Fair Work Act 2009

s.185 - Enterprise agreement

Application for approval of the Gallis Pty Ltd Enterprise Agreement 2017 - reconciliation clause - 'better off overall test' not met - Requirement of s.180(5) not met - agreement not approved .

[1] This decision concerns an application by Gallis Pty Ltd T/A Cucina By Toscanis (the Applicant) for approval of an enterprise agreement known as the Gallis Pty Ltd Enterprise Agreement 2017 (the Agreement). The application was made pursuant to s.185 of the Fair Work Act 2009 (the Act) and relates to a single enterprise agreement.

[2] The primary activity of the Applicant is in the restaurant industry. Employees whose employment is covered by the Agreement perform a variety of work that is covered by the Restaurant Industry Award 2010. This is the relevant modern award for the purposes of the 'better off overall test' (BOOT) in s.193 of the Act.

[3] On 11 January 2018 the Fair Work Commission (the Commission) wrote to the Applicant raising a number of concerns in relation to the application for approval of the Agreement. There has been an exchange of correspondence between the Commission and the Applicant's representative since this date. Ultimately in that correspondence I expressed a provisional view that the Agreement could not be approved as I could not be satisfied that the requirement of s.180(5) of the Act had been met. I also expressed a provisional view that I was not satisfied that the Agreement passed the BOOT even after taking into account the various undertakings proposed by the Applicant.

[4] The Applicant requested to be heard and I listed the matter for hearing in Brisbane on 8 March 2018. On the day of the hearing the Applicant's representative, Ms Melissa Demarco, requested that the hearing be conducted by telephone and the request was granted. Ms Demarco was granted permission to appear pursuant to s.596(2)(b) of the Act. At the conclusion of the hearing I issued a decision ex tempore dismissing the application for approval of the Agreement. I advised I would provide written reasons for my decision. What follows are my reasons for decision.

[5] Before the Commission may approve an enterprise agreement, it must be satisfied that the Agreement passes the better off overall test (s.186(2)(d)).

[6] Section 193 of the Act is as follows:

When a non greenfields agreement passes the better off overall test

(1) An enterprise agreement that is not a greenfields agreement passes the better off overall test under this section if the FWC is satisfied, as at the test time, that each award covered employee, and each prospective award covered employee, for the agreement would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee.

FWC must disregard individual flexibility arrangement

(2) If, under the flexibility term in the relevant modern award, an individual flexibility arrangement has been agreed to by an award covered employee and his or her employer, the FWC must disregard the individual flexibility arrangement for the purposes of determining whether the agreement passes the better off overall test.

When a greenfields agreement passes the better off overall test

(3) A greenfields agreement passes the better off overall test under this section if the FWC is satisfied, as at the test time, that each prospective award covered employee for the agreement would be better off overall if the agreement applied to the employee than if the relevant modern award applied to the employee.

(4) An award covered employee for an enterprise agreement is an employee who:

(b) at the test time, is covered by a modern award (the relevant modern award) that:

(ii) covers the employee in relation to the work that he or she is to perform under the agreement; and

(5) A prospective award covered employee for an enterprise agreement is a person who, if he or she were an employee at the test time of an employer covered by the agreement:

(b) would be covered by a modern award (the relevant modern award) that:

(ii) would cover the person in relation to the work that he or she would perform under the agreement; and

(6) The test time is the time the application for approval of the agreement by the FWC was made under section 185.

FWC may assume employee better off overall in certain circumstances

(7) For the purposes of determining whether an enterprise agreement passes the better off overall test, if a class of employees to which a particular employee belongs would be better off if the agreement applied to that class than if the relevant modern award applied to that class, the FWC is entitled to assume, in the absence of evidence to the contrary, that the employee would be better off overall if the agreement applied to the employee."

[7] As the Full Bench noted in Hart v Coles Supermarkets Australia Pty Ltd,[1] s.193 requires the Commission to be satisfied that a "consideration of all the benefits and detriments under the Agreement results in each employee and each prospective employee being better off overall under the Agreement compared to the Award".[2]

[8] The Agreement is a comprehensive Agreement and does not incorporate the terms of the relevant award, being the Restaurant Industry Award 2010 (the Award) nor any other modern award. In the Form F17 in answer to question 3.4, the Applicant stated that the minimum rate of pay in the Agreement was 4% above the minimum weekly rate of pay in the Award. This was true of some rates of pay, however, the Agreement contained two rates of pay which were below the rates of pay in the Award at test time, notwithstanding that the Agreement stated the wage rates represent an 4% increase above the rates prescribed by the Award and that the employer will ensure the hourly rate of pay under the Agreement is not less than the relevant Award rate.

