Plain English Guide to Modern Awards, Enterprise Agreements and Employment Contracts

What are modern awards and do they affect me?

A modern award is a standard of minimum terms and conditions that apply to employees working in specific industries or occupations. These minimum entitlements cannot be contracted out of and must be observed by employers. Modern awards are the product of a
re-organisation of the old state and federal awards and came into effect on 1 January 2010.

Are all employees covered by awards?

For example:

  • managers are usually not covered by awards;
  • some classes of professional employees (such as accountants and lawyers) are not covered;
  • “high income employees” (employees guaranteed, in writing, in advance, an income of $167,500)(as at 1 July 2023, indexed annually), excluding statutory super and at-risk payments such as bonuses and commission, can be excluded from coverage by an award.

However, as a result of award modernisation, most employees are covered by an award.

An employee is not “award free” only because an employer pays a weekly pay or hourly rate greater than the award minimum. An employee within the scope of an award will be covered by the award, and entitled to all of the entitlements specified by the award, usually based on the over-award rate of pay.

Hours of work, overtime and leave entitlements often create problems when over-award payments are intended to cover all entitlements, but this has not been clearly communicated to the employee.

What is an Enterprise Agreement?

The Fair Work Act 2009 allows employers and employees to make an “enterprise agreement” which can override award terms. An enterprise agreement (EA) has to be voted on by the employees of an enterprise, and agreed to by a majority (50% or more) of those voting. There are detailed processes for approval of EAs and they must be lodged for approval by the Fair Work Commission.

Modern awards allow for Individual Flexibility Agreements to be negotiated between an employer and an employee and generally provide greater flexibility for employees.

In an enterprise agreement, it is possible to negotiate varying classes of leave, hours of work or pay, as long as the agreement passes the Better Off Overall Test (BOOT): each employee (and prospective employee) has to be better off if the EA applied than they would be if the award applied.

For example, if a higher flat hourly wage rate is paid instead of the base wage rate plus overtime, the total income paid to an employee must exceed the entitlement for the relevant pattern of overtime worked under the award. The employee must be better off overall.
Unions can be parties to enterprise agreements or the agreement can be negotiated directly with employees. Employees are entitled to have union (or other) representation during the bargaining process if they wish. There are strict procedural rules to be complied with by employers when it comes to enterprise bargaining.

Employers can also bargain to negotiate a single interest employer agreement where there are two employers with a common interest who want to negotiate a single agreement. For example, franchisees.

Supported bargaining agreements are also able to be negotiated for low paid employees.

Where an employer is negotiating with a union, they need to exercise caution because if there is a stalemate in negotiations after 9 months, the union may apply to the Fair Work Commission for an intractable bargaining workplace determination. The Fair Work Commission will arbitrate the unagreed issues between the parties and issue an order of the conditions. Employers risk being left with worse conditions than they could have negotiated so care must be taken in these circumstances.

What is the difference between an employment contract and an enterprise agreement?

It is always possible for an employer to have an employment contract with an individual employee. The contract may be a letter of offer accepted by the employee, a letter of appointment, or a more formal type of contract. Such a contract is a private matter between employer and employee and does not have to be registered with the Fair Work Commission.

However, an employment contract cannot displace award terms and conditions or terms contained in the NES or Fair Work Act. So if an award applies, it forms the background to the employment contract. If the terms of the contract are less favourable than the award, then the award terms will apply despite the contract.

Most employees have an employment contract rather than an enterprise agreement. There is no obligation to have an enterprise agreement. There are many complexities and subtleties to drafting an employment contract to comply with current legislation, and to optimise the position of the employer or the employee. It is well worthwhile having employment contracts drafted or checked periodically by an employment lawyer to ensure compliance with the current law, to highlight any problems, and to draft additional provisions which may be desirable between the parties. This is particularly important now as there has been substantial regulatory reform since November 2022. There are many issues involved with awards and enterprise agreements and their relationship to employment contracts. It is important to speak with an experienced employment lawyer with commercial expertise to make sure you understand the possible ramifications when dealing with this complex area of law.

How can Coleman Greig help you?

Coleman Greig’s experienced employment lawyers can:

  • Draft employment contracts;
  • Draft enterprise agreements;
  • Advise about the general advantages or disadvantages of staying in the award system or introducing a enterprise agreement or using a common law employment contract;
  • Identify options to deal with issues in which greater flexibility is required compared to award requirements, and document those issues so that the final agreement will pass the Better off overall test (BOOT);
  • Assist with the procedural steps for having an enterprise agreement approved by the Fair Work Commission; and,
  • Assist and support employers with any issues that may arise in relation to enterprise bargaining, union engagement and Fair Work Ombudsman investigations.

For more information on Employment related issues, please contact our Employment Law & WHS team.

Disclaimer: The information provided above is a general summary and is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.


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