AREEA consultant Karen Nelson analyses the emerging trend of employers utilising enterprise agreement options under the Fair Work Act 2009 in an attempt to manage operating costs and protect jobs.

AFTER rejecting the proposal only months ago, employees of the Whyalla steelworks have voted up a new enterprise agreement representing a 10 per cent reduction in take home pay. This is the latest in a growing list of enterprise agreements being made, varied or terminated in an effort to improve the balance between labour costs and productivity in a challenging economic environment.

Background

KordaMentha, acting as administrator for troubled steelmaker Arrium, recommended the 10 per cent reduction in wages to make the business more attractive to potential buyers, and had achieved in-principle support for the deal from the Australian Workers Union.

The workers previously rejected the deal to replace the OneSteel Whyalla Employees Enterprise Agreement 2013 which expired on 31 August this year. The result of the first vote revealed a close margin, leading to a re-run of the vote which achieved the successful outcome.

This case follows similar developments elsewhere in the resources and industrial sectors.

Earlier this year a Full Bench of the Fair Work Commission (FWC) upheld a decision of Commissioner Cloghan to terminate the Griffin Coal (Maintenance) Collective Agreement 2012, which covered maintenance employees engaged in the Griffin Coal mining operation in the Collie Basin in Western Australia.

The termination of this enterprise agreement meant that employee terms and conditions fell back to the Black Coal Award 2010 and the employee’s individual employment contracts. By taking this approach Griffin Coal were able to successfully reduce their labour cost, which was highlighted as their highest operating cost and had previously led to a situation where the miner was making a loss on every tonne of production. Read the related AREEA article here.

A further example of the ability to utilise the Fair Work Act 2009 (“FW Act”) to achieve commercial outcomes can be seen in the construction industry, where employers have successfully reduced labour costs by offering replacement enterprise agreement deals removing legacy allowances, or by requesting employees to approve variations to existing enterprise agreements which either freeze or remove wage increases for the next 12 to 24 months.

These strategies result in a relatively minor reduction to individual take home pay, however allow the employer to competitively tender and protect the jobs of their existing workforce.

Implications for employers

A clear trend has emerged for employers to utilise the provisions of the FW Act in relation to variation or termination of enterprise agreements in an effort to reduce operating costs. Employers are exploring these options within the bounds of the FW Act in an effort to ensure businesses remain profitable while maintaining existing employee levels and avoiding redundancies. To achieve a successful outcome utilising this strategy employers must work collaboratively with their employees, and effectively communicate throughout the process.

Similarly to making a new enterprise agreement, the provisions of the FW Act which allow an employer and their employees to jointly agree to a variation or termination of an in-term enterprise agreement are prescriptive, and there are a number of key qualifiers that must be met before the FWC will consider the approval of an application. Employers are advised to seek the support of an experienced practitioner prior to attempting an enterprise agreement variation or termination.

AREEA’s experienced workplace relations consultants can provide advice and assistance to employers on the options available to achieve cost savings with new or existing enterprise agreements. To learn more, contact an AREEA consultant near you.