Enterprise Agreements – Better Off Overall Test

There are two steps to obtaining approval for a new enterprise agreement. The first step is for employees to vote on whether they approve of the proposed enterprise agreement. If the majority of employees vote in favour of the new enterprise agreement the agreement progresses to the second step.

The second step in approving a new enterprise agreement is obtaining approval from the Fair Work Commission (the FWC). One of the key factors that the FWC needs to be satisfied of before approving a proposed enterprise agreement is whether the enterprise agreement passes the Better Off Overall Test (the BOOT).

So what is the BOOT? What does better off overall mean? Who must be better off?

Legislative Authority

The BOOT is outlined in section 193 of the Fair Work Act 2009 (Cth) (the FW Act). To pass the BOOT employees and prospective employees covered by the proposed enterprise agreement need to be better off overall when compared to the relevant award/s. It is a consideration of the terms of the enterprise agreement that are more and less beneficial to employees compared to similar terms in the relevant award/s to determine if employees are better off overall. When undertaking the BOOT the FWC ignores any individual flexibility arrangements that the employer may have with any employees covered by the proposed enterprise agreement. The time for determining if employees are better off is the time the application is made with the FWC, known as the test time.

What is Better Off Overall?

Recently the FWC has provided additional clarification on the BOOT in BOC Limited (Gas & Gear – Victoria) Certified Agreement 2019 [2019] FWCA 5544. Deputy President Colman reviewed the application by BOC Limited to approve the proposed enterprise agreement. The National Union of Workers (the NUW) argued that the enterprise agreement did not pass the BOOT for prospective employees. Under the proposed enterprise agreement future employees were unable to accrue rostered days off for overtime worked. The FWC provided calculations that the higher rate of pay offered to employees meant that prospective employees were better off financially under the proposed enterprise agreement. The NUW further argued that future employees were unable to have the ‘intangible’ or ‘lifestyle’ benefits that came with taking RDOs or accruing time off in lieu for overtime worked and that this loss of ‘intangible’ or ‘lifestyle’ benefits should be taken into consideration when conducting the BOOT. Deputy President Colman stated that it was not inherently more beneficial to take RDOs and time off in lieu compared to receiving overtime payments. This was a subjective consideration. Individual employees would have different views on whether RDOs and time off in lieu compared to a higher rate of pay was more beneficial.

Deputy President Colman further stated that the BOOT focuses on objective and verifiable considerations. The assessment of whether an employee is better off under the proposed agreement is not a line by line comparison. Nor is it against the FW Act for an enterprise agreement to trade off conditions. The test is whether employees are better off overall under the enterprise agreement as a whole. The BOOT does not take into account the personal preferences of each individual employee. Deputy President Colman held that under the proposed enterprise agreement current and prospective employees were better off. The higher rate of pay outweighed the loss of ability to accrue RDOs and take days off in lieu of overtime.

Who has to be Better off Overall?

Section 193 of the FW Act sets out that to pass the BOOT the enterprise agreement is to be better off overall for ‘each award covered employee, and each prospective award covered employee’. FW Act sections 193(4) and (5) define who is an award covered employee and who is a prospective award covered employee. An award covered employee is an employee that is both covered by the proposed enterprise agreement and who at the test time is covered by a current modern award, the award covers the employee’s duties and the award covers their employer. A prospective award covered employee is a person if at the test time could have been employed by the employer and meets the requirements of an award covered employee. Use of the word ‘each’ means that all award covered employees and prospective award covered employees must be better off under the new enterprise agreement.

An example of how this is applied is seen in Hart v Coles Supermarkets Australia Pty Ltd and Bi-Lo Pty Limited; the Australian Meat Industry Employees Union v Coles Supermarkets Australia Pty Ltd and Bi-Lo Pty Limited [2016] FWCFB 2887. This case concerned an appeal against the approval of the Coles Store Enterprise Agreement 2014-17. The appeal was made by Mr Hart, an employee of Coles, and the Australasian Meat Industry Employees Union (the AMIEU). The approved enterprise agreement had a higher hourly rate of pay compared to the award, but it had lower penalty payments for evenings, weekends and public holidays. The Full Bench of the FWC reviewed direct wage comparisons of certain employees who were most adversely affected by the enterprise agreement. The Full Bench also took into consideration other benefits under the approved enterprise agreement, including:

non-contingent benefits, such as additional penalties for ordinary hours, rest and meal breaks and payment while on annual leave;
wage increases;
benefits contingent on choice, such as pre-approved leave arrangements, blood donor leave and defence service leave;
benefits contingent on circumstances, such as accident makeup pay, carer’s leave, compassionate leave, emergency services leave, natural disaster leave and redundancy pay; and
unquantifiable benefits, such as enhanced wellbeing, supporting non-work activities, domestic violence support and care responsibility support.

