Enterprise Agreements and their terms
According to the Fair Work Act, an agreement can only be about “permitted matters” – that is, matters pertaining to the relationship between the employer and the employee and/or the union. Whether a term ‘pertains’ to the employment relationship depends on the wording and application of a purported clause of an agreement.
What happens if the parties can’t agree?
When negotiating enterprise agreements, each party is obliged to negotiate in good faith. Where an employer does not ‘come to the table’, an employee’s bargaining representative (generally, a union) can apply to the Fair Work Commission (FWC) for a protected action ballot order (PABO). Where the FWC approves a PABO, the union can then conduct a ballot as to whether employees wish to engage in industrial action.
The FWC will only grant a PABO where the union can prove that in negotiating with the employer, it has sought claims that “are only about, or are reasonably believed to be about, permitted matters” and the union has “genuinely” tried to reach an agreement with the employer.
The issue of whether a union genuinely tried to reach an agreement regarding permitted matters was recently highlighted in the case below.
Case study: National Union of Workers v Phillip Leong Stores Pty Ltd 
After failed negotiations, the National Union of Workers (NUW) applied to the FWC seeking a PABO. The NUW put forward that it had sought the following terms in a proposed agreement:
- Cleaning – Site cleaning to be carried out by permanent employees – which had been performed by labour hire employees;
- Classification – After 12 months, all Level 1 employees would move to a Level 2 resulting in a 17.5% wage increase– however, the wage increase would only apply to labour hire employees as they were engaged at a Level 1 whereas the permanent employees were all employed at a Level 2; and
- Ratio – Impose a contractor:employee ratio
In opposing the application, the company asserted that the NUW had not genuinely tried to reach an agreement as the terms it had sought were not “permitted matters” – especially since claims affecting the labour hire agency employees did not have a sufficient nexus on the relationship between the company and its own employees.
The FWC had to determine whether the items sought by the NUW were permitted matters “pertaining” to the employment relationship between the company and its employees.
In reaching its conclusion, the FWC summarised the scenarios which generally do, and do not, pertain to the employment relationship:
- Terms which sufficiently related to an employee’s “security of employment and maintenance of wages and conditions” will pertain to the employment relationship; and
- Prohibitions on an employer “engaging contractors or labour hire employees or the employer’s right to use independent contractors” are not matters pertaining to the employment relationship (depending on the circumstances)
Ultimately, the FWC held that the matters sought by the NUW were not permitted matters pertaining to the employment relationship because:
- Cleaning – this constituted a direct prohibition on the engagement of contractors for cleaning and did not pertain to the relationship of the employer and the employee;
- Classification –the FWC held that claims that affect third parties such as agency employees can only pertain to the relevant employment relationship if those claims ensure “job security or safeguarding of conditions” for current employees. The FWC held that this particular claim did not achieve either of these objectives; and
- Ratio – whether this partial prohibition on the engagement of contractors pertained to the relevant relationship was “a question of degree”- however, there was no evidence that this would adversely affect the company’s employees
The union official (and the NUW) put forward that he “reasonably believed” that the above matters were permitted matters and therefore the PABO should be granted. However, the FWC had regard to the official’s status and experience and ultimately held that his “belief, although legitimately held, was not reasonable”.
Lessons for employers
Whilst unions are generally genuinely trying to advance their members’ claims, employers must ensure that the demands sought are permitted matters pertaining to the relevant employment relationship, as prescribed by the Act.
If you require assistance in drafting or negotiating an enterprise agreement, please contact HR Legal.
This article was produced by HR Legal. It is intended to provide general information only in summary format on legal issues. It does not constitute legal advice, and should not be relied on as such.