[9] The Agreement does not provide various Award entitlements and contains a number of less beneficial terms when compared with the Award. An extensive list of BOOT concerns were raised with the Applicant, as I was not satisfied that the rates of pay in the Agreement were high enough to compensate for the reduction in entitlements. The major reductions in the Agreement included the following:

• No weekend penalties and the Agreement allows for ordinary hours to be worked on weekends;

• No public holiday penalties;

• No annual leave loading;

• The Agreement offers a minimum of two hours engagement for part time employees, compared to a minimum three hours engagement under the Award;

• The Agreement does not offer overtime to part time employees for all time worked in excess of the employee's rostered hours, as per clause 12.8 of the Award;

• The Agreement does not offer additional payment for work done between the hours of 10:00 pm to 6:00 am on Monday to Friday, in comparison to the Award which provides for an additional payment for hours worked between 10:00 pm to 12:00 am at 10% of the standard hourly rate per hour extra and between 12:00 am to 6:00 am at 15% of the standard hourly rate per hour extra;

• The Agreement does not offer minimum engagements for work performed on public holidays;

• It is unclear if apprentices are entitled to proficiency payments under the Award or their many entitlements provided at clause 14 of the Award;

• Changes to rosters provisions in the Agreement are less beneficial than the Award;

• The Agreement does not offer overtime penalties. Instead employees only appear entitled to time off in lieu (TOIL) for any hours worked as overtime by way of clause 30.5(a) of the Agreement. However, it is unclear when exactly TOIL is accrued by employees under the Agreement as overtime is not defined;

  • Additionally, the Award only allows for TOIL by agreement between the employee and the employer with overtime being the default position under the Award;
  • Furthermore, the Award provides that the period of time off that an employee is entitled to take is equivalent to the overtime payment that would have been made;

• Employees are not provided with paid breaks when working overtime or some other break entitlements provided in clause 32 of the Award;

• Employees are required to purchase and launder their own uniform which is a reduction when compared with the uniform allowances in clause 24.3 of the Award;

• No split shift allowances and no meal allowances; and

• No distant work allowances, if applicable.

[10] The Applicant provided a significant number of undertakings to satisfy my concerns, including an undertaking which increased the two of the rates of pay which were below the corresponding rates of pay in the Award and confirmed that the rates of pay represent a 4% increase above the Award rates at test time.

[11] Modelling of a number of scenarios was subsequently prepared by the Commission which took into account the undertakings offered. The modelling demonstrated that, even when the undertakings were taken into account, it was apparent that the Agreement still did not pass the BOOT. In particular, the modelling demonstrated that employees would not be better off overall under the Agreement if required to work weekends, public holidays or overtime.

[12] The modelling was provided to the Applicant and I expressed a provisional view to the Applicant that I remained concerned that the Agreement did not pass the BOOT. The Applicant subsequently requested a hearing. On the day prior to the hearing, the Applicant provided a number of "recent rosters for perusal" to assist at the hearing. I have had regard to the recent rosters provided and I am not satisfied that employees working these rosters will be better off overall. Even if I am wrong about that, these recent rosters are not the only configuration of rosters that can be worked under the terms of the Agreement. During the hearing the Applicant's representative confirmed that under the terms of the Agreement the employer could, if there was a need, roster employees in configurations other than the rosters provided.[3] The Applicant's representative did not make any submission to the effect that there was an error with the modelling prepared by the Commission and provided to the Applicant prior to the hearing. The Applicant's representative did not offer any other undertakings. It is evident that the Agreement, even when read with the proposed undertakings, does not pass the BOOT.