The Full Bench outlined certain cautions when considering the other benefits, mainly the difficulty in determining the value of the benefits as not all employees would access these benefits. Reasons for not accessing the benefits included:

certain employees would not remain employed by Coles for the whole period of the agreement and so would not receive all the wage increases;
choosing not to take the benefit; or
their particular circumstances meant they were unable to take the benefit.

The Full Bench held that the agreement did not pass the BOOT. Not all employees were better off under the agreement. Employees who primarily worked during the lower penalty rate times, part-time and casual employees, would experience a significant monetary loss. Additionally, not all employees would receive the other benefits.

This case is consistent with BOC Limited (Gas & Gear – Victoria) Certified Agreement 2019 [2019] FWCA 5544 outlined above. In forming their decision, the Full Bench did not consider the personal preferences of each employee for each benefit. The Full Bench conducted an objective assessment of better off overall for all employees.

Take Away

The BOOT is a test used by the FWC to ensure employees are not disadvantaged compared to other employees covered by the relevant award/s. The FWC compares the proposed enterprise agreement against the relevant award to ensure employees and prospective employees are better off. It is not a line by line comparison of each condition to determine whether employees and potential employees are better off. It is an objective test to determine whether employees are better off overall under the proposed enterprise agreement compared to the applicable award. Conditions under a proposed enterprise agreement can be traded off, if overall the employees are better off.

Each employee and prospective employee who is covered by a current award, whose duties are covered by an award and whose employer is covered by an award must be better off under the proposed enterprise agreement. It is not the majority of those employees that have to be better off overall, all employees are to be better off. However, when making their decision the FWC does not consider the subjective personal preferences of each employee.

For a step-by-step guide on the bargaining process please see the article by my colleague Helen Carter.

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May 6

Hospitality and the Penalty Rates debate – are industry groups barking up the wrong tree?

We have spoken a few times this year in general terms about penalty rates, but I wanted to make some specific comments on the restaurant industry. I have advised many restaurants, and have concerns that their industry groups are focusing too much attention on political lobbying regarding Modern Award conditions and penalty rates. I believe the answer is collective bargaining rather than political activism. Their ‘crusade’ against penalty rates (much like the original ‘crusades’) is a time and resource wasting ideological suicide mission. It’s time for some common sense and business realism. As discussed in this post, the Coallition do not currently hold enough power to abolish penalty rates, and even if they did they are aware that the probable political consequences would be catastrophic. Meanwhile the Fair Work Commission, while demonstrating some signs of reasonableness, have indicated that individuals’ ‘reliance’ on minimum wage conditions is a key consideration. It is not consistent with a ‘fair go all round’ to significantly slash people’s wages from one day to the next, especially those relying on low incomes.

Operators should therefore accept that if they are currently paying an employee x dollars per week to do a certain job each week, this figure is not going to reduce. Those looking to improve their business need to look forward, not back, and need to search for more lateral methods of controlling the costs of employment than holding out for a government to deliver them a reduction in minimum wages.

The reason workplace agreement making has fallen out of fashion in the industry since the ALP’s ‘forward with fairness’ policy is due to the ‘BOOT’ test, the obligation to ensure that all employees are ‘better off overall’ under the agreement. Again, some form of ‘BOOT’ analysis will always form part of a negotiation, but that does not mean that the business itself needs to be ‘worse off’. It’s simply a case of identifying the operational benefits to the business. For most operators, an enterprise agreement with their employees will easily achieve everything they could possibly could have achieved through political activism, plus a range of other benefits and customisations that changes to the award will not.

The Restaurant Industry

The past 5 years have been tough for most hospitality operators. Rising costs across the sector throughout an era of declining consumer spend has put the squeeze on all but the very fortunate. The Modern Award, while supposedly delivering us ‘fairness’, has actually cast much of the industry into panic and confusion. Auditors at the Fair Work Ombudsman have had restaurants and cafés in their cross-hairs for several years, and have been taking down operators one by one in the confusion. In a recent Federal Circuit Court Decision, companies operating two Pizza franchises were ordered to pay $80,000 to staff in unpaid entitlements, and $140,000 each in fines, with the Director of both companies fined $55,000 in his personal capacity. While this is an extreme case, it is reported by most hospitality operators that compliance with the modern award is one of the biggest employment challenges they face. Many justifiably fear the consequences of breaching the award, and being forced to retrospectively prove compliance to the Ombudsman or disgruntled former employees. This can be both time consuming, inconvenient and potentially costly if past breaches are discovered. Proactive employers in the industry are taking these factors into their own hands – by crafting agreements with their key personnel that are saving them time and money on administration, increasing certainty, transparency and loyalty in the workplace, and above all ensuring compliance within this excessively complex national framework.

