Australia – Fair Work Commission releases ‘Statement of principles on genuine agreement’ for enterprise bargaining

Employers must have a close eye on 20 new principles to ensure agreements are ‘genuinely agreed’ to by employees, in enterprise bargaining negotiations that commence on and after 6 June 2023

What is ‘genuine agreement’ and why is it important?

In order for an enterprise agreement to be approved by the Fair Work Commission (Commission) and commence operation, one of the key preconditions is that the Commission must be satisfied that the agreement has been genuinely agreed to by the employees covered by the agreement.¹

For any bargaining round that commenced² prior to 6 June 2023, the Fair Work Act 2009 (Cth) (Act) provides that an enterprise agreement will be ‘genuinely agreed to’ if the Commission is satisfied of the following 6 conditions:

• The employer, prior to the employee vote, took all reasonable steps to:³
  
  • ensure that the relevant employees are given, during the 7 clear day access period preceding the vote, the written text of the agreement, and any material incorporated by reference in the agreement. Alternatively, employees must at least have access to these materials throughout the entire 7 clear day access period; (Agreement access obligation);
  • notify the relevant employees of the time, place and method of the vote by the start of that access period (Vote notification obligation);
  • ensure that the terms and effect of the agreement are explained to the relevant employees in an appropriate manner (Explanation obligation);
• The employer complied with the obligation that employees not be requested to vote on the agreement until 21 days after the last notice of representational rights is given (21 day obligation);⁴
• The agreement was made, in the sense that the relevant employees have been asked to approve the agreement under s.181(1) and a majority of those employees who cast a valid vote approve the agreement;⁵ and
• There are no other reasonable grounds for believing that the agreement has not been genuinely agreed to.

As a consequence of the Secure Jobs, Better Pay⁶ amendments, the definition of ‘genuinely agreed’ will change for any bargaining round that commences on or after 6 June 2023. Instead of the 6 conditions set out above, the Commission is instead required to:

• Make a legislative instrument that is a statement of principles for employers on ensuring that employees have ‘genuinely agreed’ to an enterprise agreement (this instrument has now been made, and is accessible here⁷;
• ‘Take into account’ that statement of principles in determining whether it is satisfied that an enterprise agreement has been genuinely agreed to by employees covered by the agreement; and
• Refuse to approve an agreement, unless satisfied of the following (different) 6 conditions:
  
  • the relevant employees:
    • have a ‘sufficient interest’ in the terms of the agreement; and
    • are ‘sufficiently representative’, having regard to the employees the agreement is expressed to cover;⁸
  • leaving aside minor procedural or technical errors if they were not likely to disadvantage employees, the employer complied with:
    • the obligation to give a notice of employee representational rights;
    • the 21 day obligation; and
    • the Explanation obligation; and
  • the requirements (if any) prescribed by the regulations are met (at the time of writing, there are no such regulations).

In particular, the Agreement access obligation and Vote notification obligation, and the entire concept of an access period, have been removed from the Act and have instead found their way (in a different form) into the new ‘statement of principles’.

The Commission will also take into account the statement of principles in determining whether a variation to an existing enterprise agreement has been genuinely agreed to by the effected employees as required by section 211(3)(c) of the Act.

What does the statement of principles on genuine agreement contain?

The statement contains 20 principles that employers ‘should’ follow to ensure that their enterprise agreement is ‘genuinely agreed’ to by employees. These include matters such as:

• informing employees of the commencement of bargaining and their right to be represented by a bargaining representative (this will be taken to be met if the employer meets its obligations to issue a notice of employee representational rights, provided it doesn’t otherwise mislead employees about these rights);
• providing employees with a ‘reasonable opportunity’ to consider a proposed agreement so they can vote in an informed manner;
• explaining to employees the terms and effect of the proposed agreement in an appropriate manner;
• providing employees with a ‘reasonable opportunity’ to vote on the agreement in a free and informed manner, including informing them of the time, place and method of the vote; and
• ensuring employees have a sufficient interest in the terms of the agreement, and are sufficiently representative.

Importantly, following (or not following) these steps is not necessarily determinative of the question of whether an agreement has been genuinely agreed to. It is possible that employers who follow each of these principles will nevertheless have their application for agreement approval rejected by the Commission where there are other matters that give rise to concerns about genuine agreement. Conversely, the Commission might find the agreement to be ‘genuinely agree to’ despite an employer not complying with every principle.

This is clear from the fact that the amended Act does not define ‘genuinely agreed’ exhaustively, and merely requires that the statement of principles be ‘taken into account’ in determining the question. The statement itself is also littered with indicators that suggest the principles aren’t to be interpreted too rigidly, in that many of the principles suggest that employers ‘should’ or ‘should not’ undertake certain actions (rather than ‘must’ or ‘must not’), and that certain actions would ‘generally’ be sufficient, or lead to a particular result (rather than ‘will’ be sufficient or ‘will’ lead to that particular result).

