Do think you’ve successfully made an enterprise agreement because the agreement was approved by a ballot of employees and by the Fair Work Commission? Think again. This year, the Full Federal Court overturned an enterprise agreement two and half years after it was approved by the Fair Work Commission, because the employer failed to properly explain the effect of the agreement to their employees.
Explaining the effect of a proposed enterprise agreement – an essential step
The Fair Work Act 2009 (Cth) sets out a series of criteria the Fair Work Commission must be satisfied of before approving an enterprise agreement. The criterion that came under scrutiny in the decision of One Key Workforce Pty Ltd v Construction, Forestry, Mining and Energy Union  FCAFC 77 is the requirement that the agreement has been “genuinely agreed” to by the employees who will be covered by the agreement.
To be “genuinely agreed”, the Act provides that an employer must “take all reasonable steps to ensure that the terms of the agreement and the effect of those terms are explained to the relevant employees”.
Prior to a ballot of the employees, usually an employer will explain each term of the agreement, and the effect of the terms, to their employees. Then, when applying to the Commission for approval of an enterprise agreement, a
representative of that employer will sign a statutory declaration to the effect that the employer had explained the terms of the agreement and the effect of those terms to their employees.
According to the Full Federal Court, in order for the Commission to be satisfied an agreement has been genuinely agreed, more evidence will be required. Importantly, the Commission will need to consider whether employees appreciated the effect of agreement terms and conditions beyond those of direct relevance to themselves.
An enterprise agreement is made
The decision involved an application for the approval of a single enterprise agreement by a labour hire company, One Key Workforce Pty Ltd.
The employer had made an agreement with three employees, where the agreement was capable of covering a group of employees who would otherwise be covered by 11 different awards.
Prior to the ballot for the agreement, the employer sent emails to the employees attaching a copy of the proposed agreement together with the awards that were incorporated into the agreement.
Following this, a representative of the employer spoke with each of the employees to inform them of the impending vote and to discuss the terms of the agreement.
Later, the employer sent an email to the employees that was drafted by the employer’s lawyers and that was intended to summarise the terms and effect of the proposed agreement. A representative of the employer then phoned each employee the same day to ask whether they had any questions about the agreement before voting began.
The employees voted in favour of the agreement and on 4 September 2015, the employer lodged an application with the Commission to approve the agreement.
The agreement was approved by the Commission and commenced operation on 6 November 2015.
In November 2016, after becoming aware that some of its members were now covered by the agreement, the CFMEU filed an application with the Federal Court seeking a declaration that the Commission’s decision approving the agreement was void and of no effect, because, they argued:
- The employer had failed to take all reasonable steps to ensure the terms of the agreement and their effect had been explained to the relevant employees; and
- The relevant employees never “genuinely agreed” to the agreement.
On 8 November 2017, Justice Flick made the declaration sought by the CFMEU. The employer then appealed to the Full Federal Court.
The men who knew too little
When considering the evidence given during the earlier proceedings, the Full Court noted the following important facts:
- None of the three employees who voted to approve the agreement had appointed a bargaining representative at any stage during the bargaining process.
- The employer admitted that it had never compared the terms of the agreement with the 11 awards it incorporated.
- During the telephone calls to explain the terms of the agreement to employees, the employer merely read out certain key clauses of the proposed agreement, but did not explain what effect the terms of the agreement would have on the existing conditions provided for in the 11 awards.
- The email to the employees drafted by the employer’s lawyers was not an effective summary of the terms and effect of the agreement and was misleading regarding the impact the agreement would have on the existing employees.
- During the telephone calls with the employees, the employer unquestioningly accepted statements by the employees that they understood the agreement.
- The only evidence before the Commission regarding what the employees were told about the terms and effect of the agreement were three short paragraphs in the statutory declaration filed by the employer, recounting the telephone calls and explanation email.
Ignorance does not translate to bliss for employer
The Full Court found that the purpose of the obligation imposed on employers to explain the terms of a proposed enterprise agreement, is to enable relevant employees to cast an informed vote on the proposed agreement.
As there was no evidence of what was actually said to the employees about the terms and effect of the agreement, the Full Court found it was not possible for the Commission to be satisfied that the employer had taken all reasonable steps.
In considering whether the employer’s employees had “genuinely agreed” to the agreement, the Full Court was critical of employers who sought to bargain with a small number of employees for an agreement that covered a much broader range of occupational classifications. The Court went so far as to suggest that such conduct was contrary to the form of collective bargaining promoted by the Act.
Ultimately the Full Court held that the Commission should have considered whether the employees had appreciated the terms and conditions of the agreement beyond those of direct interest or relevance to themselves.
Consequences for employers
The decision has two important implications.
An aggrieved body, such as a union, may “re-open” a Fair Work Commission approval process years after the event. If there was a procedural flaw in the approval of the agreement, the agreement can be declared to be void from the beginning.This can lead to claims of award breaches and potential underpayment of any entitlements.
Secondly, an employer seeking Fair Work Commission approval of an enterprise agreement will need to do more than give a declaration that “the terms of the agreement and the effect of those terms were explained to the employees.”
Employees, it seems, must understand the effect of terms that go beyond direct relevance to themselves.Then, the employer must be able to give evidence about their employees’ understanding.
Federal Parliament has, in December 2018, sought to address the rigorous standards being applied to employers when making enterprise agreements by enacting changes to the Act permitting the Fair Work Commission to overlook “minor or technical errors” by the employer (see our other article: Amendments to Act to make enterprise bargaining less technical). Despite these changes, it is difficult to see that they would overcome the situation of an employer in a similar position to One Key. This is becausethe errors in One Key were clearly not minor or technical.
Accordingly, when preparing to bargain and conduct a ballot for an enterprise agreement, employers should consider:
- Is the group of employees who will be voting on the agreement representative of the scope of the occupations and industries the agreement will cover?
- If not, what resources will be required to ensure all reasonable steps are taken to explain the terms and effect of the agreement?
- Do you possess the necessary knowledge and skills within your business to conduct an effective education campaign for the relevant employees, or do you require external support?
- Are there measures you can put in place to gauge the level of understanding of the relevant employees regarding the terms and effect of the agreement before a vote is held to approve the agreement?
- Who within your business is best placed to provide a statutory declaration recording the measures taken to educate the relevant employees in the terms and effect of the agreement?
One thing is clear:The bar has been raised again for employers seeking approval of enterprise agreements.
For more information or queries, please contact Murray Procter via email or by phoning 07 3001 9225.