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

What are modern awards and do they affect me?

An award is a standard of minimum terms and conditions that apply to employees working in specific industries or occupations. Such additional details cannot be contracted out of and must be observed by an employer. Modern awards are the product of a complete re-organisation of the old state and federal award systems, and came into effect on 1 January 2010.

Are all employees covered by awards?

For example:

  • managers (generally speaking, people who organise other people to do the “hands on” work) 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 in July 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 weekly pay or the hourly rate is greater than required by the award.  An employee within the scope of an award will be covered by the award, and entitled to all of the benefits 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 allows employers and employees to make a collective “enterprise agreement” which can displace award terms.  An enterprise agreement has to be put to a vote of employees, and supported by more than 50% of those voting.  There are detailed processes for approval of such agreements and they must be approved by the Fair Work Commission.

Individual workplace agreements which displace awards, such as AWAs, are no longer possible, although modern awards allow Individual Flexibility Agreements which are in some ways a substitute.

In an enterprise agreement, it is possible to reorganise various classes of leave or hours of work, or pay, so long as the agreement passes the Better Off Overall Test (BOOT):  employees have to be better off than they would be under the award.  So, for example, if a higher flat hourly rate is paid instead of base rate plus overtime, the overall income must be more than would be paid for the relevant pattern of overtime work under the award.

Unions can be parties to enterprise agreements, or the agreement can be with the employees directly.  Employees are entitled to have union (or other) representation during the bargaining process if they wish.

Importantly, legislation has been introduced which establishes that all enterprise agreements that commenced pre-2010 will terminate automatically on 7 December 2023 (zombie agreements). This means that many employers may suddenly have a class of employees that have the minimum standards and conditions of their employment default back to the applicable modern award and/or the National Employment Standards under the Fair Work Act 2009 (Cth), unless employers  renegotiate with affected employees for a new enterprise agreement prior to this date. Therefore, it is important that all employers who have zombie agreements in place prepare for the automatic termination of such agreements on 7 December 2023.

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 or anywhere else.

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

The majority of 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 any additional provisions which may be desirable between the parties.

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 the 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 process of having an enterprise agreement approved and documented at the workplace; and,
  • Assist and support employers in having their enterprise agreement approved by the Fair Work Commission.

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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