FWC criteria for enterprise agreement termination

When union negotiations fail, what questions will the FWC ask before permitting the termination of an enterprise agreement?

With the recent Griffin Coal case putting the termination of enterprise agreements in the spotlight, employers may now be more willing to approach the Fair Work Commission in similar circumstances, Marie-Claire Foley, partner at Ashurst, told HC.
“We are now finding that employers are actively looking at whether this is an option for them. And as these cases go forward to the Commission, we will see some agreements getting terminated and some not.”
However even if negotiations fail, making a case to the FWC is not a simple matter, she said. Employers should consider the following four key questions which the Commission will look at in each instance.
1) What efforts have you made to reach an agreement?
The first thing the FWC will consider is how long an employer has bargained with employees and the union around the enterprise agreement, Foley said.
“Have you explained your case for the changes you want? Has this been done properly and adequately so people understand why you’re seeking to make the changes that you want?”
It is only when a sufficient amount of bargaining has been done that an employer can even consider approaching the Commission about termination.
2) What has been put forward for employees to consider?
While not strictly a requirement, the FWC will also look into whether staff have been asked to vote on a proposed agreement, she said.
“And if you hadn’t put the agreement to the vote, you’d need to explain why that was the case. There may be reasons why you hadn’t.”
3) Why is the agreement no longer appropriate?
When in front of the FWC, employers will also have to outline why the current agreement is no longer appropriate, Foley told HC.
“What restrictions or inflexibilities or inefficiencies does the agreement contain? How are you placed compared to the market with your agreement? Do you have terms and conditions that are significantly above market such that you could argue you need to reduce terms and conditions?”
There are three situations in which the FWC may permit the termination of an enterprise agreement, she explained:
  • Transitions of businesses from the private to public sector with extraneous legacy terms in the agreement
  • Industries which have gone through extremely favourable conditions where firms are now stuck with an agreement that is not sustainable
  • Businesses facing financial difficulty
For companies in this latter situation, however, the FWC would likely need something more than financial troubles to permit the termination, Foley said.
4) What terms and conditions will apply if the agreement is terminated?
Lastly, it is important for firms to think about the terms and conditions that the business proposes if the agreement terminates, she said.
“The default position is you fall back to the modern award. However all modern awards have terms and conditions, in particular pay, that are usually significantly below an industrial agreement.
“The Commission will be very concerned about what terms and conditions will apply and will look at the effect on employees.”
Related stories:
When can you terminate an enterprise agreement?
The challenging art of union renegotiation
The power of ‘if’: secrets to successful negotiation

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