When can you terminate an enterprise agreement?

While an enterprise agreement may be seen as fairly concrete, there are certain circumstances whereby a court will allow their termination. 

This area was brought to light recently with Griffin Coal where the Fair Work Commission (FWC) upheld an earlier decision to allow the termination of one of their enterprise agreements.

The decision made media headlines as it cut salaries of the mine’s maintenance workers by 43%. Griffin argued that termination was necessary due to the firm's present financial position – with trading losses of almost $300 million since 2011.

Before a firm can terminate one of its enterprise agreements, the FWC will apply both the public interest and the appropriateness test.
 
HC talked to Marie-Claire Foley, partner in Ashurst’s national employment group in Perth, about how these tests determine the fate of any enterprise agreement.
 
“The public interest test is quite well established,” she said. “It means things that affect the public as a whole such as the achievement of the various objects of the Act, employment levels, inflation, or the maintenance of industrial standards.”
 
In the Griffin case, public interest included the flexibility of the business, promotion of productivity, and economic growth, she said. The Commissioner balanced these broader community interests with the potential for operational growth and the extent to which increased productivity could facilitate job retention and expansion.
 
“The appropriateness test is probably easier to understand because the Act sets out the factors that are to be considered.” Foley told HC. “Then it’s really just a question of how you weigh up all the points when applying these factors.”
 
While public interest is about broader aspects, appropriateness looks at competing interests of the employer, employees, and unions.
 
However, there can be some overlap, she added.
 
“Sometimes the same element can be a public interest factor and it can be an appropriateness factor. We can’t take one particular item and fit it in either box because it might be relevant to both.”
 
A reduction in pay is one example of this overlap, Foley said. On one hand, it can enable a business to become more productive which benefits the community. However it also affects employees and so the appropriateness of the action will also be taken into account.
 
In order to explain the mechanisms behind these tests, Foley highlighted a couple of past examples.
 
One major case occured in 2015 when the FWC terminated the Aurizon enterprise agreement, she said.
 
“Aurizon applied to terminate a number of enterprise agreements that included terms and conditions described as ‘legacy provisions’. These had applied while the company was under government ownership,” she said.
 
The company said that these provisions were outmoded, complex and restrictive – that it was burdened with terms and conditions that the unions would not negotiate on.
 
In this case, the FWC decided to permit the termination as it was not against public interest to do so with an agreement containing such unusual provisions.
 
In another case in April this year, the FWC rejected Boom Logistics’ request to terminate its enterprise agreement. Although the firm claimed the agreement was a relic of a past created in the mining boom time, the Commission determined it wasn’t appropriate to terminate the agreement because it didn’t satisfy either test, said Foley.
 
“It wasn’t appropriate to terminate the agreement because what it would be doing was giving Boom Logistics a competitive advantage by reducing pay and conditions,” she said.
 
“If you go to the Commission to reduce pay and conditions but you can’t demonstrate anything more than that, the Commission may not terminate the agreement.”