Zombie Agreements – 3 Tips for Employers

Zombie Enterprise Agreements are industrial instruments which have passed their nominal expiry date but have not been terminated or replaced by another agreement.

Our 3 Top Tips:

Tip 1 – Review pay arrangements of your enterprise agreements

Tip 2 – If the enterprise agreement is expired take active steps to mitigate the risk of it being terminated

Tip 3 – If a “zombie agreement” is in place obtain legaladvice as to whether the BOOT test is still being passed

How do Zombie Enterprise Agreements work?

In practical terms, these agreements can continue to govern the terms and conditions of employees because section 59 of the Fair Work Act 2009 (Cth) specifies a modern award does not apply to an employee if an enterprise agreement applies (ie there is no ‘double’ coverage).  An enterprise agreement will continue to have its full legal effect after its nominal expiry date, despite its pay rates falling below award rates.  The nominal expiry date is merely a ‘trigger’ for further action such as the commencement of bargaining by a union party or applications for bargaining orders (which require an employer to bargaining in good faith).  For example where an enterprise agreement was approved in 2008 for a four year term and then nominally expired in 2012, an employee who is employed in 2017 who is covered by  the expired agreement, will continue to be paid at the rates prescribed by the expired agreement.

What are the pitfalls of Zombie Agreements?

These so called “Zombie” enterprise agreements may have passed the Better Off Overall Test (BOOT) (undertaken when the Fair Work Commission assesses whether to approve or not approve an enterprise agreement) at the time of approval but may no longer be more beneficial than the underpinning award. 

While an employer may be legally entitled to pay their employees under zombie agreements and may seem on the one hand to make commercial sense by placing the company in a seemingly unenviable competitive position, this short term view does not account for the significant reputational damage such arrangements can create if an employer is found to be relying on them.  It may lead to increased scrutiny from employee unions going forward and an inability for an employer to meet increased costs (due to sudden changes to pay rates).

What are the potential consequences?

If an employer, an employee or a Union makes application on behalf of employees to terminate an expired agreement and the Fair Work Commission subsequently terminates the agreement, employers will be required to pay their employees, (at least from the date the expired agreement is terminated), the applicable modern award rate.   This will often require a significant review and update of how an employer’s workforce is paid. 

The case of NoniB and the Merivale Group demonstrates this point, where the Fair Work Commission ordered agreements that had been in place since 2011 and 2007 respectively, to be terminated.   The businesses were therefore required to immediately update and organise its payroll processes to ensure their workforce was now paid at least the minimum rates prescribed by the relevant award and attracted negative publicity against the organisations as a result. 

Lessons for Employers

If you have a zombie agreement that still applies to your workplace, it is time to review your payment arrangements and obtain advice on the best way forward.  Proactively taking steps to transition out of an expired agreement avoids the situation where employers are required to transition abruptly.     An enterprise agreement will specify its nominated expiry date (we suggest diarising this date) although negotiations with unions can occur in advance of expiry.

As the lawyers for employers, we assist employers in “zombie agreements” and have a plethora of experience helping clients mitigate legal risks and liability. Should you require assistance please contact us to arrange an obligation free consultation on +61 (07) 3876 5111

Written By

Jonathan Mamaril

Principal

NB Lawyers – Lawyers for Employers

jonathanm@nb-lawyers.com.au

+61 (07) 3876 5111

Assisted By

Dan Chen

NB Lawyers – Lawyers for Employers

danc@nb-lawyers.com.au  

+61 (07) 3876 5111

About the Authors

Jonathan Mamaril leads a team of handpicked experts in the areas of employment law and commercial law at NB Lawyers – Lawyers for Employers who focus on educating clients to avoid headaches, provide advice on issues before they fester and when action needs to be taken and there is a problem mitigate risk and liability. With a core value of helping first and providing practical advice, Jonathan is a sought after advisor to a number of Employers and as a speaker for forums and seminars where his expertise is invaluable as a leader in this area as a lawyer for employers.

Dan Chen is a lawyer at NB Lawyers – Lawyers for Employers, and specialises in employment law. Dan is passionate about assisting business owners, small and large understand their obligations under Australia’s complex workplace relations system

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