[13] I have taken into account that the Applicant offered a "reconciliation" undertaking. In circumstances where it is apparent that employees will not be better off overall in such a wide variety of realistic, as opposed to unlikely circumstances, I do not consider that a reconciliation clause can be relied on to satisfy the BOOT. Essentially, in the circumstances of this matter, it is leaving the reconciliation clause with far too much work to do to remedy the likely disadvantage from the operation of the Agreement.[4]

[14] In any case, the reconciliation clause suffers from similar problems to those identified by the Full Bench in Shop, Distributive and Allied Employees Association v Beechworth Bakery Employee Co Pty Ltd (Beechworth).[5] It does not create an enforceable right to a payment which would result in the affected employee being better off overall under the Agreement than under the Award.[6] It simply creates an entitlement to a reconciliation which would establish if the employee's total remuneration is less than what the employee would have received under the Award. It therefore cannot be certain that affected employees will remain better off overall. Leaving aside the lack of a right to any payment, the reconciliation request occurs "on an annual basis" and relates to work performed in the previous twelve (12) months. As was noted in Beechworth, the inevitable consequence is a delay in payment to an employee which may not be rectified in full by later repayment.[7]

[15] Finally I note that the Applicant pointed to the existing agreement and two other agreements previously approved by this Commission that were said to be in similar terms to the one before me. However, this is not relevant to my consideration. I must reach a state of satisfaction on the BOOT having regard to the Agreement currently before me.

[16] There is no suggestion that exceptional circumstances exist as contemplated in s.189 of the Act and this is not a basis upon which the Agreement could be approved.

[17] I am not satisfied that the Agreement passes the better off overall test. The requirement for approval set out in s.186(2)(d) has therefore not been met.

Section 180(5) concerns

[18] Section 186(2)(a) provides as follows:

(a) if the agreement is not a greenfields agreement - the agreement has been genuinely agreed to by the employees covered by the agreement."

[19] Section 188(a)(i) provides as follows:

"...An enterprise agreement has been genuinely agreed to by the employees covered by the agreement if the FWC is satisfied that:

(a) the employer, or each of the employers, covered by the agreement complied with the following provisions in relation to the agreement:

(i) subsections 180(2), (3) and (5) (which deal with pre approval steps)."

[20] Section 180(5) provides as follow:

"(5) The employer must take all reasonable steps to ensure that:

(a) the terms of the agreement, and the effect of those terms, are explained to the relevant employees; and

(b) the explanation is provided in an appropriate manner taking into account the particular circumstances and needs of the relevant employees."

[21] Satisfaction under s.186(2)(a) is a jurisdictional prerequisite for the approval of any enterprise agreement. If s.180(5) is not satisfied, then the Commission cannot be satisfied that the Agreement has been genuinely agreed to pursuant to s.188(a)(i) and consequently the Commission cannot attain satisfaction of the requirement at s.186(2)(a) of the Act.

[22] The meaning of s.180(5) and what is required, particularly in regards to s.180(5)(a) was subject to detailed consideration in the recent decision of his Honour Justice Flick Construction, Forestry, Mining and Energy Union v One Key Workforce Pty Ltd (One Key).[8]

[23] In the Form F17 the employer is asked at question 2.6 what steps were taken by the employer to explain the terms of the Agreement, and the effect of those terms, to the relevant employees. The answer provided by the employer was "On 14 September 2017, a meeting was held with the relevant employees to discuss the terms of the proposed Agreement and the effect of the terms of the proposed Agreement".

[24] Further, at question 3.4 in the Form F17 the employer is asked whether the Agreement contains any terms or conditions of employment that are more beneficial than equivalent terms in the Award and the answer provided was "yes" that the minimum weekly rate of pay for employees is 4% more than the Award. At question 3.5 in the Form F17 the employer is asked whether the Agreement contains any terms or conditions of employment that are less beneficial than equivalent terms in the Award and the answer provided was "no" that this was "not applicable". As set out above in relation to the BOOT there are a significant number of less beneficial terms in the Agreement. The answer to the question is clearly incorrect. In circumstances where the answer to this question is so clearly incorrect, I had reason to query whether or not s.180(5) was complied with.[9] I therefore sought further information on this point. The response from the Applicant dated 25 January 2018 was as follows:

"The 'less beneficial terms' included in the Agreement (as approved) were explained to the employees on the basis of the operational requirements of the business. The restaurant is open weekdays from 7:30 am to 10 pm and on weekends from 7:30 am to 11:30 pm. Further, Gallis Pty Ltd does not currently employ apprentices, part-time employees or that perform shift work/split shifts."

