In a timely enterprise agreement decision, the Fair Work Commission (FWC) has dismissed an application to approve a non-union agreement finding the employer had not done enough to explain the material effects of the changes to a new enterprise agreement.

The employer, Lipman Pty Ltd (Lipman), told the FWC it held a two-hour formal discussion meeting which involved a page turning exercise of the proposed changes and employees had the opportunity to ask questions throughout.

Commissioner Johns found simple assertions by the employer that the terms of the agreement were reasonably explained did not satisfy the requirements in relation to the agreement being genuinely agreed under s 180(5) of the Fair Work Act.

This decision is timely given the Morrison Government’s industrial relations reform bill, which is currently before Parliament, contains changes to s 180(5) that would simplify the requirements for satisfying the FWC that there was ‘genuine agreement’.

Background

On 17 November, Master Builders NSW lodged on the employer’s behalf the Lipman Pty Ltd Collective Agreement 2020-2023 (the agreement) for approval by the FWC. The following day the CFMMEU contacted the FWC asking for copies of the application documents and requesting to be heard in the matter.

The application declared the steps Lipman took to explain the terms of the agreement and the effects of the terms which included holding a formal discussion meeting, a page turning exercise and consultative committee meetings.

The application also referenced a powerpoint presentation and highlighted amended items from the previous agreement, in declaring the terms of the proposed agreement were reasonably explained.

Commissioner Johns asked Lipman to respond to concerns raised in the legislative checklist which outlined the requirements in s 180(5) and the precedent set in CFMEU v One Key Workforce Pty Ltd, and provide further information about any additional steps it had taken to explain the agreement.

Lipman submitted a statutory declaration from its human resources (HR) manager outlining the steps taken by him to explain the terms and effects of the proposed agreement. Commissioner Johns said that “having been provided with a further opportunity to detail the content of the explanation given to employees, [Lipman] did not do so”.

Shortly after the employer’s second opportunity to provide more detail about the agreement explanation, the CFMMEU wrote to the FWC about its contention that the employer failed to meet its obligation pursuant to s 180(5) and that the agreement had not been genuinely agreed pursuant to s 188.

Lipman made a third attempt at providing the necessary information by a witness statement from its HR manager which sought to answer concerns raised by the CFMMEU and further clarified the information that was made available to employees. However, Commissioner Johns said he was left none the wiser about what was explained to employees and set the matter for hearing.

Not enough explanation for experienced employees

In advance of the hearing Lipman provided a further witness statement which provided evidence of the content of the explanation given to employees at the discussion meeting by referencing use of the words “noting” or “was explained with”.

Commissioner Johns again noted “it is simply not sufficient for a witness to state ‘I explained’, or ‘it was explained by me’ without going on to provide the content of the explanation”.

At the hearing, the Commissioner made findings on each of the proposed changes for the replacement agreement which had formed part of the page turning exercise at the formal meeting.

He found many of the changes were inconsequential with no material change and were unlikely to have any impact on the genuine agreement of employees. Despite this, the Commissioner found there were a number of changes which were material, and the effects of the changes should have been explained.

These included clauses related to no extra claims, cashing out of annual leave, payment for work on public holidays, dispute resolution and the removal of references to union representation.

The FWC accepted that the employees had relevant experience and knowledge, noting it was the employer’s 10th enterprise agreement and seven employees present at the meeting had been through several of the previous negotiations and were well versed in the process having had prior experience and involvement.

However, he rejected the employer’s contention that the fact employees did not ask questions when given the opportunity throughout the discussion meeting was evidence the explanation was reasonable.

The Commissioner noted that it was not strictly a rollover agreement, there were material differences and while the discussion meeting, page turning exercise and consultative committee meetings were all reasonable steps, it was not enough.

He “identified clauses in the Agreement that are not trifling, insignificant, or inconsequential so that no or minimal explanation needed to be given. This is not about requiring a system of perfection. These are substantive terms that required a proper explanation”.

The Commissioner concluded that Lipman failed to take all reasonable steps required by s 180(5), the agreement was not genuinely agreed, and he could not approve the agreement.

The approval application was dismissed.

Implications for employers

This decision is a timely demonstration of how the FWC interprets sections 180(5) and 188 of the FW Act to place an unreasonable and overly stringent requirement on employers to prove they had adequately explained to employees the terms and effects of a proposed enterprise agreement.

The extraordinarily high bar set for employers in relation to the “genuinely agreed requirement” has been the undoing of many new enterprise agreements in recent years and is often cited by employers as key reason for the declining usage of enterprise agreements as a preferred industrial instrument.

Addressing this key problem was one of the primary issues discussed during the Attorney-General’s industrial relations working group on enterprise agreement making in 2020, of which AMMA was heavily involved.

Regarding this case, while there may have been some deficiencies in Lipman’s evidence provided to the FWC, it is important to consider that the FWC found the employees had relevant industrial relations knowledge and experience from involvement in previous negotiations, they were involved in two-hour meetings on the new agreement which involved a page-by-page explanation, and were provided opportunities to ask questions of which they did not.

Despite these facts, the FWC still took the view there was insufficient evidence that the employees were able to understand their proposed new employment conditions and therefore it could not be satisfied they genuinely agreed to the new EA.

The Australian Government’s IR Reform Bill, which passed the House of Representatives last week,  contains a number of sensible reforms to agreement making including a more reasonable and common-sense approach to ensuring employees “genuinely agreed” to the agreement’s terms and conditions.

The legislation is expected to be voted on by the Senate in the next fortnight.

AMMA is working to support the passage of the bill to ensure the FW Act and the functions of the FWC are refocused on giving timely effect to bargaining outcomes between employers and employees at the workplace level, where all statutory requirements have been met.

AMMA’s submission to the Senate Committee Inquiry into the amendments includes significant evidence supporting the changes to the enterprise agreement making and approvals framework, including to s180(5) and s188 (see pages 27-31 here).

AMMA’s specialist workplace relations consultants are available to assist with all practical enterprise agreement matters, such as ensuring your explanation of agreement terms and their effects will satisfy the FWC. Email [email protected] to be put in touch with your local employment expert.