The problems of the Restaurant Award 2010

Payroll administration costs, even for small businesses, have skyrocketed since 2010 for businesses that have attempted to comply with the Award. This is not only due to the time given to understanding and correctly applying penalty rates, classifications and ages for each employee, but the cost and time involved in processing hours each week. A standard 8 hour shift can pass through four to five different penalty rates. A small minority of employers are prepared to spend the time to get this process right. But even they are giving their employees payslips that often can’t be understood, causing unnecessary enquiries from employees. Errors are commonplace, leading to back payments and further administrative cost. These can cause suspicion and often damage to important relationships. The majority of hospitality staff (certainly those who are doing the longer hours and commit to their employers on the higher levels) indicate a preference for an end to penalty rates, and the application of a more generous flat rate across the board, making agreement very achievable. Those operators who have chosen to bargain an Enterprise Agreement with their employees have reported that the legal costs of the process are paid back in just a few months by the creation of the more streamlined and error free payroll process.

Flexibility, and the Permanent Part Time – Casual divide.

A misunderstanding of the nature of the industry from the drafters of the award has resulted in a definition of ‘Part Time’ which is an awkward fit with the industrial reality. Operators report a common frustration that staff members who they genuinely consider to be permanent part time are entitled under the award the to a 25% casual loading, normally because of little more than logistical technicalities under the award. These include rostering timelines and shift flexibility, trading conditions and the occasional need for staff to work shorter shifts, or because the employees are not available all year round. Often, it is the flexibility needs of the employees themselves that result in a requirement for casual loading. A carefully crafted agreement toward flexibility has the potential to save thousands of dollars per month to even a small employer, while improving certainty and loyalty at the workplace.

Taking control of workplace Classifiations

A majority of post-employment claims made by employees relate to employment classifications. These classifications are not only ambiguous and open to interpretation, but in the instance of dispute are rarely interpreted in the employer’s favour. In the case of disgruntled employees with creative memories, this can lead to bizarre and unjust outcomes. The award classifications are highly abstract, and have been drafted by people who have never visited your business; whereas the classifications in an Enterprise Agreement will be controlled by you, and be specific to your business. Often, they can be directly tied to job titles in your organization. Once the agreement is approved, the classifications cannot be questioned during its currency.

Individuality and flexibility

There are over 8,000 restaurants and cafes in Australia, each of them unique. The process of bargaining and drafting an enterprise agreement provides a unique opportunity to allow experienced workplace lawyers, hospitality experts and change management professionals to assess the ongoing health of a businesses employment systems, and offer advice as to the way forward. On top of the general trends discussed above, there is always a specific solution to your business needs.

For more info about how easy the enterprise bargaining process read this post from last year. Or visit us at pcclawyers.com.au

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November 17

The importance of express terms in Contracts of Employment and Enterprise Agreements

A presentation on 16th October 2014 on both Contracts of Employment and Enterprise agreements.

Employment contracts

In Commonwealth Bank of Australia v Barker [2014] HCA 32, the High Court held that the implied term of trust and confidence does not exist. This decision overruled the two federal court decisions below it, as well as the current English authority, Malik v Bank of Credit and Commerce International SA. The thrust of the High Court’s reasoning as that an implication of a term at law requires the term to be ‘necessary’ for the performance of the contract. It is not enough that it simply be ‘reasonable’.

The significance of this decision is that an employment contract is like any other contract, and is to be interpreted according to the words of the document. This is significant in the that traditionally employees framing actions in contract against their employers have often relied upon implied terms, choosing to leave the express contractual terms to one side. The decision in Barker suggests that this may now be a mistake.

From the employer’s perspective, this relaxed attitude toward express terms frequently leads to some lax practices. Express terms concerning things such as KPIs, incentive schemes, and right to renewal have been construed by courts strictly, and they have shown themselves to be unimpressed by evidence of contrary intentions. Courts are demonstrating no desire to treat contracts of employment differently to other contracts, and relying on the statutory regime behind the contract of employment is a mistake for both employees and employers.

The message is, get your express terms right. Don’t put anything in your contract that you can’t do, and don’t rely on implied terms to prevail.

Enterprise Agreements

EA’s can be a nightmare to some employers. But often they can be fantastic in offering flexibility, especially in getting around some of the problems presented by the modern awards, and some cultural benefits to the workforce in bringing people together.

But they can be a significant issue if they are not done correctly.

