Workforce compliance

7 reasons why Enterprise Agreements are so complex

7 reasons why Enterprise Agreements are so complex
Courtney Ford
By
Courtney Ford
30
minute read
July 2, 2024
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Navigating the world of enterprise agreements (EAs) can often feel like a daunting journey through a maze of legal jargon, intricate clauses, and multifaceted stipulations. These agreements, essential for defining the terms of employment between organisations and their employees, are notorious for their complexity.  

But why is this the case? The Yellow Canary team recently sat down with Brad Popple, Partner at Kingston Reid (Australia’s largest specialist employment law firm) to find out.

In this blog, we summarise Brad’s expert views on the seven key reasons why EAs are so complex, shedding light on the various factors that contribute.

Reason 1: History

Brad explained how Australia’s colourful history of industrial laws  evolved into our current contemporary framework that still poses significant challenges to businesses and employees today, even though:

  • from 2010 the Fair Work regime streamlined the ‘old’ system, and replaced thousands of pre-reform awards with just 122 modern awards; and
  • EAs need to be approved by the Fair Work Commission to ensure they meet legal standards and don’t undercut “safety net” conditions.

Reason 2: EAs are negotiated at the enterprise level

Enterprise bargaining is intended to allow businesses to create an industrial instrument ‘tailored’ to their enterprises (rather than operating under an award made by the Fair Work Commission). However, this process often means that complex and bespoke documents with legal force are being prepared by individuals with limited legal or contract-drafting experience. Unsurprisingly, this can result in EAs that are internally ambiguous, inconsistent and hard to understand.

Reason 3: The statutory scheme leads to more complex provisions over time

EAs continue in force beyond their (nominal) expiry dates, meaning their terms continue in perpetuity unless renegotiated or terminated (which is reasonably uncommon).

Any changes to EAs require majority employee approval, which means minimal alterations are made to existing EAs to avoid ‘regressive’ terms. Rather than becoming easier to read and apply in real life, EAs instead tend to ‘accumulate complex provisions over time’.

Reason 4: Practical challenges

The negotiation process for EAs can be intense, particularly at the back end – involving late nights, little sleep, and last-minute deals between parties. Payroll is rarely involved directly within the negotiation process itself. Among other things, this means that parties may not consider whether certain clauses are able to be practically implemented within a business’s payroll or administrative systems. This can lead to difficulties in understanding, let alone executing, the overall terms of an EA once it is approved.  

Reason 5: Clauses carry baggage

Where ambiguous clauses make their way into EAs, interpreting them can be tricky. Their interpretation will often require a thorough examination of the clause’s history, precise industrial context, and evolution through bargaining (sometimes over multiple decades). This takes time, resources, and there remains some risk that your interpretation will be different from that of a Commission or court.

Reason 6: Structural and cultural issues

Enterprise bargaining is drawn-out and taxing on participants. Once it’s over, there is little appetite to attempt to proactively ‘fix’ any EA issues identified. Parties might intend to address issues ‘as part of the next negotiation cycle’, but that rarely occurs in practice as stated in reason 3 above.

In addition, union officials may resist changes due to skepticism and the benefits of ambiguity, which provides a platform for disputes and union visibility within workplaces.

Reason 7: Reforms do not always have the intended impact

Reforms aimed at simplifying the enterprise bargaining framework do not always have their intended effect.

For example, recent reforms have limited the Fair Work Commission’s ability to determine the outcome of thorny bargaining disputes through arbitration, by decreeing that every (individual) term of an arbitrated outcome cannot be less favourable than what it is replacing.

The practical outcome of this is to further limit the ability of employers (and the Commission) to simplify their EAs – no matter how strong the case for change might be.

Reducing complexities of modern awards and EAs with Yellow Canary

Yellow Canary empowers large Australian employers to enhance compliance with complex modern awards and EAs through automation.  

Our Always on Compliance (AOC) platform automates monthly reviews, comparing what employees were paid to what they should have been paid, according to the employee’s modern award or EA.

Where modern awards and EAs are complex, Yellow Canary helps employers in fulfilling their obligations to employees while averting the substantial penalties associated with inadvertent underpayments.

* Yellow Canary content on this website is intended solely for the purpose of offering commentary and general knowledge. The content is not intended to constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the content.

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1 For those history buffs amongstus, here is the high-level colourful history:

  • The modern award framework in Australia traces itsorigins to the Conciliation and Arbitration Act 1904 and theConciliation and Arbitration Commission, which relied on a narrowconstitutional authority that, despite its limitations, did empower thefederal government to arbitrate industrial disputes across state lines.
  • The modern award framework in Australia traces itsorigins to the Conciliation and Arbitration Act 1904 and theConciliation and Arbitration Commission, which relied on a narrowconstitutional authority that, despite its limitations, did empower thefederal government to arbitrate industrial disputes across state lines.
  • This led to a situation where unions would createindustrial disputes across state borders such that the federal industrialdispute resolution power was invoked– i.e. by advancing claims on employers indifferent states.
  • The resolution of these disputes was achieved by theCommission making orders about the terms and conditions that should apply.These orders were called “awards”. The legislative scheme changed over thecourse of the 20th century up, and by the mid-1990s, thousands of theseawards existed. This was of course a complex framework for employers tonavigate. 
  • By the mid-1990s, the constitutional basis for federalindustrial relations laws shifted to broader constitutional heads of power, andthere were new introductions like the enterprise bargaining process. Despitethese changes, thousands of awards remained in place.
  • The Fair Work regime aimed to streamline Australia’sIR system, merging thousands of awards into a more manageable framework via theaward modernisation process. This resulted in approximately 122 modern awardscurrently in use. 
  • More recently, efforts to redraft the awards,particularly in 2020, aimed to clarify language in modern awards while avoidingaltering the original meaning. However, in some instances this led toadditional ambiguity, further complicating the interpretation of modern awards. 
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