In mid 2016, Essential Energy (Essential), one of the “poles and wires” energy distributors in New South Wales – followed in train operator Aurizon’s footsteps and applied to the Fair Work Commission (Commission) for its enterprise agreement (EA) to be terminated without agreement by employees or the relevant unions.

Essential argued that the EA should be terminated because it would:

  • remove restraints, restrictions and inefficiencies arising from the terms and operation of the EA, particularly the no forced redundancy and redeployment policies which are currently incorporated in the EA
  • enable Essential to utilise its workforce more efficiently
  • enable Essential to more readily and reasonably organise its business to meet the changing demands of its customers
  • allow Essential to reduce operating costs.

Sounds like something a lot of employers might consider…

For an agreement to be terminated by the Commission, the Commission needs to be satisfied that:

  • the EA has past the date nominated for expiry; and
  • termination of the EA is not contrary to the ‘public interest’; and
  • termination of the EA is ‘appropriate in all the circumstances’, including views of the employees, employer and unions covered by EA and the likely effect termination of the agreement would have on them.

If Essential is successful, the modern award will apply to employees until a new EA is negotiated. Essential have also made an “offer” which provides, relevantly, for higher remuneration than that provided under the modern award, applicable for a certain timeframe post termination of the EA.

The Commission determined in the Aurizon process that a ‘significant factor’ relevant to its decision to terminate the Aurizon EAs was the circumstances in which those EAs were made. The Queensland Government had imposed on Aurizon an obligation to provide a 3 year employment guarantee, maintaining legacy provisions. The Commission placed more weight on the impact on Aurizon of the imposed and ongoing legacy provisions, than the impact on employees resulting from the changed bargaining dynamics that would result because of its decision to terminate the EAs. The Commission determined that because the parties could continue to negotiate a new agreement (and potentially take industrial action to pursue its interests) the Aurizon EAs should be terminated.

In some respects, Essential has similarities to the situation in Aurizon. For example, Essential is operating under an EA that have been developed over a number of years and which contains significant restrictive practices.  However, unlike Aurizon, Essential continues to be a government owned corporation and the party responsible for negotiating the terms and conditions of the current EA.

What does this mean if you're reviewing your EA strategy?

  1. At this time, it is unclear how the Commission might balance the competing arguments of the economic, operating and regulatory climate (in favour of termination) v fact of employer having agreed to terms of current EA and whether it can now seek to absolve itself of that obligation. Arguably, the current position supports the latter.
  2. On the current cases, there are significant challenges for applying to terminate an EA on the basis of high wage base. Typically the applications for termination of EAs under the FW regime have related to restrictive clauses, rather than wage payments. Indeed, Aurizon was offering pay increases to employees.
  3. Any strategy seeking to terminate an EA is a medium to long term approach – requiring the bargaining process to demonstrate that the outcome cannot be achieved through bargaining; and time taken for cases to proceed through the Commission. Aurizon spent 9 months in negotiations and at least a year in proceedings before the Commission and Federal Court (the unions unsuccessfully sought a judicial review of the Commission's decision).
  4. Even if you think there are some good arguments in favour of termination, litigation is uncertain and will cost the organisation, in terms of internal resource allocation, external legal costs and potentially independent expert costs. The Aurizon hearing ran for 6 days and involved 29 witnesses![1]
  5. Last and certainly not least, do the benefits of a potential successful outcome outweigh the impact on employees and company culture?

[1] Ashurst - p3.