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Why do You Need an Enterprise Agreement?

Published December 14, 2022 (last updated on July 10, 2024) | Adam Wyatt - Content Writer


Enterprise agreements (EAs) set out minimum entitlements and employment conditions for your business. An enterprise agreement is between one or more national system employers and their employees, as specified in the agreement. Enterprise agreements are negotiated by the parties through collective bargaining in good faith, primarily at the enterprise level.

Enterprise agreements can be tailored to meet the needs of a business or group of businesses and include some mandatory terms as well as provisions regarding various matters, such as rates of pay, employment conditions, and dispute resolution processes. The agreement cannot include anything unlawful, for example, anything discriminatory. The minimum pay in the agreement can’t be less than the base rate of pay for the classification under the award, and the National Employment Standards (NES) enshrined in the Fair Work Act will also continue to apply. The employees also need to be “better off overall” than they would have been under the award for the Fair Work Commission to approve the agreement.

Why do you need an enterprise agreement?

Enterprise agreements can assist employers who want to tailor employment conditions to their workplace and the type of work. It can be complex and confusing to calculate individual awards or allowances, especially in industries or businesses where several allowances may apply. In such situations, an employer may negotiate with the employees to pay a higher hourly rate rather than allowances, as long as the employees are better off under the arrangements.

Enterprise agreements also allow the employer and employee to agree on specific conditions of employment.

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Enterprise agreements can be useful for a business as they may provide benefits for both employers and employees.

Content of an Enterprise Agreement

The content of the EA is regulated by the Fair Work Act.

Certain terms must be included in an EA, specifically:

  • a coverage term that explains who the agreement covers

  • a flexibility term allowing the employer and an individual employee to agree to vary the EA in order to meet the needs of the employer and the employee

  • a consultation term requiring the employer to consult with employees regarding any major workplace changes that are likely to have a significant effect on the employee or group of employees

  • a dispute resolution term that allows the FWC or another independent party to settle disputes concerning any matters arising under the agreement or in relation to the National Employment Standards (NES), and

  • a nominal expiry date which is no later than four years after the day on which FWC approves the agreement

Advantages for Employers

Benefits for employers may include:

  • Flexibility or consistency regarding employment terms and conditions tailored to the business, e.g. rostering, hours of work,

  • Certainty as to remuneration incorporating penalty rates and allowances, i.e. ‘loaded’ rates

  • Certainty on future wages growth, e.g., pre-determined increases for length of the agreement

  • Reduced pressure to have an enterprise agreement for businesses tendering project work

  • Consolidation and simplification of terms and conditions for businesses who may have multiple awards covering their employees.

  • Protection from industrial action and reduced risk of disputes particularly if unions have been involved in the bargaining process.

  • Competitive advantage for businesses tendering for work as they can fix their costs.

Advantages for Employees

Employees are empowered by the bargaining process, enjoy certainty as to their employment terms and conditions, and are assured that they are better off than they would have been under the applicable award, all of which may result in increased productivity and morale of employees. An enterprise agreement can also be a means for employee organisations or (trade) unions to seek improved employee conditions within your business.

What Are the Disadvantages of an Enterprise Agreement

Disadvantages for Employers

Some of the negative aspects of an enterprise agreement for Employers are as follows:

  • Minimal flexibility in terms of pay as an enterprise agreement cannot reduce monetary obligations under the NES or the applicable award.

  • An agreement takes time to plan, create and negotiate and can be costly

  • An agreement requires a strict process and timeframes that must be met, or the agreement may be rejected

  • Employees must be notified of employer intentions and can negotiate the terms of the agreement

  • Employees have the right to involve a union

  • The employer has limited control over the voting outcome and the involvement of unions

  • Termination usually requires the agreement of the employees

  • If you want to vary an agreement before the nominal expiry date, you will usually need to seek agreement from employees and approval of the Fair Work Commission. The EA can be terminated by mutual agreement between the employer and employees who are covered by the EA.

Often there are alternatives which may be used to achieve the business objectives without having to undertake a full enterprise agreement bargaining process.

Disadvantages for Employees

There generally aren’t any disadvantages for an employee.

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We can help you understand enterprise agreements. Call our 24/7 Advice Line for free initial advice.

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