Termination of an Enterprise Agreement: A Landmark Ruling

A recent Fair Work Commission (FWC) decision in the tertiary education sector offers guidance to employers facing difficult and protracted enterprise agreement negotiations in any industry.

Historically, there has been an unwritten expectation that where bargaining has reached a stalemate, the existing enterprise agreement would invariably remain the ‘status quo’ until a deal was done.

A series of FWC decisions now shows that employers are having increasing success in significantly impacting this status quo by approaching the FWC to terminate the expired agreement. Perhaps inspired by this trend, an employee application to achieve a similar result and terminate a long-expired Coles enterprise agreement is currently pending before the FWC.

The Murdoch University decision is the most recent in a series of significant examples, and is the focus of this update. In this regard, we note there is discussion of an appeal by the union acting for the University’s employees (the NTEU).

Mechanism for terminating expired enterprise agreements

Enterprise agreements have a nominal term, however after expiry the agreement continues to operate until terminated or replaced.

There is a pathway for an employer, employee or union covered by an expired enterprise agreement to apply to the FWC to terminate the agreement. Under section 225 of the Fair Work Act 2009 (Cth), the Fair Work Commission must terminate an expired enterprise agreement if satisfied:

• it is not contrary to the public interest to do so; and
• it is appropriate to terminate the agreement, having regard to the views of those covered by it (the employer, employees and any union) and the likely effect termination would have on them.

If an expired enterprise agreement is terminated, the employees’ terms and conditions may fall back to the underlying modern award. This has the potential to have a dramatic impact on the workforce and, from a strategic perspective, can be a compelling opportunity for change. This could be a significant ‘game changer’ for either employees or the employer. Relevantly, in the Coles application that is currently pending, it is an employee asserting that a return to the modern award would be in the public interest (whereas in the cases below it has been the employer saying there is a case to remove restrictive conditions contained in the relevant enterprise agreement).

The return to award conditions is however subject to any undertaking the employer may make to the FWC to offer a middle ground, thereby providing the FWC with more confidence that termination would not be contrary to the public interest. In each significant case in this area considered below, the employer has volunteered an undertaking that cushions the impact of the desired termination.

Background to the Murdoch University decision

There are a range of dated examples where agreements have been terminated where they are genuine relics from a previous workforce context. The most obvious cases arose where no employees remained covered by the agreement. There are still regular uncontroversial cases of this nature being heard by the FWC. However, the more interesting area is where an application to terminate is sought as a solution to problematic bargaining.

Aurizon decision
In 2015, the FWC terminated 12 expired enterprise agreements on application by Aurizon (formerly, Queensland Rail) (see [2015] FWCFB 540, upheld in [2015] FCAFC 126). The employer in that case was driving the case for change to the enterprise agreements, which it considered contained unworkable employee protections and rigidity that constrained its operations. The parties started bargaining in April 2013 (about 8 months prior to the expiry date) but had made little progress in the year to May 2014, when the employer made the application to terminate the agreements.

Key to this outcome was the Full Bench’s view that termination could still properly occur while the parties were bargaining. There would be a change to the bargaining status quo in negotiations, but this was not inconsistent with the goals of the FW Act. Earlier decisions had declined to intervene while bargaining was occurring, whereas the Full Bench in this case pointed to the “full arsenal of tools under the [FW Act]” which were available to the employees and unions in order to “assert legitimate industrial pressure” on the employer.

AGL Loy Yang decision
In 2017, the Full Bench of the FWC again affirmed termination of an enterprise agreement impacting on current bargaining (see [2017] FWCFB 1019). The facts involved the employees working at Loy Yang coal mine and nearby power station (which supplied 30% of Victoria’s electricity). The parties had been in negotiations for about 15 months. During that time, the employer had sought assistance from the FWC under s 240 of the FW Act (leading to 14 conferences involving the FWC), the union had sought good faith bargaining orders from the FWC and there had been two union applications for authorised protected action ballots.

Interestingly, the employer in that case had agreed to a term in the enterprise agreement stating that if the employer sought to terminate the agreement, it would maintain identified core terms and conditions until a replacement agreement was made. This came into play in the FWC’s consideration of the termination application, and AGL was required to abide by the commitment. At first instance, the employer offered an undertaking to maintain conditions for 3 months following termination of the agreement. This was an issue in focus in the appeal and at that stage Loy Yang instead offered an undertaking for up to three years, which was material to the Full Bench’s decision.

