Eastern Commercial Lawyers

Enterprise Agreements - Australia Flexibility clauses - some tips to ensure approval

24-May-2011
ENTERPRISE AGREEMENTS
1.1.    Approval by FWA
(a)    By way of background, it is worth noting that Fair Work Austalia ("FWA") does not have a general discretion under the Fair Work Act ("the Act") to determine whether an enterprise agreement should be approved.
(b)    If there is a valid application before it, then, provided the requirements of ss 186 and 187 of the Act are met, and provided also that the agreement does not contain unlawful matter as defined by s 194, or breach a Commonwealth law, FWA must approve the agreement under s 185 of the Act.
(c)    FWA also has no general or specific power to rectify the terms of the agreement if they do not meet the requirements of the Act.  It can accept undertakings, but they can only be accepted if they are regarding concerns over whether the enterprise agreement meets the requirements of ss 186 and 187 of the FW Act.
2.    FLEXIBILITY TERMS
2.1.    Introduction
(a)    The Act states that an enterprise agreement must contain a "flexibility term"  that:
(i)    enables the employee and employer to agree to an arrangement varying the effect of the agreement in relation to the employee and employer, in order to meet the genuine needs of the employee and employer; and
(ii)    complies with s.203, ("the Flexibility Term").
(b)    If an employee and employer agree to an "individual flexibility arrangement" (IFA) under a flexibility term in an enterprise agreement, then:
(i)    the enterprise agreement has effect in relation to the employee and employer as if it were varied by the IFA;
(ii)    the IFA is taken to be a term of the agreement
[Note: The fact an IFA takes effect as a term of the enterprise agreement will have important consequences for both Employer and the employee. Section 50 of the Act states that a person must not breach a term contained in an enterprise agreement. That provision is a civil remedy provision. Accordingly, breach of an IFA may lead to civil remedy proceedings for, inter alia, penalties.]
(iii)    IFA does not change the effect which the enterprise agreement has in relation to the employer and any other employee; and
(iv)    the IFA does not have any effect other than as a term of the enterprise agreement.
2.2.    Content of Flexibility Term
(a)    A Flexibility Term contained in an enterprise agreement must comply with s.203 of the Act and in so doing must include the following content:
(i)    it must state which terms of the enterprise agreement may be varied by an IFA;
[Note: Which particular terms of the enterprise agreement may be varied will be a matter for bargaining.]
(ii)    it must require the employer to ensure that any IFA agreed to under the FT:
(A)    is about matters that would be permitted matters if the IFA were an enterprise agreement, and
(B)    must not include a term that would be an unlawful term if the IFA were an enterprise agreement;
(iii)    it must require that any IFA is genuinely agreed to by the employer and employee;
[Note: Genuinely agree is not defined in s 203(3) and bears its ordinary meaning]
(iv)    it must require the employer to ensure that any IFA agreed to under the Flexibility Term must result in the employee being better off overall than if there was no IFA;
[Note: It is the employer's responsibility to ensure that this is the case.]
(v)    it must require the employer to ensure that any IFA is able to be terminated by either the employee or employer by giving written notice of not more than 28 days, or by the employee and employer at any time if they agree in writing to the termination;
(vi)    it must require the employer to ensure that any IFA must be in writing and signed by the employee and the employer, or, if the employee is under 18, by a parent or guardian of the employee; and
(vii)    it must require the employer to ensure that a copy of the IFA is given to the employee within 14 days after it is agreed.
2.3.    Model Flexibility Term
(a)    If an enterprise agreement does not include a flexibility term, then the model flexibility term in regulation 2.08 and schedule 2.2 of the FW Regulation is taken to be a term of the agreement)
2.4.    Better off overall test (BOOT)
(a)    As noted above, s 203(4) of the Act states that any Flexibility Term included within an agreement "must require the employer to ensure that any [IFA] agreed to under the term must result in the employee being better of overall than the employee would have been if no [IFA] were agreed to. "
(b)    Put simply, all the Act requires is that a Flexibility Term contained within an enterprise agreement must contain a statement to the effect that the employer will ensure that any IFA which it enters into with an employee pursuant to that Flexibility Term will satisfy BOOT,
(c)    By contrast, there is nothing in the Act or FW Regulation which states that, at the time of approval of the Proposed Agreement, an Employer must satisfy FWA that any IFA which it intends making under a Flexibility Term will meet BOOT.
(d)    Accordingly, an Employer will not need to demonstrate to FWA at the time the Proposed Agreement is approved that any IFA which it intends making with its employees can (or does) satisfy BOOT.
(e)    However, if an Employer should enter into an IFA with an employee which has the effect that the employee is not better off overall by reason of having entered into the IFA with an Employer, then the Employer will have breached the Flexibility Term in the agreement, and s.50 of the Act, and be liable to penalties and damages for such breach.
2.5.    BOOT generally
(a)    It is worth mentioning that an IFA may satisfy the requirements of BOOT even where an employee gives up a monetary benefit in return for a non-monetary benefit.
(b)    However, an IFA in such a case is more likely to satisfy BOOT if the change was requested by the employee rather than the employer, and the non-monetary benefit sought is of value to the employee.
2.1    As the Explanatory Memorandum states:
"Because the value that a particular employee may place on a non-monetary benefit is important it is less likely that an employee would be better of overall where the employer has initiated a request to agree an individual flexibility arrangement under which the employee gives up a monetary benefit in exchange for a non-monetary benefit. Similar, it is less likely that an individual flexibility arrangement would result in an employee being better of overall where the monetary benefit given up by the employee had a substantial value, or if the value of the monetary benefit was, in the view of a reasonable person, disproportionate to the non-monetary benefit for which it was exchanged"
2.2    The Explanatory Memorandum gives the following example of an IFA entered into pursuant to a Flexibility Term where the non-financial benefit gained by an employee is considered sufficient to offset the loss of a financial benefit

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