Making an enterprise agreement – what to tell employees before the vote

The Fair Work Commission (Commission) has recently rejected a number of applications for approval of enterprise agreements (EA) of employers in the construction industry, finding that employees had not genuinely agreed to the proposed EA¹ (Applications).

The key issue for determination was whether the employers had taken “all reasonable steps” to explain the terms of the proposed EA and the effect of those terms. The Applications provide a timely reminder to employers on the importance of the steps taken to explain the terms of a proposed EA. 

An obligation to explain the terms of a proposed EA

Before an employer can request employees approve a proposed EA, the employer must comply with the pre-approval requirements in section 180 of the Fair Work Act 2009 (Cth) (FW Act).

A critical pre-approval requirement in section 180(5) is that the employer must take all reasonable steps to ensure that:

• the terms of the proposed EA, and the effect of those terms, are explained to the relevant employees
• the explanation is provided in an appropriate manner, taking into account the particular circumstances and needs of the relevant employees (for example, making adjustments for employees from non-English speaking backgrounds).

If the Commission is not satisfied that all reasonable steps were taken, then an EA cannot be approved by the Commission. The emphasis in the legislation on “all” reasonable steps is a high standard for employers to meet.

Did the employers take “all reasonable steps”?

In determining whether “all reasonable steps” have been taken, the Commission must focus on the steps actually taken to comply with section 180(5) and consider whether:

• the steps taken were reasonable in the circumstances
• these were "all" the reasonable steps that should have been taken in the circumstances.

In considering the Applications, the Commission emphasised the test in section 180(5) is a question of substance, not form and “requires attention to the content of the explanation given”.

In the Applications, the steps taken by employers to explain the terms of the proposed EA included:

• providing a tracked changes copy of the proposed EA
• a toolbox talk meeting, where a PowerPoint presentation was issued which explained the key changes in the proposed EA
• a page-turn of the proposed EA, which focused on the key changes and how the terms were different from the current EA
• providing employees with an opportunity to ask questions.

In considering whether to approve the Applications, the Commission reviewed the evidence of the explanations provided to employees, including the content of the documentation provided to employees. This included a detailed assessment of the evidence to determine:

1. what was explained to the employees?
2. what was the effect of the clause and was the effect explained to employees?

In conducting this analysis, the Commission found that while "some" terms of the proposed EA were adequately explained to employees, the Commission considered that other provisions were not properly explained. This meant that while the Commission was satisfied some reasonable steps were taken, the Commission was not satisfied that all reasonable steps were taken.

For example, the Commission found that a provision dealing with the nominal term of the proposed EA was not properly explained. The Commission held that the effect of the change of the nominal term from one year to three years was that any industrial action engaged in by employees during the nominal term will be unprotected and subject to a stop order by the Commission, which was not explained to employees.

In considering the totality of the explanation provided, the Commission was not satisfied that “all reasonable steps” were taken to explain the terms of the proposed EA and therefore employees had not genuinely agreed to the proposed EA. The Applications were dismissed.

The impact of this finding is that the EA was not approved by the Commission and the employers must recommence the voting process to make an EA.

Lessons for employers

The high-level scrutiny that the Commission applied in these Applications reinforces the importance for employers to carefully plan and prepare the steps it will take to explain the terms of a proposed EA. This process involves considering what is appropriate for the employees who will be covered by the proposed EA and what information should be provided to ensure employees are making an informed decision when casting their vote. 

In the Applications, the Commission scrutinised the detailed content of the explanation provided for each clause, which it believed had materially changed from the earlier EA. Employers should be mindful of not only the types of communication but the messages which are conveyed to employees when providing the explanation. This issue will be critical to establishing the reasonableness of the explanation provided.

The Commission noted that it is relatively easy for the Commission to assess the reasonableness of the explanation if it is in writing. It is therefore important for employers to keep accurate and detailed records of the process and what was said to the relevant employees, to assist in demonstrating that all reasonable steps were taken.

Authors: Michael Selinger, Jennifer van Bronswijk & Jamie Kim

^[1] See for example, Matters [2021] FWC 1016; [2021] FWC 1267; [2021] FWC 1425; [2021] FWC 1509.

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this article is accurate at the date it is received or that it will continue to be accurate in the future.

Published by:

Michael Selinger

Jennifer van Bronswijk

Jamie Kim

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