There have been some developments recently. Every employer wants to retain the right to change workplace policies if and when they see fit. But there have been some recent decisions in which an employer, in attempting to alter workplace policies, have been hauled before the Fair Work Commission under dispute resolution clause, and have been held up from changing their policies. One case involved a policy relating to mobile phone use policy, where the Dispute resolution clause in the Enterprise Agreement gave the FWC the right to concililate and arbitrate on ‘terms and conditions’ of employment: not just on the employment terms governed by the Enterprise agreement, Modern Award or the National Employment Standards. This is a huge mistake, because effectively it is an invitation to the Fair Work Commission to become involved in operational matters at work.

Another decision related to a No Further Claims clause. Every Enterprise Agreement has a clause like this, as they perform an important function in preventing ongoing claims from either side – however in one instance the clause was held to prevent the employer from changing their motor vehicle policy – as it was held to have relationship to the remuneration of the employees.

The lessons : while EA’s can be a great vehicle for flexibility when you are dealing with a good workforce – it is absolutely essential that the agreements dispute resolution does not allow the FWC to arbitrate, and secondly is based on what is covered by the modern award or Enterprise Agreement, and does not go more broadly into terms of employment. If you do that, you are going to end up with the Union or the Fair Work Commission trying to tell you how to run your business.

Once the agreement is made – The importance of consultation

No one likes having these difficult conversations, especially in the context of an employee not receiving a benefit or entitlement that they expect – but it is extremely important that consultation takes place. Not only is the consultation process legally required, but a calm, reflective consultation can actually take the heat out of a situation, and will often reduce your likelihood of having an industrial problem by approximately 90%. View it not as a difficult conversation to be endured, but rather as an opportunity to connect with them, diffuse the situation and begin the process of resolution.

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November 6

The Enterprise Bargaining Process – a pathway to compliance

Many of my small to medium business clients balk at the idea of collective agreement making – having heard horror stories about the protracted negotiations that commonly occur between large companies and powerful unions. In most industries, employers with from approximately 10 to 40 employees often find the bargaining process extremely helpful in ensuring compliance, reducing payroll administration costs, and simplifying and adding a degree of certainty to the workplace conditions. Many find that the process itself is a great way to examine their operations as well as giving an opportunity to consult with and involve their team in the future of the organisation.

The steps are as follows:

Step 1 – is to meet with your legal team who specialise in agreement making. Before the bargaining phase commences it is crucial to outline your objectives, and employment lawyers with experience of drafting enterprise agreements every day have the capacity to frame the agreement directly towards your goals, while being confident with what can and will be approved by the Fair Work Commission. PCC Lawyers employ experienced hospitality consultants who are not only thoroughly acquainted with the modern awards, but are intimately familiar with the everyday concerns of businesses such as yours. Once your objectives are identified, your legal and consultancy team will identify other areas where wages can be saved, operations can be improved, and compliance can be assured. At the end of this process, your lawyers will have drafted an initial agreement.

Step 2 – Through this stage, it is important to identify which members of staff should be approached by you and encouraged to be the employees bargaining representatives. Most businesses have a small, but strong, employee core. These employees are those that you trust, but most importantly that are trusted by their colleagues. Identifying and approaching these individuals is key.

Step 3 – A notice of representational rights is distributed to the employees. This will be drafted according to the standard form by your lawyers. This must be given to all employees that are proposed to be covered by the agreement. It outlines their rights in terms of representation. We recommend that at the same time a letter to the employees from you, but drafted by your lawyers, can be written outlining what the key proposed changes are, their reasons, and their probable effects.

Step 4 – The employee bargaining representatives may wish to schedule a meetings or meetings to talk about the agreement. Your complete cooperation at this stage is important.

Step 5 – Any time 21 days after the notice of representational rights is distributed, you may ask the employees to vote on the agreement. A simple majority is enough. The timing of the process is important strategically. Many businesses have quiet times of the year that they operate on little more than core staff. You may wish to begin the process 3-4 weeks before you know that this will be the case.

Step 6 – After agreement is reached, final document can be lodged with the Fair Work Commission for approval. A short hearing will take place with a commissioner, normally via teleconference, to assess whether the agreement passes the BOOT test. This is where the presence of your specialist workplace lawyers is essential, in helping to smooth out any edges of your agreement which may be contentious as far as the Commissioner is concerned.

Step 7 – Once approved, your agreement is valid for three years, and remains valid for a further year after expiration. Once your employees and you enjoy the benefits of Enterprise Bargaining once, renegotiating the agreement in 3-4 years’ time is much easier.

A decade ago, agreement making under Work Choices was widely seen as a way to drive down the cost of staff. This is no longer a possibility. However agreement making is now the proactive operator’s means of taking control over employee relationships, and of reducing the cost and stresses of a complex national framework. For those operators that simply struggle to find or understand the award, Enterprise Agreements are a pathway to compliance.

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