What does all of this mean practically?

Confusing, right? So what has changed in practice?

The short summary is that the statement of principles broadly reflects much of the existing case law that has developed over almost 14 years in interpreting the ‘genuinely agreed’ test. We say broadly, because there are elements of the statement of principles that change, or go further than, existing case law.

In our view, there are six issues that arise from the statement of principles that represent a departure from, or addition to, the existing case law on genuine agreement:

• Timeframes prior to a vote - clear timeframes (i.e. the 7 clear day access period) are being replaced by more general requirements that are based on ‘reasonableness’ (meaning that employers may be required to allow for a longer timeframe than 7 days, depending on the circumstances). For example, employees have to have a ‘reasonable opportunity to consider’ a proposed agreement and explanatory material before voting on it (and the statement provides that a reasonable time period will include at least 7 full calendar days – which seems to open the door for a finding that more is required in some circumstances).  Similar changes apply in relation to the time for notification of the vote;
• Explanation of the terms of the agreement - on the explanation of the agreement to employees, the statement not only requires an explanation of the differences to an existing agreement (where there is one), but also an explanation of differences between the proposed agreement and any changes that have been made to the underpinning modern award since the last agreement was made. Again, this appears to be another expansion on existing case law;
• Secret ballot - the statement also suggests that the vote of each employee must not be disclosed to, or ascertainable by, the employer. This means that agreement voting processes will need to be undertaken by way of a secret ballot, or at least in the absence of the employer, despite the Act itself not imposing such a requirement (eg. a show of hands likely won’t be sufficient);
• Sufficiently representative / sufficient interest - guidance is given in relation to the new obligations in the Act that employees voting on the agreement be ‘sufficiently representative’ and have a ‘sufficient interest’ in the agreement. This is perhaps the most significant change. For instance, it suggests this requirement might not be met where employees won’t be paid the rates provided for in the agreement (eg. minimum rates agreements, or grandfathering arrangements, might be called into question). It also suggests that the Commission will expect at least some employees be employed across the range of classifications, types of employment, geographic locations and industries/occupations covered by the agreement;
• Authentic exercise in agreement-making – relatedly, the Commission will also expect the agreement to have been the ‘product of an authentic exercise in agreement making’ between the employer and employees, and that the employees had an informed and genuine understanding of what they are voting on. We expect a great deal of disputation (and, ultimately, case law) to develop on the meaning of each of these points; and
• Unions have increased capacity to influence the Commission’s views on whether an agreement has been ‘genuinely agreed’ - in particular, principle 19 states that if there is one or more employee organisations (unions) who acted as a bargaining representative for a significant proportion of employees, then the Commission should give significant weight to that unions views in considering whether the agreement has been genuinely agreed.

Where to from here?

Overall, the change in approach presents greater opportunities for unions to challenge the approval of agreements that they do not support. It is also important to keep in mind the powerful new regulation-making power, that enables parliament to impose additional mandatory requirements that employers must follow to achieve genuine agreement. Whilst there are no such regulations at the time of writing, it is easy to see how this power might be used to close down any perceived ‘loopholes’ that develop over time.

It is important that employers are across these changes, otherwise they are at an increased risk of their agreements not being approved by the Commission and being thrust back into the bargaining process.

This is yet another significant change to the rules of bargaining that employers will need to factor into their pre-bargaining planning. For more guidance on the approach to bargaining planning in this new world of industrial relations (including in relation to multi—enterprise bargaining and intractable bargaining disputes), see episodes 5, 7, 8 and 9 of our podcast series, InsideIR: The Australian Industrial Relations Podcast, here.

1. Except for greenfields agreements. See s.186(2) of the Act.
2. I.e. where the notification time for the bargaining round occurred before 6 June 2023.
3. Leaving aside minor procedural or technical errors if they were not likely to disadvantage employees.
4. Ibid.
5. Ibid.
6. Fair Work Legislation Amendment (Secure Jobs, Better Pay) Act 2022 (Cth).
7. Accessed 18 May 2023.
8. In this context, a note in new s.188(2) of the Act reads: “In One Key Workforce Pty Ltd v Construction, Forestry, Mining and Energy Union [2018] FCAFC 77 (2018) 262 FCR 527, a Full Court of the Federal Court observed that whether an agreement has been genuinely agreed involves consideration of the authenticity of the agreement of the employees, including whether the employees who voted for the agreement had an informed and genuine understanding of what was being approved.”