For most Australian businesses enterprise bargaining is unwarranted because the Fair Work Act 2009 has removed the benefits of bargaining, imposes significant costs on those who bargain, and made bargaining an inferior option for workplace flexibility and engagement when compared to common law arrangements.
The need and flexibility has gone
Enterprise bargaining provides little benefit because the need to bargain has been reduced and the potential flexibilities from bargaining have vanished.
Why the need has gone
Enterprise bargaining used to be a mechanism for overcoming Award complexity where organisations were governed by multiple awards. This need has vanished, or is disappearing, following modernisation of the Award system. Granted, most Awards are still difficult to understand, even if their application is more certain. The Fair Work Commission (“FWC”) retained too much of the old language in its rush to modernise. But it is to be hoped FWC will be wise enough to progressively address these problems. And Agreements are limited in their ability to solve what problems remain because their flexibility has also gone.
Why the flexibility has gone
No Agreement can adjust the National Employment Standards (the “NES”) and all Agreements must make all covered employees better off overall (the so-called “BOOT”) compared to any applicable Award. These twin restrictions imply near-zero flexibility in enterprise bargaining. For example: leave cannot be paid in advance, or cashed out into a single hourly rate; penalty rates and overtime pay cannot be averaged out across the workforce through higher average hourly rates for all; and long service leave cannot be standardised across national businesses. Everyone must receive at least the NES and at least the Award, so flexibility only goes in one direction – paying more to everyone.
Enterprise Agreements are costly
Agreements impose significant costs on organisations because the bargaining process is overly-technical, and because having an Agreement carries the hidden cost of robbing employers of their Award-enshrined rights to withhold pay from employees who do not give the required notice when they resign.
Bargaining costs time, money and patience
Under the Fair Work Act, bargaining is a highly technical process that places form above substance. Employers need professional advice to assist them through this process, and that advice can be substantial and costly, especially if unions become involved. And the process is designed to give unions the maximum ability to become involved. They are the default bargaining agent of their members. They must be consulted, even if you do not know you employ union members. They can frustrate, and even wholly de-rail, registration if you fail to consult with them. It can be a frustrating and enervating process, especially when the ultimate benefits are so anaemic.
Bargaining involves a loss of the right to withhold notice
This is a sleeper: most employers would not be aware of this problem.
Modern Awards tend to allow employers to withhold pay from employees who resign without the required period of notice. This deduction is expressly authorised in the Fair Work Act. But the Fair Work Act prohibits the same rights from being replicated in an Agreement.
Under an Agreement, an employer can only deduct money if the employee agrees to the deduction in accordance with a process laid out in the Agreement – the Agreement itself cannot authorise the deduction, it can only authorise an agreement to agree to a deduction.
So, the Award right to deduct ungiven notice appears to vanish the moment an Agreement is registered. Even incorporating the provisions of the Award into the Agreement by reference does not fix the problem. The incorporated provisions have effect as a term of the Agreement, not as a term of an Award. So what was an enforceable right under the Award becomes unenforceable when it is adopted into an Agreement.
Common law contracts might be enough, if not better
Given these restrictions, Agreements do little that cannot be achieved through common law contracts using offset clauses. An off-set clause expressly allows an employer to credit over-award payments against award obligations. They are common and have been used for years. All contracts and letters of engagement should include an off-set clause, just in case.
To replicate enterprise agreements through common law contracts, an employer could:
This suite of common law arrangements can provide a mechanism for establishing organisation-wide employment conditions without the technical complications and costs of formal bargaining. An employee can never be paid below the Award and can never be paid contrary to the NES – but Agreements face the same restrictions, so nothing is lost in using common law contracts. Further, the employer does not lose the right to withhold pay from employees who resign without notice. It also makes organisation-wide changes to employment conditions easier to implement by simply adjusting the common conditions.
Some observers might complain that common law contracts are an individualistic approach that excludes the perceived benefits of collective bargaining and consultation. This complaint is invalid. There is nothing to stop an employer from consulting with staff about employment obligations in their organisation-wide common law arrangements. Indeed, employers might agree to only alter the common set of provisions after consultation with staff or in accordance with some agreed process.
If unionised, all bets are off
Of course, these arrangements are unlikely to be successful in unionised industries. In such industries, bargaining will be about protecting the organisation from industrial action and earning a de-facto licence to operate in the relevant industry. That is the reality and it is unlikely to change anytime soon, especially for smaller businesses.
But for most organisations, and certainly most small businesses, enterprise bargaining is costly and unnecessary. Most would probably be better served by sticking with Awards and seeking flexibility through common law contracts that off-set over-Award payments against Award obligations, combined with non-industrial forms of employee engagement and consultation.
If you need advice or assistance with your employment issues please contact us:
Chamberlains Law Firm
P: 02 6215 9100