What is an enterprise agreement?

Enterprise agreements are agreements made between employers and employees (unless the enterprise agreement is a greenfields agreement) about terms and conditions of employment for the employees involved. The Fair Work Commission deals with disputes arising under the terms of agreements. It also assesses and approves enterprise agreements.

The terms of an enterprise agreement must not be less beneficial to employees than the National Employment Standards. The terms must also be better overall than those contained in the relevant modern award. The Fair Work Commission applies a ‘better off overall test’ to the effects of the terms of enterprise agreements when considering whether it will pass the agreement.

There are three types of possible enterprise agreements that may be reached between employers and employees collectively. These are:

  • single enterprise agreements (covering a single enterprise)
  • multi enterprise agreements (covering more than one business or enterprise)
  • Greenfields agreements (covering new enterprises that do not have any employees yet).

What may be included in an enterprise agreement?

Certain terms are permitted to be included in enterprise agreements, including:

  • rates of pay
  • overtime
  • allowances
  • standard hours
  • personal and annual leave
  • other terms relating to the relationship between the employer and the employees or the relationship between the employer and one or more unions
  • terms relating to the operation of the agreement.

What must be included in an enterprise agreement?

Certain terms must be included in all enterprise agreements. These mandatory terms include the following:

  • Dispute resolution term referring disputes to an independent person.
  • Flexibility term enabling an employee and the employer to agree to an individual arrangement varying the effects of the enterprise agreement.
  • Consultation term requiring employers to consult with employees if there are major changes to the business.
  • Nominal expiry date for the agreement. This must be within four years of the Fair Work Commission approving the agreement.
  • Coverage term explaining who will be covered under the agreement (for example, all employees of employer x).

How is an enterprise agreement formed?

Various steps must be taken to form an enterprise agreement. These steps include the following:

  • Employees must be notified of their representational rights. This applies to all employees who are to be covered by the agreement. This notice of employee representational rights must be issued as soon as possible but definitely within 14 days of deciding to negotiate an enterprise agreement.
  • Bargaining may commence after the notice of representational rights has been properly given to all relevant employees. Bargaining actually begins when the employer agrees to or initiates bargaining, when a majority support determination becomes operative, or when a scope order or low-paid authorisation becomes operative. This is referred to as the notification time. Bargaining is where the parties and any representatives negotiate the terms and conditions of the enterprise agreement. All bargaining must be undertaken in good faith.
    • An employer cannot make a request to its employees to approve a proposed enterprise agreement by voting for it until at least 21 days after the date on which it gave its employees their Notice of Representational Rights. Moreover the employer must also give the employees a copy of the agreement which they propose to submit to a vote, and any other materials incorporated into the agreement (or at least access to these materials) for a seven day period which ends immediately before voting starts. A vote must be conducted and all employees to be covered by a proposed enterprise agreement may vote on it.
    • Following the vote, an agreement is made only when a majority of employees casting a valid vote approve of the agreement. The employer and at least one representative of employees covered by the enterprise agreement must sign and date the agreement.
    • Where a majority of employees vote against the proposed agreement, the agreement is not made and the parties may choose to return to the bargaining stage.
    • Within 14 days of a successful vote, a bargaining representative mustlodge the enterprise agreement, and any other required documents and forms, with the Fair Work Commission for approval.
  • The Fair Work Commission applies a better off overall test to the effects of the enterprise agreement upon workers. It must be satisfied that each actual and prospective award-covered employee would be better off under the enterprise agreement than the relevant award.

This test applies to agreements made on or after 1 January 2010 (per the Fair Work Act 2009). Agreements made prior to 1 January 2010 are subject to a ‘no-disadvantage’ test (per the Fair Work (Transitional Provisions & Consequential Amendments) Act 2009).

  • The Fair Work Commission will assess the enterprise agreement for approval against many criteria, including the following:
    • Genuine agreement has been reached between the parties to the agreement.
    • The enterprise agreement passes the better off overall test.
    • The enterprise agreement does not include any unlawful or objectionable terms.
    • The enterprise agreement specifies an expiry date not more than four years from approval.
    • The enterprise agreement includes a dispute settlement procedure.
    • The enterprise agreement includes a flexibility clause and a consultation clause.

Terminating enterprise agreements

The Fair Work Act 2009 provides that enterprise agreements continue to operate after their nominal expiry date until replaced or terminated by application to the Fair Work Commission.

Employers and employees may agree to terminate an agreement. In order for the agreement to be terminated an application needs to be made to the Fair Work Commission.

The Fair Work Commission website provides extensive information about making, varying and terminating enterprise agreements, as well as a list of decisions related to enterprise agreements.

Example: Paying workers under a new enterprise agreement

Luana is running a painting company. She decides to negotiate an Enterprise Agreement to allow her to pay her workers an all-in rate. The workers vote to approve the agreement.

Seven days after the Fair Work Commission has approved the enterprise agreement (or at a later date nominated in the enterprise agreement), she is required to pay her workers under the enterprise agreement and not the modern award.