Outcome in the Murdoch University decision

On 29 August 2017, the Fair Work Commission decided to terminate the Murdoch University enterprise agreement, which covers about 3,500 employees. The key aspects of this decision include:

1. The employer and the union had commenced bargaining in about April 2016, with the first substantive bargaining meeting taking place on 18 May 2016. The application for termination was made after approximately 27 meetings had occurred, along with industrial action, social media campaigns and applications to the FWC and courts. The FWC was satisfied the parties were unlikely to reach an agreement in the foreseeable future.

2. There was extensive evidence about the downward trend in Murdoch University’s financial position and operations. A theme of the University’s evidence was that terminating the enterprise agreement would remove constraints and enable the University to be more agile in a challenging market. The University identified specific provisions of the agreement that it considered problematic and put forward evidence as to why these presented a problem. For example, the University considered the misconduct and unsatisfactory performance provisions to be priority areas for change, principally because of the very involved, prescriptive and multi-stage process for determining an outcome under these provisions.

3. The FWC decision clearly states this kind of application is an option during bargaining, stating: “There is no predisposition toward regarding it as contrary to the public interest to terminate an agreement when bargaining is taking place. The termination of an agreement might better support good faith bargaining for an agreement that delivers productivity benefits at the enterprise level” ([311]). The FWC recognised this outcome would change the context of bargaining and favour the employer. Commissioner Williams considered the status quo was not neutral, but rather favoured the NTEU and their resistance to change. By granting the termination application, “The starting point then would be that the provisions of the expired Agreement are not operative and will not be in a new agreement unless both parties agree to this. The focus for negotiations will likely then be on why provisions from the terminated Agreement should be retained and why different provisions should be included in a new agreement” ([454]).

4. The University offered an undertaking to maintain some terms and conditions for a period of up to 6 months in order to avoid an immediate reduction in take home pay, along with an undertaking responding to the NTEU’s arguments about compromising academic freedom.

Hallmarks of a strong case for termination – the current state of play

For an employer facing difficult and slow bargaining in a changing industry, the Murdoch University outcome is another sign that termination of an existing enterprise agreement may be an achievable ‘game changer’ to impact the negotiations. Based on this outcome and the key decisions that have gone before, there are a few hallmarks where there will be a stronger case for termination:

1. A successful termination application can be made notwithstanding that bargaining is ongoing, however successful applications have come after lengthy negotiations, including, in most examples, unsuccessful recourse to the FWC for assistance with the bargaining. In essence, the termination application is typically positioned as a means to resolve a stalemate. A termination application will not be an employer’s first port of call when faced with difficult bargaining. It is also likely to be a significant investment of time and resources. The Murdoch University case involved a 10-day hearing with extensive evidence, including expert reports from economists and other analysts.

2. A changing industrial context or one where the employer can point to a public interest associated with improved efficiency and operations across the workforce. For example, in Aurizon there were peculiarities arising from instructions from the Queensland Government to Aurizon in the context of privatisation and the Full Bench was also cognisant of the dynamics of the rail freight sector and pace of change.

3. Expert and detailed evidence that demonstrates the market position of the employer and, ideally, the impact of the enterprise agreement. Detailed evidence about the practical impact of key clauses in the enterprise agreements, which can satisfy the FWC that these are significant restrictions on the employer’s operations and a cause of inefficiency is likely to be compelling.

4. Carefully designed undertakings from the employer can give comfort about the practical impact of any termination on employees. In each of three examples above, this was a material comfort to the FWC which encouraged termination. Where a termination would have an abrupt impact on take home pay (for example, by dropping employee remuneration down to award rates), the FWC’s assessment of the likely effect on employees will become a material obstacle for an employer application.

Lessons for employers

This outcome continues the trend demonstrating that termination of an enterprise agreement is becoming a realistic option for employers faced with difficult bargaining and a market environment where terms in an enterprise agreement are a material obstacle to the business. While this kind of application remains a significant legal case to run, and requires compelling evidence, the status quo reflected in an expired enterprise agreement should no longer be regarded as set in stone.



This article was written by Kate Peterson, Special Counsel at Workdynamic Australia. The information in this article is for information purposes only and does not constitute legal advice. You should obtain specific advice relevant to your circumstances.