FWA knocks off opt-out clauses


FWA knocks off opt-out clauses

Enterprise agreement “opt-out” clauses are not a safe bet but that there are alternative ways to reward and engage employees covered by enterprise agreements (EAs).

Recently, Fair Work Australia (FWA) has put an end to the potential for opt-out clauses in a five-member full bench decision, CFMEU v Queensland Bulk Handling [2012] FWAFB 7551.  Now, not only are “opt-out” causes not a safe bet, they are unlikely to ever be approved without significant changes to the Fair Work Act 2009.  However, the CFMEU v QBH decision does not stop an employer from exploring the alternative ways of managing essential employees described in our July Update.

The CFMEU v QBH decision centred on whether a clause that allowed individual employees to opt-out resulted in the group of employees covered by the EA not being “fairly chosen”.  Where an EA does not cover every employee, a finding that the covered group is “fairly chosen” is required before it can be approved and start operating.  FWA found the opt-out provision led to the group of covered employees not being fairly chosen, and the EA was not approved as a result. There were three reasons for its decision:

  1. FWA said if the group of employees covered by the EA could change throughout its life due to exercise of the opt-out option, it would affect the integrity of other Fair Work Act mechanisms such as termination and variation of an in-term EA (which require approval of the majority of covered employees).
  2. FWA said an opt-out clause could lead to a situation in which an EA covered only one employee. This is a surprising conclusion given that FWA decisions do not establish that an EA covering only one employee is necessarily contrary to the Fair Work Act, and a recent government review suggested that a change to legislation would be needed to introduce that limitation (see our August Update under “Other Changes”).
  3. FWA said that establishment of a flexible framework of enterprise conditions would only be legitimate under the Fair Work Act where minimum statutory protections afforded by Individual Flexibility Arrangements (IFAs) were used. Where an employee opts out of EA coverage, he or she would no longer have those protections.

Where does this leave employers?

Differentiation between EA-covered employees can still be achieved. Any EA will apply differently to different employees, even if only because employees occupy different classifications within the EA. Building on this, an EA could require only that certain conditions must be applied to all employees, leaving other conditions to be met in other individualised ways. IFAs are cumbersome, but if the EA is not overly prescriptive (while still meeting the “better-off-overall-test” (BOOT)), there will be less need to require an IFA in order to alter particular conditions.

Another FWA full bench decision this month, Solar Systems [2012] FWAFB 6397, has overturned an overly-strict application of the BOOT, meaning that there is wider scope to explore EA provisions that enable conditions to be tailored to the situation of an individual, even before an IFA has to be considered.

Expert assistance should be sought whenever the terms of an enterprise agreement are being negotiated to ensure that the approved agreement operates as intended.

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