Will your Enterprise Agreement pass the BOOT?

The Full Bench of the Fair Work Commission in its recent decision Loaded Rates Agreements [2018] FWCFB 3610 (28 June 2018) held that employers must apply the “better off overall test” (BOOT) to every employee covered by an Enterprise Agreement.

The decision involved a consideration of five applications for the approval of Enterprise Agreements containing “loaded rates”. That is, rates which are all-inclusive, or a ‘flat’ rate of pay, which absorb or set off more generous entitlements against the minimum entitlements under a modern award.

The BOOT requires a finding that each award covered employee and prospective employee would be better off under the agreement than under the relevant modern award. If any employee is not better off overall, then the Enterprise Agreement would not pass the BOOT.

With respect to an Enterprise Agreement containing loaded rates in whole or partial substitution for award penalty rates, the Commission confirmed:

“…it is not sufficient that the majority of employees – even a very large majority – are better off overall if there are any employees at all who would not be better off overall.”

Particular reference was made to the 2016 Full Bench decision of Hart v Coles Supermarkets Australia Pty Ltd [2016] FWCFB 2887. In that case, an agreement containing loaded rates higher than in the modern award, which were intended to compensate for lower penalty rates for evenings, weekends and public holidays, was found not to pass the BOOT. The loaded rates in that agreement were found to disadvantage employees who worked predominantly at times attracting a lower penalty rate under the agreement compared to the award.

Principles applied by the Full Bench

The Full Bench of the Fair Work Commission confirmed the applicable principles regarding the application of the BOOT to loaded rates agreements, notably the following:

1. Every existing and prospective award covered employee must be better off overall under the agreement than under the award. The BOOT fails if any employee is not better off.
2. It can be assumed that if a class of employees to which a particular employee belongs would be better off under the agreement than under the award, then the employee would be better off overall.
3. The practices and arrangements concerning the working of ordinary and overtime hours by existing and prospective employees must be examined. This involves identifying common patterns of working hours (including evening, weekend and/or overtime). Such information must be provided to the Commission at the time of submitting the Form F17 statutory declaration accompanying the approval application.
4. For existing employees, there may be an examination of existing roster patterns worked by various classes of employees (e.g. a sample roster to compare remuneration produced by a loaded rates pay structure compared to the modern award).
5. For prospective employees, if predictions cannot be made on the basis of the roster patterns of existing employees, then an assessment would require an examination of the terms of the agreement in order to determine the nature and characteristics of the employment which the agreement provides for or permits.
6. The value of non-monetary, optional or contingent entitlements cannot be assumed to have the same value for all employees, and it will be necessary to make a realistic assessment about the likelihood of such entitlements crystallising.
7. Where a loaded rates agreement results in significant financial detriment compared to the award, it is unlikely that a non-monetary, optional or contingent entitlement will make up for the detriment to such an extent so as to enable it to pass the BOOT.

Conclusion

Employers need to ensure that all employees and prospective employees are better off under the proposed Enterprise Agreement than the applicable modern award. This narrow interpretation of the principles of the BOOT may see more employers remain under the modern award regime as opposed to entering into an Enterprise Agreement.

If you have any questions regarding your Enterprise Agreement or the BOOT following this decision, please contact Jonathon Hadley on +61 7 3231 1653 or email jonathon.hadley@gadens.com.

Authored by:
Jonathon Hadley, Partner