bench notes that the reasonable steps taken to explain the terms will need to be assessed on the circumstances of the case. It noted that compliance with this obligation will not always require an employer to identify detriments in an agreement vis-à-vis the modern award, particularly in circumstances where an existing enterprise agreement, and not the modern award, applies to the employees.
Employers need to identify and use as a reference point the employees' existing terms and conditions of employment (which may be an existing enterprise agreement or one or more awards) when explaining the terms of the proposed enterprise agreement to employees, and be able to describe in some detail in the Form F17 the steps taken to explain the terms and effect of the terms to employees.
The Ditchfield case has recently been supported by other Full Benches in AWU v Rigforce Pty Ltd t/a Rigforce[2019] FWCFB 6960, and this year, in CEPU v DDP Electrical Services Pty Ltd T/A DDP Electrical Services [2020] FWCFB 18.
Agreement content – common defects
In 2019, the FWC published a number of resources highlighting common errors in the content of agreements and ways to avoid them.
The FWC has been particularly concerned since the Mondelez litigation that the leave entitlements conferred by an agreement are not less beneficial when compared with the NES. Where the agreement contains a NES savings provision, submissions can often be made to overcome these issues.
Other common defects that are drawing the FWC's attention include abandonment clauses that deem the employment to have been terminated at the employee's initiative if an employee is absent for a prescribed number of days, and a lack of superannuation fund choice in the agreement. This latter defect was of concern to the Full Bench in the recent Kmart appeal. Having regard to the significant casual workforce of the employer and the likelihood that its employees may have more than one job, the Full Bench said that "a choice of funds may be a benefit so that the casual employee can seamlessly remain in a single superannuation fund rather than having two or more funds arising from different jobs with all the inconvenience and additional administration costs that this involves".
To assist the FWC in conducting the better off overall test, the FWC requires a detailed comparison of how entitlements in the agreement are more or less beneficial than the relevant modern award. A more recent development has been a requirement that the parties also specify what is omitted and what is different as compared to the modern award, because the FWC must consider all award entitlements even if the enterprise does not presently operate in a way where all entitlements are enlivened. Increasingly we are seeing employers giving undertakings to get agreements across the line. However, an undertaking cannot be used to "cure" a defect if it would cause financial detriment to any employee covered by the proposed agreement or result in substantial changes to the agreement.
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