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Full Bench hands down decision on loaded rates

July 10, 2018

By Alex Millman and Lindsay Carroll, NRA Legal

Last Thursday a five-member Full Bench of the Fair Work Commission, headed by Vice President Adam Hatcher, handed down its decision in the Loaded Rates in Agreements Case.

This case considered eight (later reduced to five) enterprise agreements for which the Commission’s approval was sought.

Each of these agreements had a common feature in that they provided for a ‘loaded rate’ – that is, an above-award rate of pay for all hours worked in exchange for lesser (or no) penalty rates.

The context

The case came about in large part due to the decision of a different Full Bench in Hart v Coles Supermarkets Australia Pty Ltd in 2016.

This was the case in which Mr Duncan Hart was able to overturn Coles’ latest enterprise agreement by demonstrating that he, and several other employees, were not better off under the enterprise agreement as they worked almost exclusively those hours for which the agreement provided below-award penalty rates.

Since then, the Commission has been in something of a tailspin trying to determine the appropriate, practical way to assess agreements with loaded rates against the better off overall test, and exactly how wide-ranging the Commission’s considerations need to be in order to approve an agreement.

The decision

The decision affirms the Commission’s highly theoretical and mathematical approach to the better off overall test, and in so doing places a significant onus on those seeking the approval of enterprise agreements to show that the agreement passed this test.

Noting that the Commission is required to consider not only existing, but prospective employees, when applying the better off overall test, the Full Bench confirmed that the Commission must consider each and every possible pattern of work allowed for under the enterprise agreement.

The mere fact that the employer does not presently, and does not intend to, utilise a particular pattern of work is immaterial.

The only reason the Commission ought not to consider a particular pattern of work for the purposes of the better off overall test, the Full Bench opined, was if there was objective evidence to demonstrate that the particular pattern of work was impractical, unworkable, or otherwise highly unlikely to be utilised.

Evidence that the business has operated in a particular fashion for an extended period of time is likely to favour an argument that any change to this pattern of work is unlikely, and consequently this decision favours larger, more developed businesses.

The Full Bench went on to note that if any of the possible scenarios possible under the proposed agreement is not explored in the statutory declaration in support of the agreement itself, the Commission would be bound to request or require that additional information to be provided. As such, those seeking the approval of an enterprise agreement (usually the employer) will need to expand the contents of their statutory declarations to traverse all possible scenarios.

The principles in action

As an example of this process, three of the agreements considered (and dismissed) by the Full Bench in this case were to be assessed against the Security Services Award 2010.

In making its assessment, the Full Bench identified 18 possible rostering scenarios against which to assess the agreements, but noted that many more variations were possible.

The Full Bench found that casual employees who were not assigned a specific work pattern were not better off overall under any of these agreements, resulting in the applications for approval being dismissed.

The remaining two agreements under consideration – for two separate Aldi stores, and therefore compared against the General Retail Award 2010 – are yet to be decided, as the Full Bench determined that more evidence was needed before a final determination on these could be considered.

These principles have already been put into practice by the Commission, with the same Full Bench granting an appeal by the CFMMEU to overturn the approval of an enterprise agreement. In so doing, the Full Bench held that the Commissioner at first instance could not ignore a scenario posited by the CFMMEU as not passing the better off overall test simply because the current nature of the employer’s industry meant that the scenario was not likely to occur (CFMMEU v Allstyle Concrete [2018] FWCFB 3823).

What this means for bargaining in the future

What this case demonstrates is that the duty imposed in the Fair Work Commission by the Fair Work Act 2009 with respect to enterprise agreements probably needs revising.

The Full Bench focussed much on the requirement for the Commission to be satisfied not only that each current employee, but also each possible future employee, was better off overall under a proposed agreement.

With this in mind, the Commission considers as its duty to consider all possibilities that may arise under the terms of an agreement, and to only disregard particular scenarios if objective evidence shows that scenario’s impracticality or unlikelihood.

For those seeking the approval of enterprise agreements, this means that you will need to determine, and conduct a calculated assessment of, any and all possible working patterns which may arise under your enterprise agreement, not just the working patterns that you intend to use.

If you want to minimise the amount of time and effort this will take, you may wish to consider including terms in your agreement which limit the manner in which employees may be rostered. Although providing less flexibility in rostering, it may allow for an easier ride through the Commission and into reality.

Additionally, the case demonstrates the need for employer’s to carefully identify terms in enterprise agreements which are more and less beneficial to an employee than under the relevant award and ensure this is articulated in an employer’s statutory declaration in support of an application for approval of an enterprise agreement.

Employers ought to understand that the better off overall assessment will essentially be a mathematical one, made more complex where the agreement contains non-monetary, optional or contingent entitlements. Where a loaded rates agreement results in significant financial detriment for existing or prospective employees compared to the relevant award, a non-monetary, optional or contingent entitlement under the agreement will unlikely compensate for any detriment.

Enterprise bargaining and the interpretation of enterprise agreements is increasingly complex. NRA Legal has significant capability and expertise in enterprise bargaining and related matters. Please phone 1800 RETAIL (738 245) to speak with one of our advisors.  

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