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The pitfalls of not properly explaining the terms of a proposed EA

As a follow up to our earlier article, the Full Court of the Federal Court has confirmed, on appeal, that the requirement to “taken all reasonable steps to explain the terms of the agreement and the effect of those terms” to employees who will be covered by the enterprise agreement means more than simply reading out the terms of the agreement.

The facts of the matter involve a labour hire provider asking three employees to approve an enterprise agreement that had the potential to cover a broad scope of employees. The BOOT analysis for the agreement required the agreement to be compared to 11 different awards across a range of industries, from black coal mining to the hospitality industry.

By the time proceedings were brought in the Federal Court by the CFMEU, some one and a half years after the agreement was first approved by the Commission, the agreement covered over 300 employees across a range of industries.

On appeal, the Full Court of the Federal Court held that it was not enough for the Fair Work Commission to accept the statement of the HR manager in her statutory declaration filed with the approval application that she had “explained” the terms of the agreement and the effect of those terms. The Full Court held that the mere fact such a statement was recorded in a statutory declaration was insufficient: “the recital of a conclusion on the very question the Commission was required (through an evaluative process) to determine is not, without more, a sufficient basis for the satisfaction of the statutory test.”

On the question of “genuine agreement”, the Full Court agreed with the trial judge’s conclusion that the fact that the three employees had voted for an agreement which covered a range of other industries which they had no experience in raised serious doubt about the genuineness of the agreement. The Full Court also held that such an agreement lacked “authenticity” and “moral authority”. In this regard, the Full Court concluded that the failure by the Commission to properly question this apparent disparity between the experiences of the employees and the industries covered by the agreement meant that the Commission erred in failing to perform the statutory task required of it.

This decision has set a high bar in regard to the evidence that is required to satisfy the Commission that the employer has “taken all reasonable steps to explain the terms of the agreement and the effect of those terms”. In our view, employers must make sure that they carefully go through each and every term of the agreement and explain the effect of each term to the employees. In order to satisfy the Commission of this requirement, a written document to that effect would be ideal.

One Key Workforce Pty Ltd v Construction, Forestry, Mining and Energy Union [2018] FCAFC 77 (25 May 2018)

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