This guide provides Australian business owners with a comprehensive understanding of Enterprise Agreements (EAs). Learn about the types of EAs, their legal framework, advantages and disadvantages, and how to create one. Discover resources available to assist you in creating an EA for your business.
Table of contents
What are enterprise agreements?
An Enterprise Agreement is a legally binding agreement that sets out the minimum terms and conditions of employment between an employer and their employees. It's essentially a workplace agreement that allows you to establish pay rates and employment conditions that are specific to your business and employees.
Enterprise agreements are a collaborative effort, negotiated between employers and employees (or their representatives, such as unions). Once an enterprise agreement is in place, it overrides any relevant award that may apply to your employees. It's important to remember that the base pay rate in the enterprise agreement cannot be less than the base pay rate in the award.
Before taking effect, enterprise agreements must be approved by the Fair Work Commission (FWC), which ensures the agreement meets legal requirements and that employees are 'better off overall' compared to the relevant industry award.
Types of enterprise agreements
There are three main types of enterprise agreements:
Single-enterprise agreements that cover a single business.
Multi-enterprise agreements that cover two or more businesses.
Greenfields agreements that cover new enterprises that don't have any employees yet.
Advantages and disadvantages of enterprise agreements
Enterprise agreements offer a range of advantages and disadvantages for both employers and employees. It's important to understand these when deciding if an EA is right for your business.
Aspect
Advantages for employers
Advantages for employees
Disadvantages for employers
Disadvantages for employees
Flexibility
Tailor employment conditions to suit your business needs, such as rostering, hours of work, and leave.
Greater flexibility in working arrangements, potentially leading to improved work-life balance.
Less flexibility in pay, as an EA cannot reduce monetary obligations under the NES or the applicable award.
May not be able to negotiate individual terms and conditions outside the EA.
Simplicity and consistency
Streamline pay structures and simplify terms and conditions for businesses with employees covered by multiple awards.
Clear and transparent framework for employment conditions, leading to increased job satisfaction.
Time-consuming and costly to negotiate and implement.
May have to pay union fees if represented by a union.
Employee relations
Can foster positive employee relations by providing a clear framework for employment conditions and creating a sense of trust and collaboration.
Increased employee engagement and a stronger voice in workplace decisions.
Limited control over the voting outcome and the involvement of unions.
May be bound by an EA they did not vote for.
Productivity and efficiency
Potential for productivity improvements and easier implementation of workplace change.
Enhanced job security and improved working conditions.
Strict process and timeframes must be met, or the EA may be rejected.
No further formal bargaining or industrial action can occur during the EA's term.
Cost management
Certainty on future wage growth with pre-determined increases for the length of the agreement.
Guaranteed minimum pay rises and pay classifications.
Minimal flexibility in terms of pay.
May limit individual flexibility and innovation.
Legal framework of enterprise agreements
Enterprise agreements in Australia are governed by the Fair Work Act 2009. This Act provides a framework for collective bargaining and sets out the rules for creating, implementing, and enforcing enterprise agreements.
The FWC plays a key role in ensuring that enterprise agreements meet the requirements of the Fair Work Act and that they pass the 'Better Off Overall Test' (BOOT).
This test ensures that each employee covered by the enterprise agreement is better off overall than they would be under the relevant modern award.
Here are some key aspects of the legal framework:
Legal framework of enterprise agreements
Employers and employees must negotiate in good faith.
This means attending meetings at reasonable times, disclosing relevant information to each other, responding to proposals made by other bargaining representatives, and genuinely considering those proposals.
The Fair Work Act 2009 protects employees' rights to take protected industrial action during the course of negotiating an agreement.
However, this is only allowed if the nominal expiry date of the current agreement has passed and genuine attempts to reach a new agreement have been made.
Enterprise agreements must include certain clauses, such as a nominal expiry date (no more than four years from the date of approval), a dispute resolution procedure, a flexibility term that allows for individual flexibility arrangements, and a consultation term that requires the employer to consult with employees about major workplace changes.
EAs cannot include discriminatory terms, exclude the National Employment Standards (NES), or limit unfair dismissal rights.
There are two types of collective agreements:
1. employee-like collective agreements (made between a digital labour platform operator and an organisation that can represent employee-like workers) and
2. road transport collective agreements (made between a road transport business and an organisation that can represent regulated road transport contractors).
Creating an enterprise agreement
Creating an enterprise agreement involves several steps:
✅ Understand the process, timeframes, and legal requirements. Plan how to communicate with employees and involve relevant stakeholders.
✅ Commence bargaining with employees or their representatives, ensuring good faith bargaining practices are followed.
✅ Draft the agreement, ensuring it includes mandatory content, meets the BOOT, and avoids common errors.
✅ Provide employees with the proposed EA and explain its terms and conditions. Ensure employees have access to the agreement and understand how to vote.
✅ If the agreement is approved in the vote, apply to the FWC for approval within 14 days.
✅ The FWC reviews the EA to ensure it meets all legal requirements and passes the BOOT.
Final thoughts
Enterprise agreements can be a valuable tool for business across Australia, providing flexibility and tailored conditions to suit their specific needs. Though it's important to understand the legal framework, the process for creating an EA, and the potential advantages and disadvantages before making a decision.
By carefully considering these factors and using the available resources, business owners can make informed decisions about whether an EA is the right choice for their business.
If you need further assistance with enterprise agreements or other HR matters, our 24/7 Advice Line is available to all Australian business owners. Contact us on 1300 144 002 today for expert advice and support tailored to your business needs.
Frequently asked questions
Yes, an Enterprise Agreement (EA) can override an award. When an EA is approved by the Fair Work Commission (FWC) and comes into operation, it replaces the relevant award for the employees covered by the agreement.
However, the EA cannot provide less than the minimum entitlements in the National Employment Standards (NES) or have a base pay rate lower than the base pay rate in the award.
An EA has a nominal expiry date, typically no more than four years from the date of approval.
However, the agreement continues to operate after this date until it is either replaced by a new agreement or terminated by the FWC. If an employer or employee wants to terminate an expired EA, they can apply to the FWC.
An EA is a collective agreement that covers a group of employees in a workplace or multiple workplaces. It sets out the minimum terms and conditions of employment for those employees, such as pay rates, hours of work, and leave entitlements.
An employment contract, on the other hand, is an individual agreement between an employer and a single employee. It outlines the specific terms and conditions of employment for that employee, and may include additional benefits or obligations not covered by the EA.
Both EAs and modern awards set out minimum employment standards. However, awards apply to employees in a particular industry or occupation across Australia, while EAs are specific to a particular business or group of businesses.
EAs can be tailored to the specific needs of a workplace and may include terms and conditions that are different from the award, as long as employees are better off overall.
EAs are created through a process of collective bargaining between an employer and their employees (or their representatives, such as unions). The agreement must be approved by a majority of the employees who will be covered by it, and then submitted to the FWC for approval.
The FWC assesses the agreement to ensure it meets legal requirements and that employees are better off overall compared to the relevant award. Once approved, the EA becomes legally binding on the employer and employees.
EAs and modern awards are both legal documents that set out minimum employment standards in Australia. Modern awards provide a safety net of minimum pay rates and conditions for employees in a specific industry or occupation.
EAs, on the other hand, are agreements made at an enterprise level between employers and employees about terms and conditions of employment. They can be tailored to the specific needs of a workplace and may offer more generous entitlements than the award.