[25] At the hearing the Applicant's representative was asked for any other submissions in relation to s.180(5) of the Act. The Applicant's representative submitted that this was as outlined in its email dated 7 March 2018 that effectively employees had been provided with the Award, the Award rates of pay and their wages and it was considered whether the company would terminate the existing enterprise agreement and move to the Award. Employees expressed a concern that they would like to receive one base rate of pay, being the higher rate of pay in the Agreement and did not want to receive the lower rate in the Award, if they worked weekdays.[10] The email dated 7 March 2018 provides that "the employer and employees wanted to be able to rotate the roster (i.e. to have every alternate weekend off) so they would all be paid the same rate irrespective of which shift the employees worked. The employees considered this was fair so they could have a weekend off and not reduce their pay that week". The Applicant submitted that the Agreement was explained to employees in terms that they would receive a consistent rate of pay.[11]

[26] I have considered the contents of the Form F17, the submissions provided by the Applicant's representative in its correspondence to the Commission and during the hearing and the explanation provided by the Applicant's Director in its response dated 25 January 2018. Overall, I am not satisfied that the employer took all reasonable steps to ensure that the terms of the Agreement, and the effect of those terms, were explained to the relevant employees. In my view, having discussions with employees about the operational requirements of the business does not meet the requirement of explaining the effect of the terms of the Agreement to employees. The Applicant should have taken steps to explain to employees how the terms of the Agreement operated in comparison to the Award, considering that a 4% higher wage rate was to compensate for a very significant number of less beneficial terms and reductions in Award entitlements. There is no evidence that this occurred.

[27] I have taken into account that there is currently an Agreement that applies to the employees which the Applicant submits is expressed in similar terms. However, I note the existing Agreement was approved in 2012 with a number of undertakings. One such undertaking is that clause 3 of the existing agreement provides that the agreement "is to be read and interpreted wholly in conjunction with the Restaurant Industry Award 2010 provided that where there is any inconsistency this agreement shall take precedence to the extent permitted". An undertaking was provided that states the employer shall not rely on clause 9A (which excludes the Award) on the basis that clause 3 described the relationship between the Agreement and the Award. In contrast, clause 3(c) of this Agreement provides that "the Award or any other modern award does not apply to an employee in relation to their employment at a time when the Agreement applies to the employee". This factor alone represents a significant departure from the terms of the earlier agreement.

[28] His Honour Justice Flick said in One Key:

"The requirement imposed by s 180(5) to "take all reasonable steps to ensure that the terms of the agreement, and the effect of those terms, are explained" is an important obligation imposed upon an employer to ensure that employees are as fully informed as practicable. The requirement is not a mere formality. Whatever steps may be necessary will depend upon the facts and circumstances of each particular case..."[12]

[29] Overall, for the reasons set out above I am not satisfied that the steps taken by the Applicant in this case constitute reasonable steps. It follows that I cannot be satisfied that the Applicant complied with s.180(5) of the Act. As s.180(5) is not satisfied, I cannot be satisfied that the Agreement has been genuinely agreed to pursuant to s.188(a)(i) and consequently I cannot attain satisfaction of the requirement at s.186(2)(a).

[30] For the reasons set out above I am not satisfied that the employer complied with the pre-approval step set out in s.180(5). I am therefore not satisfied that the employer complied with s.188(a)(i) and therefore I am not satisfied the employees have genuinely agreed to the Agreement. As the Agreement was not genuinely agreed to by the employees covered by the Agreement I am not satisfied that the requirement in s.186(2)(a) has been met. I am therefore unable to approve the application.

[31] For the reasons set out above I am also not satisfied that the Agreement passes the better off overall test. The requirement for approval set out in s.186(2)(d) has therefore not been met.

[32] It is for these reasons that the application for approval of the Agreement was dismissed.

[1] Hart v Coles Supermarkets Australia Pty Ltd [2016] FWCFB 2887

[2] [2016] FWCFB 2887 at [33]

[4] HBC Tasmania Pty Ltd T/A Hog's Breath Café Launceston [2014] FWC 7335 at [47] citing Falls Creek Alpine Resort Management [2010] FWA 2847 at [80]

[5] Shop, Distributive and Allied Employees Association v Beechworth Bakery Employee Co Pty Ltd [2017] FWCFB 1664 at [41] to [46]

[6] [2017] FWCFB 1664 at [42]

[7] [2017] FWCFB 1664 at [45]

[8] Construction, Forestry, Mining and Energy Union v One Key Workforce Pty Ltd, [2017] FCA 1266

[9] Construction, Forestry, Mining and Energy Union v KAEFER Integrated Services Pty Ltd [2017] FWCFB 5630 at [49]

[12] [2017] FCA 1266 at [103]

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