Agreement contract

Negotiating an enterprise agreement? The importance of getting the process right

Libby Pallot, Walter MacCallum, Anthony Massaro, Ben Tallboys, Abbey Burns, Caitlin Walsh, Meena Iskandar, Natasha Sim, Morgan Smithe & Ellena Kouris

The average reading time for this Alert is 6 minutes.

On 22 September 2020 the Full Bench of the Fair Work Commission handed down the decision of Construction, Forestry, Maritime, Mining and Energy Union v McNab Constructions Pty Ltd [2020] FWCFB 5080, holding that it could not be satisfied that the employer (McNab Constructions) took sufficient steps to ensure that its enterprise agreement had been explained to the employees in accordance with the procedural requirements in the Fair Work Act. The decision serves as a timely reminder of the requisite procedural steps for negotiating an enterprise agreement, and the repercussions if those steps are not followed.

Procedural steps for negotiating an enterprise agreement

When negotiating enterprise agreements employers are usually focused on the terms of the agreement, the bargaining process and ensuring employees vote in favour of the agreement. 

Often less focus is given to the procedural requirements. Under the Fair Work Act, employers are required to comply with numerous steps in accordance with particular timeframes to create a valid enterprise agreement. These steps cover initiating bargaining with employees and their representatives, ensuring the employees are provided with the correct information about the enterprise agreement and the voting process, and then lodging the agreement with the Commission for approval. It is critical that employers strictly comply with these steps, and are able to produce evidence of that compliance.

In the McNab case, issues arose in relation to the ‘access period’, which is the 7-day period ending immediately before the start of the voting process. During this period employers are required to take all reasonable steps to ensure that:

  • employees have been given a copy of the enterprise agreement and any other material that the enterprise agreement incorporates (e.g. an OH&S policy);
  • employees have been notified of the time and place at which the vote will occur;
  • employees are aware of how, when and where they can vote; and
  • the terms, and the effect of the terms, of the enterprise agreement have been explained to the employees in an appropriate manner taking into account particular circumstances (e.g. cultural and linguistically diverse backgrounds).

These steps are designed to ensure that the employees genuinely agree to the terms of the enterprise agreement. 

Employers often make mistakes in this period by not providing employees with the relevant documents 7 clear days before the vote, or not providing employees with sufficient information about the agreement during this period, instead thinking that previous explanations during the bargaining process will suffice.

What went wrong in McNab?

McNab Constructions asked 41 employees to approve an enterprise agreement and they all voted in favour. Before asking the employees to vote on the enterprise agreement, McNab Constructions took steps to explain the terms of the enterprise agreement to the employees, but it did not provide the Commission with the evidence of the content of its explanation regarding the terms or the effect of the terms.

The CFMMEU argued that the agreement did not pass the Better Off Overall Test, and that the employer had not satisfied the ‘pre-approval’ requirements under section 180 of the Fair Work Act.

The Full Bench found that the agreement did pass the BOOT but McNab Constructions had not provided evidence that it followed the correct steps during the access period. Based on this, the Full Bench could not determine whether McNab Constructions’ explanation of the enterprise agreement to its employees was appropriate, because it was not aware of how the terms, and the effect of the terms, had been conveyed to the employees. Therefore the Full Bench could not find that the employees genuinely agreed to the enterprise agreement.

Interestingly, the Full Bench commented that it required evidence to be satisfied that the terms and the effect of those terms had been explained to employees (rather than an employer simply stating that they had provided that explanation) in circumstances where an enterprise agreement was not just general rollover with a discrete and obvious change, for example, a simple percentage wage increase to wages. 

Based on this decision, it appears that where there are any significant changes from one industrial instrument to the next, the Commission expects written material to be provided to the employees during the access period that compares the current industrial instrument with the proposed enterprise agreement, so that the employees can understand the full effect of it. In addition, this material needs to be provided to the Commission during the lodgement process.

What happens if you get it wrong?

In recent years the Commission has taken a strict approach to the enterprise agreement approval process so it is important that employers follow the procedural steps carefully. Even if employees vote to approve an agreement, the Commission must consider whether the agreement passes the BOOT, as well as whether the employer has complied with the relevant procedural steps, before approving an agreement.

Ultimately, the Commission will not approve an enterprise agreement if an employer fails to comply with any of the pre-approval steps under the Fair Work Act. This includes not explaining a proposed enterprise agreement, and the effect of that agreement, to the relevant employees, taking particular circumstances and needs of employees into account, or not providing evidence of this. The Commission may decide to approve an enterprise agreement that does not meet certain requirements of the Fair Work Act if it is satisfied that a written undertaking resolves the concern. However, the Commission must be satisfied that the undertaking is not likely to cause financial detriment to any employee or result in substantial changes to the agreement.

If the Commission decides not to approve an enterprise agreement, it may either request that further information be provided to satisfy its concerns, or it may simply reject the agreement, with the result that the parties have to go back and start again.  Ordinarily this should just mean a repeat of the access period and voting process, but it may also result in further bargaining and negotiation.

How we can help

After all the hard work it takes to get an enterprise agreement to the approval stage, including what may be months or even years of bargaining, and then obtaining the approval of employees, it is devastating to see an enterprise agreement rejected at the final hurdle. It can also have a negative impact on credibility with staff. As such, we recommend that employers who are currently or planning to draft or negotiate an enterprise agreement, contact Russell Kennedy’s Workplace Relations, Employment and Safety team to ensure that the enterprise agreement does not meet the same fate as McNab’s. Our team has significant experience assisting employers to draft and negotiate enterprise agreements, comply with the pre-approval steps, and lodge detailed applications with the Fair Work Commission to assist with the approval process.

If you would like to stay up-to-date with Alerts and Insights from our expert Workplace Relations, Employment and Safety team, you can subscribe to our mailing list here.

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