An enterprise agreement is an agreement which sets out the employment conditions under which an employee or group of employees will work for an employer.

Enterprise agreements cover a range of employment matters including:

  • How much to pay your employees
  • Work hours
  • Overtime
  • Breaks

Enterprise Agreements in Context

To understand enterprise agreements it’s important to look at how they fit into the employment law framework:

Tier 1 – The national minimum wage.

Tier 2 – National Employment Standards – ten minimum employment conditions for employees, which cannot be traded away.

Tier 3 – Modern Awards – Industry or occupation-wide employment minimum standards, these standards can be traded away in an enterprise agreement, however, each employee must be left ‘better off overall’ than they would have been if they stayed under the relevant award.

Tier 4 – Enterprise Agreement – an agreement between a business and it’s employees.

Employees will therefore either be covered by an award or agreement.

Who can make an Enterprise Agreement?

An enterprise agreement is made between one or more employers and a group of employees.  You cannot make an enterprise agreement with an individual employee.

What can an Enterprise Agreement Contain?

An enterprise agreement can contain terms related to:

  • Pay rates
  • Penalty rates
  • Work allowances
  • Start and finish times
  • Leave provisions
  • Wage deductions

What must an Enterprise Agreement Contain?

An enterprise agreement must contain:

  • A dispute resolution procedure
  • A flexibility arrangement term
  • A consultation term for workplace change
  • An expiry date within 4 years of the agreement
  • A term which explains which employees will be covered by the agreement

What must an Enterprise Agreement not Contain?

An enterprise agreement must not contain:

  • Terms which discriminate unlawfully
  • Terms which allow an employee or employer to ‘opt out’ of the enterprise agreement
  • Terms which attempt to limit a person’s unfair dismissal rights
  • Terms which restrict a person’s right to strike
  • Terms which restrict union right of entry

Getting an Enterprise Agreement Approved

Employers must follow a pre-vote procedure.

Employers must explain the terms of the agreement to the employees who will be covered by the agreement.  Employers need to make sure the explanation is clear and that their employees actually understand what is in the agreement.

In the 7 days before voting on the agreement, you must give them of a copy of the agreement and any related material.

You must also notify them of the place and method by which they will vote.

The Majority of Employees Must Vote to Accept the Agreement

If a majority of the employees vote in favour of the agreement, you are then required to take the agreement to the Fair Work Commission for approval.

The Fair Work Commission will apply the following criteria in deciding whether or not to approve the agreement:

  • Have the employees genuinely agreed to the agreement?
  • Are all employees ‘better-off overall’ than they would have been under the award?
  • Does the agreement have a nominal expiry date?
  • Does the agreement contain any unlawful terms?
  • Does the agreement contain flexibility, consultation and dispute settlement clauses?
  • Have the parties observed Good Faith Bargaining obligations in the creation of the agreement?

What is Good Faith Bargaining?

Good faith bargaining relates to the way both parties behave during the negotiation process.

This includes:

  • Participating in meetings
  • Disclosing all information relevant to the enterprise agreement
  • The employer genuinely responding to proposals made by employees
  • Not stopping employees from joining a union or bargaining collectively

However, this does not mean you have to make concessions or reach an agreement when you don’t agree with what is being proposed.

To Conclude

If you’re running a small business, it’s unlikely you will want to set up an enterprise agreement. If you’re considering it you will  need to speak with a specialist employment lawyer.

Lachlan McKnight

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